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CRS_R45927

T his report examines technological innovation in payment systems generally and particular policy issues as a result of retail (i.e., point of sale) payment innovation. The report also discusses wholesale payment, clearing, and settlement systems that send payment messages between banks and transfer funds, including the "real-time payments" service being introduced by the Federal Reserve. This report includes an Appendix that describes interbank payment, clearing, and settlement systems related to U.S. payments. Background on Payments The U.S. financial system processes millions of transactions each day to facilitate purchases and payments. In general terms, a payment system consists of the means for transferring money between suppliers and users of funds through the use of cash substitutes, such as checks, drafts, and electronic funds transfers. The Committee on Payment and Settlement Systems (CPSS), consisting of representatives from several international regulatory authorities, has developed generally accepted definitions of standard payment system terminology. As defined by the CPSS, a payment system is a system that consists of a set of instruments, banking procedures, and, typically, interbank funds transfer systems that ensure the circulation of money. These systems allow for the processing and completion of financial transactions. From the typical consumer's perspective, making a payment is simple. A person swipes a card, clicks a button, or taps a mobile device and the payment is approved within seconds. However, the infrastructure and technology underlying the payment systems are substantial and complex. To simplify, a payment system has three parts (see Figure 1 ). First, the sender (i.e., the person making the payment) initiates the payment through an end-user service , such as an online payment service or mobile app, instructing the payer's bank to make a payment to the recipient. The payer and recipient interact only with end-user services, which comprise the "retail" portion of payments. Second, the payer's bank sends a payment message containing payment details to the recipient's bank through a payment system (sometimes called a clearing service ). Third, the payment is completed (or settled) when the two banks transfer funds through a settlement system. Different systems can perform each of these parts, and systems' developers and operators compete with each other to provide payment and settlement services to consumers, businesses, and banks. These final two inter-bank steps are the "wholesale" portion of payments. End-user services, which are operated by the private sector, facilitate a consumer's ability to purchase goods and services, pay bills, obtain cash through withdrawals and advances, and make person-to-person payments. Retail payments tend to generate a large number of transactions that have relatively small value per transaction. Retail payment services can be accessed through many consumer financial products, including credit and debit cards and checking accounts. The most common methods of payment are debit cards, cash, credit cards, direct debits and credits via an automated clearing house (ACH), checks, and prepaid debit cards (see Figure 2 ). In the United States, the Federal Reserve (Fed) operates some of the key bank-to-bank payment, clearing, and settlement (PCS) systems that process retail or wholesale transactions, and private-sector organizations operate other systems that clear and settle bank-to-bank payment, including those described in the Appendix . Payment Systems and Financial Technology Technological advances in digitization and data processing and storage have greatly increased the availability and convenience of electronic payments. In recent years, the use of electronic payments has risen rapidly, whereas the use of cash and checks has declined (see Figure 2 ). According the Federal Reserve's most recent triennial payment study (released in 2016), the number of transactions of three electronic payment methods—debit card, credit card, and ACH—grew at annual rates of 7.1%, 8.0%, and 4.9%, respectively. Together, they totaled more than 144 billion transactions with a value of almost $178 trillion in 2015. Meanwhile, check payments declined by an annual rate of 4.4% during that period, and totaled 17.3 billion transactions worth almost $27 trillion in 2015. Less data are available on cash usage and the value of cash transaction in part because they are person-to-person and do not involve a digital record, but a Fed survey estimates that between 2012 and 2015, the share of transactions made in cash fell from 40.7% of all transactions to 32.5%. This trend is probably due, at least in part, to various new technological products and services that offer fast, convenient payments for individuals and businesses. Payment apps linked to bank accounts and payment cards can be downloaded onto mobile devices that allow individuals to send payments to each other or to merchants. These services include Venmo (owned by PayPal), Zelle (owned by a consortium of large U.S. banks), and Cash App (owned by Square). Other companies provide hardware and software products that allow individuals and small businesses to accept debit and credit card payments, online or in person. These companies include PayPal, Square, and Stripe. Another advance in payments is allowing consumers to make payments using a mobile device, wherein debit card, credit card, or bank account information is stored in a "digital wallet" and sensitive information is protected by transmitting surrogate data (a process called tokenization ) at the point of sale. This service includes Apple Pay, Google Pay, and Samsung Pay. These services are generally layered on top of traditional electronic payment systems. To use these services, the consumer or business often must link them to a bank account, debit card, or credit card. The payments are still ultimately settled when the money from the payer's account is deposited in the recipient's account. An exception are payments made by cryptocurrencies, discussed in the text box. Faster Retail Payments: Policy Issues Although faster and potentially less costly payment systems benefit consumers and businesses, the use of new technology in existing and new payment systems raise questions about whether existing regulation adequately addresses issues related to cybersecurity and data privacy, industry competition, and consumer access and protection. Regulatory Framework How payments are federally regulated depends, in part, on whether they are being provided by banks. Banks are subject to a variety of prudential regulation, enforcement, and supervision by federal bank regulators. Nonbank payment processors are subject to similar regulation and supervision (but not enforcement) by bank regulators if they are a service provider to a bank, but otherwise are not. Nonbank companies that do not provide services to banks may be regulated as money transmitters at the state level by state agencies and as money service businesses at the federal level by the Department of the Treasury's Financial Crimes Enforcement Network and subject to applicable laws and regulations. These services are subject to federal consumer protection regulation under the Electronic Fund Transfer Act ( P.L. 95-630 ); anti-money laundering requirements under the Bank Secrecy Act (P.L. 91-508); and various state licensing, safety and soundness, anti-money laundering, and consumer protection requirements. A broad issue that permeates many of the specific issues examined in this report is the debate over whether the various companies providing retail payment services are effectively and efficiently regulated. Nonbank money transmission is largely regulated at the state level. Some observers have argued that this state-by-state regulatory regime, designed to protect against risks presented by traditional money transmitters such as Western Union, is overly onerous and ill-suited when applied to new, technology-focused payment companies. State regulators assert they are best positioned to regulate these companies, noting their experience and recent efforts to coordinate and streamline state regulation. A greater federal role in payment regulation could impose more or less stringent standards (with federal preemption of state regulation, in the latter case) than any given state's current standards. One potential solution for concerns that the current system is too fragmented and overly burdensome could be to allow certain nonbank payment companies to enter the bank regulatory regime. Two potential mechanisms are under consideration that could allow a technology-focused payment company to be federally regulated—the Office of the Comptroller of the Currency (OCC) special purpose national bank charter and a state-level industrial loan company (ILC) charter with Federal Deposit Insurance Corporation (FDIC) insurance. Both could be particularly desirable for payment firms if they provide an avenue to directly access Fed wholesale payment systems. However, both mechanisms are controversial and subject to contentious debate. The OCC and proponents of the special purpose charter generally view the charter as a way to free companies from what they assert is the unnecessarily onerous regulatory burden of being subject to numerous state regulatory regimes while not overly relaxing regulations—under the special purpose charter, the companies would become subject to the OCC's national bank regulatory regime. Opponents generally assert that the OCC does not have the authority to charter these types of companies and that doing so would inappropriately allow fintech firms offering fast payment services to circumvent important state-level consumer protections. State regulators have filed lawsuits to block the granting of such charters. To date, no companies have applied for such a charter, although ongoing legal uncertainty is likely a discouraging factor. ILC charters are controversial because they allow commercial firms—such as retailers, manufacturers, or technology companies—to own banks. The United States has historically adopted policies to separate commerce and banking, and the FDIC has not approved deposit insurance for a new ILC since 2006. Opponents of ILC charters argue that by creating an avenue for a commercial firm to own a depository institution, they blur the line between commerce and banking, exposing the U.S. economy to related risks such as creating possible incentives for imprudent underwriting, inappropriately exposing taxpayers to losses through federal deposit insurance, and leading to entities that can exercise market power. Proponents of ILC charters assert these concerns are overstated. They cite the potential benefits of mixed arrangement (e.g., economies of scale, risk diversification, information efficiencies, customer convenience and savings) and note that certain other stable developed countries allow more blending of banking and commerce than the United States with, they argue, no or little ill effect. Recently, three fintech companies submitted applications to the FDIC for ILC deposit insurance. Two companies, however, have since withdrawn their applications, and the company with a pending application, Square, is a payment system provider. Cybersecurity All payment methods expose users to some risks, including money theft or fraudulent payments made using their accounts or identities. In general, improving technology reduces one type of risk but may expose users to new risks. For example, if a pickpocket steals a person's cash, the victim has little recourse. If instead, the pickpocket steals a payment card, the victim can cancel the card and generally would not be held liable for fraudulent purchases. However, identity thieves can steal card information using card reader skimmers, allowing thieves to open and use lines of credit in victims' names without their knowledge. Similarly, new payment technologies reduce certain risks but create others. For example, digital wallets on mobile devices can eliminate the need to carry physical cards that can be lost or stolen and can protect sensitive information at the point of sale through tokenization. However, the device itself can be compromised by software designed to gain unauthorized access to devices, called malware, which may lead to fraudulent charges. In addition, storing payment information on multiple websites, apps, and devices creates more opportunities for hackers to steal it than if the information existed only on the card itself. Recent breaches at various financial and nonfinancial companies in which people's sensitive information were compromised illustrate the potential risk and have raised questions over whether policymakers should implement stricter cybersecurity requirements. Some possible policy responses include enacting a federal breach notification law, creating federal cybersecurity standards, or increasing federal authority to penalize companies that fail to adequately protect consumer data. Data Privacy Payment systems necessarily collect detailed consumer information on transactions, including the retail stores a consumer shops at, the businesses and individuals the consumer pays, and the dates, times, and amounts of each transaction. Through analysis, this data have the potential to reveal a lot of information about individual consumers, including where they live and their gender, age, race, ethnicity, and approximate income. Such data are valuable from a business perspective; for example, for targeting product marketing to consumers. In addition, scammers could use this data to facilitate fraud. Electronic payments have resulted in a proliferation in the availability and use of personal information, which has raised policy concerns about how companies use the data, whether consumers understand how their data will be used, and whether consumers should have more control over its use. Payment data has the potential to improve consumer outcomes. For example, personal financial management apps or other digital tools could help consumers more easily track payments, automate saving and budgeting, and more efficiently shop for financial products that meet their personal needs. Consumers could also in the future share this data with financial institutions to apply for loans or other banking products. Given these benefits, as well as possible privacy concerns, the question becomes how much access should companies have to individuals' information. Privacy policy disclosures to consumers is another important element of privacy policy that might be more difficult as payments become faster using new technology. For example, according to the Bureau of Consumer Financial Protection (CFPB), stakeholders suggest that "providing disclosures that are clear and sufficient for consumers to make informed decisions is difficult" in the mobile environment due to small screens, which may make it difficult to read long, technical disclosure documents. These stakeholders indicate that clear privacy policies and more consumer control over the use of consumer data may be important considerations in this new digital environment. Consumer Protection When developing a new or faster retail payment system, consumer protection is an important consideration. Although new technology offers consumers many potential benefits, it raises issues of concern, such as consumer liability for fraudulent payment and consumer error or nonreceipt of goods resolution. The Electronic Fund Transfer Act, currently implemented by the CFPB through Regulation E, is the most relevant consumer protection law applying to financial payments. Regulation E protects individual consumers who engage in electronic fund transfers. It mandates consumer disclosures, limits consumer liability for unauthorized transfers, and maintains procedures for resolving errors. Other regulations may also be relevant to a new faster payment system, depending on its structure. For example, the Expedited Funds Availability Act ( P.L. 100-86 ), currently implemented by the Federal Reserve as Regulation CC, prescribes how quickly banks must make funds available to customers. When developing a new faster payment system, Congress and federal regulators may consider how a new system should comply with relevant regulations, such as Regulation E. Depending on the structure of the new system, regulators might decide to update these regulations to tailor them as appropriate. For example, current consumer protection rules might not cover all aspects of the system, leaving consumers at risk of financial loss, without clear recourse for some payment-related disputes, or other negative impacts. In this spirit, in 2015, the CFPB released nine consumer protection principles for new faster payments systems, including consumer control over payments, fraud and error resolution protections, and disclosed and clear costs. The CFPB has not acted on these principles through rulemaking or other initiatives since their release in 2015. Financial education might be another consumer protection policy option. As new technology is introduced into financial products, consumers may need to learn new skills, sometimes referred to as digital financial literacy , which includes "knowing how to use devices to safely access financial products and services via digital channels in ways that help consumers achieve their financial goals, protect against financial harm and enhance ability to know where to get help." This type of financial education might be particularly important to ensure that lower-income and older consumers are included in a new faster payment system. Financial Access and Underserved Groups Innovations in the payment system may benefit some consumers and fail to reach others. New retail payment options that are linked to bank accounts, internet-based, or require mobile devices could disadvantage consumers who rely on cash payments, do not have easy internet or mobile access, or do not feel comfortable using this new technology. As long as payments remain based on the banking system, the unbanked and underbanked may encounter participation limits to faster payments. In contrast, innovation in technology may help marginalized groups gain access to the financial system. The ability to access digital channels using cash may be particularly important for including underserved consumers, leading to the development of new payment products—such as pre-paid cards and services—that allow cash to be placed in an account that can be used to make online payments. The cost of internet and mobile data plans might limit the ability of underserved consumers to access a faster payment system that is internet- or mobile-based. However, as internet access and mobile devices continue to proliferate and decline in cost, barriers to accessing those technologies may decline. For example, most consumers, including unbanked and underbanked consumers, have access to mobile phones and smartphones, and the use of these technologies is growing. According to a national survey, in 2017, 83% of underbanked and 50% of unbanked consumers had access to a smart phone. The survey noted that underbanked consumers were more likely to use mobile banking services than the rest of the U.S. population. A faster payment system may provide certain other benefits besides access for low-income or liquidity-constrained consumers (colloquially, those living "paycheck to paycheck") who may more often need access to their funds quickly. In particular, many lower-income consumers say that they use alternative financial services, such as check cashing services and payday loans, because they need immediate access to funds. Faster payments may also help some consumers avoid checking account overdraft fees. Note, however, that some payments that households make would also be cleared faster—debiting their accounts more quickly— than the current system, which could be harmful to some underserved households. Market Concentration Traditional payment systems generally are characterized by strong economies of scale and are subject to network effects , wherein the more widespread a payment method's use and acceptance becomes the more incentive additional consumers and businesses have to adopt it. These economic characteristics may mean payment industries naturally become highly concentrated, because a small number of widely used systems are more efficient than many narrowly used systems. For instance, established payment systems currently have high market concentrations. Debit card payment processing networks are dominated by Visa and Mastercard, and credit card processing networks are mostly operated by Visa, Mastercard, American Express, and Discover. Some observers are concerned that market concentration will also be a feature in new payment systems. Others argue that new payment systems based on the internet may avoid similar concentration observed in traditional systems, because they do not require new entrants to make large initial investments in infrastructure. To date, the entry of multiple new services and companies into the market for end-user payment systems has supported competition and consumer choice. Whether the industry will eventually consolidate remains to be seen. Creating additional concentration concerns is the entrance of some of the largest global technology companies into the payment industry, including U.S. companies such as Google (Google Pay), Apple (Apple Pay), Amazon (Amazon Pay) and Facebook (Facebook Pay and the Libra proposal). Such companies already have large market shares in various technology-related industries and collect huge amounts of consumer data, which could increase as they now seek to expand their scope into the payment industry. Were they to dominate electronic payments, it could pose competition concerns in the payment industry, as well as increase their dominance in their core industries. In addition, these developments raise concerns discussed above (see the " Regulatory Framework " section), relating to the implications of mixing commerce with what has traditionally been a core banking activity. Wholesale Payment Systems and Real-Time Payments Payments between two parties who are both members of the same end-user service—a closed loop paymen t —can occur in real time because the service can instantly communicate between the two parties, verifying that the payer has sufficient funds in the account to make the payment. However, a payment in which one party is outside of a single end-user service typically travels through the banking system, and thus cannot occur in real time unless real-time messaging, clearing, and settlement of the payment is available through wholesale payment systems. For example, a debit or credit card payment to a merchant needs to transfer funds from the sender's bank (in the case of a credit card, the card-issuing bank) and send them to the recipient's bank. Real-time payment can only occur in this scenario if settlement occurs in real-time or if payment occurs before settlement (putting the recipient's bank at risk that the transfer never occurs). Even within an end-user service that would provide real-time payment, if the transfer were made between two members entirely using existing balances within the service, delivery of funds could be delayed if the payer needs to add funds to their account to make payment (via direct debit or credit card transfer, for example) or if the recipient wishes to withdraw funds from the payment service to deposit in its bank account. Thus, the speed of many existing end-user services are ultimately limited by what happens with wholesale payment systems. On August 5, 2019, the Fed announced plans to create a wholesale real-time payment (RTP) system. This section discusses the history of the Fed's role in the payment system; compares recent RTP initiatives by the Fed, the private sector, and abroad; and analyzes policy issues raised by these initiatives. History of the Fed's Role in the Payment System The Fed was originally created as a "banker's bank" to improve the functioning of a national banking system that was dominated at the time by small, local banks. To that end, providing bank-to-bank check-clearing services was one of the Fed's original, primary functions. Problems with private clearinghouses were one of the central issues in the financial panic that led to the Fed's creation. As other payment methods have emerged over time, the Fed has also provided other types of bank-to-bank payment and settlement systems. The Fed provides these services by linking the accounts that all banks maintain at the Fed to comply with reserve requirements. Throughout the Fed's history, the private sector has operated competing payment and settlement systems that the Fed has regulated (see Appendix for more details). For example, the Fed and the private-sector Electronic Payments Network (owned by The Clearing House , an association of large banks ) currently operate competing automated clearinghouse (ACH) systems, which are payment systems that allow banks (and certain other financial institutions) to send direct debit and credit messages that initiate fund transfers. The Fed also operates two wholesale settlement systems for payments, Fedwire Funds Service and the National Settlement Service. The Clearing House Interbank Payment System (CHIPS) is a competing private-sector gross settlement system. (The Fed does not operate any end-user service directly accessed by individuals or nonfinancial businesses.) Real-Time Payments Initiatives A typical bank-to-bank electronic payment is currently settled on the same or next business day. The Fed plans to introduce an RTP system called FedNow in 2023 or 2024. FedNow would be "a new interbank 24x7x365 real-time gross settlement service with integrated clearing functionality to support faster payments in the United States," that "would process individual payments within seconds ... (and) would incorporate clearing functionality with messages containing information required to complete end-to-end payments, such as account information for the sender and receiver, in addition to interbank settlement information." According to the Fed, FedNow will be available to all banks with a reserve account at the Fed. It will require banks using FedNow to make funds transferred over it available to their customers immediately after being notified of settlement. In a November 2018 proposal, the Fed also sought comment on the possibility of the Fed creating "a liquidity management tool that would enable transfers between Federal Reserve accounts on a 24x7x365 basis to support services for real-time interbank settlement of faster payments, whether those services are provided by the private sector or Federal Reserve Banks." The purpose of this tool would be to accommodate the need for banks to move funds between their accounts at the Fed continuously, including outside of business hours in real-time settlement. In the August notice, the Fed stated it was exploring whether this goal could be accomplished by expanding Fedwire Funds Service and the National Settlement Service to permit 24x7x365 real-time gross settlement. Previously, the Fed proposed expanding same-day payment settlements on Fedwire and the National Settlement Service. Several private-sector initiatives are also underway to implement faster payments, some of which would make funds available to the recipient in real time (with deferred settlement) and some of which would provide real-time settlement. Notably, the Clearing House introduced its RTP network (with real-time settlement) in November 2017; according to the Clearing House, it currently "reaches 50% of U.S. transaction accounts, and is on track to reach nearly all U.S. accounts in the next several years." In addition, both the Fed and private-sector companies can set joint standards, rules, and a governance framework to facilitate the adoption of faster payments, whether those systems are operated by the Fed or the private sector, and promote interoperability between systems. The Fed convened the Faster Payments Task Force, composed of more than 300 stakeholders, which has issued a number of recommendations to facilitate the adoption of faster payments. Policy Issues Other countries have already introduced or are in the process of introducing RTP. According to Fed Chair Jerome Powell, "the United States is far behind other countries in terms of having real-time payments available to the general public." Businesses and consumers would benefit from the ability to receive funds more quickly, particularly as a greater share of payments are made online or using mobile technology. Some have argued that RTP would be especially beneficial to low-income, liquidity-constrained individuals as described in the " Financial Access " section above. The main policy issue regarding the Federal Reserve and RTP is whether Fed entry in this market is desirable. The Fed bases decisions on whether to introduce new payment systems or system features on three principles: "The Federal Reserve must expect to achieve full recovery of costs over the long run. The Federal Reserve must expect that its providing the service will yield a clear public benefit, including, for example, promoting the integrity of the payments system, improving the effectiveness of financial markets, reducing the risk associated with payments and securities-transfer services, or improving the efficiency of the payments system. The service should be one that other providers alone cannot be expected to provide with reasonable effectiveness, scope, and equity." Stakeholders are divided over the introduction of FedNow. Some question whether, in light of these principles, the Fed can justify creating a RTP system in the presence of competing private systems. Some fear that FedNow will hold back or crowd out private-sector initiatives already underway and could be a duplicative use of resources. The Treasury Department supports Fed involvement on the grounds that it will help private-sector initiatives at the retail level. Others, including many small banks , fear that aspects of payment and settlement systems exhibit some features of a natural monopoly (because of network effects), and, in the absence of FedNow, private-sector solutions could result in monopoly profits or anticompetitive behavior, to the detriment of financial institutions accessing RTPs and their customers (merchants and consumers). In 2017, the Justice Department sent the Clearing House a letter stating that it did not plan to challenge the Clearing House's RTP system on antitrust grounds, based on the Clearing House's plans at that time. From a societal perspective, it is unclear whether it is optimal to have a single provider or multiple providers in the case of a natural monopoly, particularly when one of those competitors is governmental. Multiple providers could spur competition that might drive down user costs, but more resources are likely to be spent on duplicative infrastructure. RTP competition between the Fed and the private sector also has mixed implications for other policy goals: Innovation. Competition typically fosters innovation, but the Fed's unique cost structure could potentially undermine the private sector's success, limiting the latter's willingness to invest in innovations. Ubiquity. The Fed argues that RTP ubiquity is more likely with its involvement because it has existing relationships with all banks and because no single payment system has ever achieved ubiquity historically. However, the Fed's entry into RTP could delay the achievement of universal RTP in the next few years if banks decide to wait until FedNow is available instead of joining the Clearing House's network. Interoperability. Interoperability (the ability to make payments across different systems) is more difficult to achieve with competing firms, but the Fed argues that if no single RTP system is ubiquitous, the ability of any two given institutions to exchange funds is improved if competing systems increase ubiquity. The ability to make payments across ACH networks is an example of how interoperability has currently been achieved between competing Fed and Clearing House systems. However, the technology involved in RTP may make interoperability more difficult. In its proposal, the Fed did not commit to ensure interoperability, but stated that it was a desirable goal. Equity. The Clearing House has attempted to assuage equity concerns by pledging access to its system on equal terms to all banks, regardless of size, but these terms could change, and small banks have raised concerns that they may since the system is owned by large banks. The Clearing House has pointed to the Fed's volume discounts for existing payment systems as evidence that FedNow may not be equitable, however. Security. Security across competing systems could be difficult to coordinate, but systems might also attempt to compete by providing better security features. The Fed argues that competing RTP systems reduces operational and systemic risks because a system with only one provider has a "single point of failure." Repeated data breaches at large financial institutions also point to the difficulty of monitoring cybersecurity in private systems, although government has also proven to be vulnerable to data breaches as well. The Fed states that "participating banks would continue to serve as a primary line of defense against fraudulent transactions, as they do today ... " under FedNow. The Fed, and by extension the taxpayer, is exposed to default risk because of its provision of intraday and overnight credit (some of which is uncollateralized) when banks use its payment and settlement systems. Currently, when banks use Fed payment and settlement systems, the time lag between payment and settlement can cause mismatches in the amounts due and the amounts available in their accounts. As a result, the Fed extends intraday credit for a fee (if uncollateralized) to avoid settlement failures. Daily overdrafts have been relatively low in recent years, but peaked at $186 billion during the 2007-2009 financial crisis. Introducing real-time payments with deferred settlement could increase the use of intraday credit. The Fed does not state in its final rule whether it expects the level of intraday credit to be affected under FedNow, although it notes that it might need to extend the availability of intraday credit to off-hours. Note that the Fed provides this credit to reduce systemic risk to the banking system, so eliminating intraday credit has the potential to reduce financial stability. Regulation RTPs offered by the private sector could fit into the existing regulatory framework. The Fed already regulates and supervises private payment systems for risk management and transparency, but not pricing. RTP could potentially alleviate some existing risks (e.g., if settlement is in real time, credit risk is reduced for the recipient institution) while posing new risks (e.g., RTP requires more active liquidity management). Any RTP system and regulation would need to account for these changing risks. To address systemic risk concerns, a private RTP system could be designated as a systemically important Financial Market Utility (FMU) under Title VIII of the Dodd-Frank Act ( P.L. 111-203 ). The Dodd-Frank Act allows the Financial Stability Oversight Council , a council of financial regulators led by the Treasury Secretary, to designate a payment, clearing, or settlement system as systemically important on the grounds that "the failure of or a disruption to the functioning of the FMU could create or increase the risk of significant liquidity or credit problems spreading among financial institutions or markets and thereby threaten the stability of the U.S. financial system." FMUs, currently including the Clearing House Interbank Payments System, are subject to heightened regulation, and the Fed has supervisory and enforcement powers to ensure those standards are met. Policymakers could consider whether systemic risk concerns are better addressed through Fed operation of payment and settlement systems or Fed regulation of private systems. Appendix. Selected Interbank Payment, Clearing, and Settlement Systems Involved in U.S. Payments

Technological advances in digitization and data processing and storage have greatly increased the availability and convenience of electronic payments. New products and services offer faster, more convenient payment for individuals and businesses, and the numerous options on offer foster competition and innovation among end-user service providers. Currently, many new payment services are layered on top of existing electronic payment systems, which may limit their speed. Most payments flow through both retail and wholesale payment systems before they are completed. Consumers access retail payment systems to purchase goods and services, pay bills, obtain cash through withdrawals and advances, and make person-to-person transfers. Consumers' financial institutions access wholesale systems to complete the payment. In the United States, systems accessed by consumers are operated by the private sector, whereas systems accessed by banks to complete those transactions are operated by the Federal Reserve (Fed) or the private sector. Regulation of retail payment systems is dispersed across multiple state and federal regulators. For example, payment systems are subject to federal consumer protection regulation under the Electronic Fund Transfer Act ( P.L. 95-630 ), anti-money laundering requirements under the Bank Secrecy Act (P.L. 91-508), and various state licensing, safety and soundness, anti-money laundering, and consumer protection requirements. Private wholesale payment systems are regulated by the Fed, and if they are systemically important, they can be designated as "financial market utilities" and subject to heightened oversight. Although faster and potentially less costly payment systems may benefit consumers and businesses, the use of new technology in existing and new payment systems raise a number of questions for policymakers. Some observers have argued that certain innovative financial technology, or fintech, payment companies would be more effectively regulated through the federal banking regulatory framework, whereas opponents of this idea assert it would result in the preemption of important state-level consumer protections and in an inappropriate combination of banking and commercial activities. The increased prevalence of data generation, collection, and analysis in payment systems has caused observers to question whether existing regulation adequately addresses issues related to data privacy and cybersecurity. Although the traditional high-levels of industry concentration and the recent entry by technology giants have raised concerns over market power and industry competition, competition to date has been robust and certain analysts argue that internet-based payments that do not require a large investment in infrastructure will prevent the market concentration that exists in older payment services. What effect technological innovation in payments will have on consumer access and whether consumers are adequately protected against potential problems, such as fraudulent or erroneous transactions, are also subjects of debate. In August 2019, the Fed announced plans to create an interbank real-time payments (RTP) system by 2023 or 2024. The Fed stated that the new system will be available to all banks with a reserve account at the Fed, and it will require banks using this new system to make those funds available to their customers immediately after being notified of settlement. In addition, several private-sector initiatives are also underway to implement faster payments, some of which would make funds available to the recipient in real time (with deferred settlement) and some of which would provide real-time settlement. Businesses and consumers would benefit from the ability to receive funds more quickly, particularly as a greater share of payments are made online or using mobile technology. The main policy issue regarding the Federal Reserve and RTP is whether Fed entry in this market is desirable, given similar private-sector developments are already underway. There is debate about whether competition from the Fed would be beneficial in terms of cost, efficiency, safety, innovation, ubiquity, and financial stability. In the 116 th Congress, H.R. 3951 and S. 2243 , among other bills, would require the Fed to create a RTP system and would require banks to make payments to account holders in real time.

CRS_R45997

Introduction This report describes the structure, activities, legislative history, and funding history of seven federally-chartered regional commissions and authorities: the Appalachian Regional Commission (ARC); the Delta Regional Authority (DRA); the Denali Commission; the Northern Border Regional Commission (NBRC); the Northern Great Plains Regional Authority (NGPRA); the Southeast Crescent Regional Commission (SCRC); and the Southwest Border Regional Commission (SBRC) ( Table A-1 ). The federal regional commissions are also functioning examples of place-based and intergovernmental approaches to economic development, which receive regular congressional interest. The federal regional commissions and authorities integrate federal and state economic development priorities alongside regional and local considerations ( Figure A-1 ). As federally-chartered agencies created by acts of Congress, the federal regional commissions and authorities depend on congressional appropriations for their activities and administration, and are subject to congressional oversight. Seven federal regional commissions and authorities were authorized by Congress to address instances of major economic distress in certain defined socio-economic regions, with all but one (Alaska's Denali Commission) being multi-state regions ( Figure B-1 ). The first such federal regional commission, the Appalachian Regional Commission, was founded in 1965. The other commissions and authorities may have roots in the intervening decades, but were not founded until 1998 (Denali), 2000 (Delta Regional Authority), and 2002 (the Northern Great Plains Regional Authority). The most recent commissions—Northern Border Regional Commission, Southeast Crescent Regional Commission, and Southwest Border Regional Commission—were authorized in 2008. Four of the seven entities—the Appalachian Regional Commission, the Delta Regional Authority, the Denali Commission, and the Northern Border Regional Commission—are currently active and receive regular annual appropriations. Certain strategic emphases and programs have evolved over time in each of the functioning federal regional commissions and authorities. However, their overarching missions to address economic distress have not changed, and their associated activities have broadly remained consistent to those goals as funding has allowed. In practice, the functioning federal regional commissions and authorities engage in their respective economic development efforts through multiple program areas, which may include, but are not limited to basic infrastructure; energy; ecology/environment and natural resources; workforce/labor; and business development. Appalachian Regional Commission The Appalachian Regional Commission was established in 1965 to address economic distress in the Appalachian region. The ARC's jurisdiction spans 420 counties in Alabama, Georgia, Kentucky, Maryland, Mississippi, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, and West Virginia ( Figure 1 ). The ARC was originally created to address severe economic disparities between Appalachia and that of the broader United States; recently, its mission has grown to include regional competitiveness in a global economic environment. Structure and Activities Commission Structure According to the authorizing legislation, the Appalachian Regional Development Act of 1965, as amended, the ARC is a federally-chartered, regional economic development entity led by a federal co-chair, whose term is open-ended, and the 13 participating state governors, of which one serves as the state co-chair for a term of "at least one year." The federal co-chair is appointed by the President with the advice and consent of the Senate. The authorizing act also allows for the appointment of federal and state alternates to the commission. The ARC is a federal-state partnership, with administrative costs shared equally by the federal government and member states, while economic development activities are funded by congressional appropriations. Regional Development Plan According to authorizing legislation and the ARC code, the ARC's programs abide by a Regional Development Plan (RDP), which includes documents prepared by the states and the commission. The RDP is comprised of the ARC's strategic plan, its bylaws, member state development plans, each participating state's annual strategy statement, the commission's annual program budget, and the commission's internal implementation and performance management guidelines. The RDP integrates local, state, and federal economic development priorities into a common regional agenda. Through state plans and annual work statements, states establish goals, priorities, and agendas for fulfilling them. State planning typically includes consulting with local development districts (LDDs), which are multicounty organizations that are associated with and financially supported by the ARC and advise on local priorities. There are 73 ARC-associated LDDs. They may be conduits for funding for other eligible organizations, and may also themselves be ARC grantees. State and local governments, governmental entities, and nonprofit organizations are eligible for ARC investments, including both federal- and also state-designated tribal entities. Notably, non-federally recognized, state-designated tribal entities are eligible to receive ARC funding, which is an exception to the general rarity of federal funds being available to non-federally recognized tribal entities. ARC's strategic plan is a five-year document, reviewed annually, and revised as necessary. The current strategic plan, adopted in November 2015, prioritizes five investment goals: 1. entrepreneurial and business development; 2. workforce development; 3. infrastructure development; 4. natural and cultural assets; and 5. leadership and community capacity. The ARC's investment activities are divided into 10 program areas: These program areas can be funded through five types of eligible activities: 1. business development and entrepreneurship, through grants to help create and retain jobs in the region, including through targeted loan funds; 2. education and training, for projects that "develop, support, or expand education and training programs"; 3. health care, through funding for "equipment and demonstration projects" and sometimes for facility construction and renovation, including hospital and community health services; 4. physical infrastructure, including funds for basic infrastructure services such as water and sewer facilities, as well as housing and telecommunications; and 5. leadership development and civic capacity, such as community-based strategic plans, training for local leaders, and organizational support. While most funds are used for economic development grants, approximately $50 million is reserved for the Partnerships for Opportunity and Workforce and Economic Revitalization (POWER) Initiative. The POWER Initiative began in 2015 to provide economic development funding for addressing economic and labor dislocations caused by energy transition principally in coal communities in the Appalachian region. Distressed Counties The ARC is statutorily obligated to designate counties according to levels of economic distress. Distress designations influence funding priority and determine grant match requirements. Using an index-based classification system, the ARC compares each county within its jurisdiction with national averages based on three economic indicators: (1) three-year average unemployment rates; (2) per capita market income; and (3) poverty rates. These factors are calculated into a composite index value for each county, which are ranked and sorted into designated distress levels. Each distress level corresponds to a given county's ranking relative to that of the United States as a whole. These designations are defined as follows by the ARC, starting from "worst" distress: distressed counties, or those with values in the "worst" 10% of U.S. counties; at-risk , which rank between worst 10% and 25%; transitional , which rank between worst 25% and best 25%; competitive , which rank between "best" 25% and best 10%; and attainment , or those which rank in the best 10%. The designated level of distress is statutorily tied to allowable funding levels by the ARC (funding allowance), the balance of which must be met through grant matches from other funding sources (including potentially other federal funds) unless a waiver or special dispensation is permitted: distressed (80% funding allowance, 20% grant match); at-risk (70%); transitional (50%); competitive (30%); and attainment (0% funding allowance). Exceptions can be made to grant match thresholds. Attainment counties may be able to receive funding for projects where sub-county areas are considered to be at higher levels of distress, and/or in those cases where the inclusion of an attainment county in a multi-county project would benefit one or more non-attainment counties or areas. In addition, special allowances may reduce or discharge matches, and match requirements may be met with other federal funds. Legislative History Council of Appalachian Governors In 1960, the Alabama, Georgia, Kentucky, Maryland, North Carolina, Pennsylvania, Tennessee, Virginia, and West Virginia governors formed the Council of Appalachian Governors to highlight Appalachia's extended economic distress and to press for increased federal involvement. In 1963, President John F. Kennedy formed the President's Appalachian Regional Commission (PARC) and charged it with developing an economic development program for the region. PARC's report, issued in 1964, called for the creation of an independent agency to coordinate federal and state efforts to address infrastructure, natural resources, and human capital issues in the region. The PARC also included some Ohio counties as part of the Appalachian region. Appalachian Regional Development Act In 1965, President Lyndon Johnson signed the Appalachian Regional Development Act, which created the ARC to address the PARC's recommendations, and added counties in New York and Mississippi. The ARC was directed to administer or assist in the following initiatives: The creation of the Appalachian Development Highway System; Establishing "Demonstration Health Facilities" to fund health infrastructure; Land stabilization, conservation, and erosion control programs; Timber development organizations, for purposes of forest management; Mining area restoration, for rehabilitating and/or revitalizing mining sites; A water resources survey; Vocational education programs; and Sewage treatment infrastructure. Major Amendments to the ARC Before 2008 Appalachian Regional Development Act Amendments of 1975 In 1975, the ARC's authorizing legislation was amended to require that state governors themselves serve as the state representatives on the commission, overriding original statutory language in which governors were permitted to appoint designated representatives. The amendments also included provisions to expand public participation in ARC plans and programs. They also required states to consult with local development districts and local governments and authorized federal grants to the ARC to assist states in enhancing state development planning. Appalachian Regional Development Reform Act of 1998 Legislative reforms in 1998 introduced county-level designations of distress. The legislation organized county-level distress into three bands, from "worst" to "best": distressed counties; competitive counties; and attainment counties. The act imposed limitations on funding for economically strong counties: (1) "competitive," which could only accept ARC funding for 30% of project costs (with the 70% balance being subject to grant match requirements); and (2) "attainment," which were generally ineligible for funding, except through waivers or exceptions. In addition, the act withdrew the ARC's legislative mandate for certain programs, including the land stabilization, conservation, and erosion control program; the timber development program; the mining area restoration program; the water resource development and utilization survey; the Appalachian airport safety improvements program (a program added in 1971); the sewage treatment works program; and amendments to the Housing Act of 1954 from the original 1965 act. Appalachian Regional Development Act Amendments of 2002 Legislation in 2002 expanded the ARC's ability to support LDDs, introduced an emphasis on ecological issues, and provided for a greater coordinating role by the ARC in federal economic development activities. The amendments also provided new stipulations for the ARC's grant making, limiting the organization to funding 50% of project costs or 80% in designated distressed counties. The amendments also expanded the ARC's efforts in human capital development projects, such as through various vocational, entrepreneurial, and skill training initiatives. The Appalachian Regional Development Act Amendments of 2008 The Appalachian Regional Development Act Amendments of 2008 is the ARC's most recent substantive legislative development and reflects its current configuration. The amendments included: 1. various limitations on project funding amounts and commission contributions; 2. the establishment of an economic and energy development initiative; 3. the expansion of county designations to include an "at-risk" designation; and 4. the expansion of the number of counties under the ARC's jurisdiction. The 2008 amendments introduced funding limitations for ARC grant activities as a whole, as well as to specific programs. According to the 2008 legislation, "the amount of the grant shall not exceed 50 percent of administrative expenses." However, at the ARC's discretion, an LDD that included a "distressed" county in its service area could provide for 75% of administrative expenses of a relevant project, or 70% for "at-risk" counties. Eligible activities could only be funded by the ARC at a maximum of 50% of the project cost, or 80% for distressed counties and 70% for "at-risk" counties. The act introduced special project categories, including (1) demonstration health projects; (2) assistance for proposed low- and middle-income housing projects; (3) the telecommunications and technology initiative; (4) the entrepreneurship initiative; and (5) the regional skills partnership. Finally, the "economic and energy development initiative" provided for the ARC to fund activities supporting energy efficiency and renewable technologies. The legislation expanded distress designations to include an "at-risk" category, or counties "most at risk of becoming economically distressed." This raised the number of distress levels to five. The legislation also expanded ARC's service area. Ten counties in four states were added to the ARC, which represents the most recent expansion. Funding History The ARC is a federal-state partnership, with administrative costs shared equally by the federal government and states, while economic development activities are federally funded. The ARC is also the highest-funded of the federal regional commissions and authorities. Its funding ( Table 1 ) has increased 126% from approximately $73 million in FY2008 to $165 million in FY2019. The ARC's funding growth is attributable to incremental increases in appropriations along with an approximately $50 million increase in annual appropriated funds in FY2016 set aside to support the POWER Initiative. The POWER Initiative was part of a wider federal effort under the Obama Administration to support coal communities affected by the decline of the coal industry. The FY2018 White House budget proposed to shutter the ARC as well as the other federal regional commissions and authorities. Congress did not adopt these provisions from the President's budget, and continued to fund the ARC and other commissions. Delta Regional Authority The Delta Regional Authority was established in 2000 to address economic distress in the Mississippi River Delta region. The DRA aims to "improve regional economic opportunity by helping to create jobs, build communities, and improve the lives of the 10 million people" in 252 designated counties and parishes in Alabama, Arkansas, Illinois, Kentucky, Louisiana, Mississippi, Missouri, and Tennessee ( Figure 2 ). Overview of Structure and Activities Authority Structure Like the ARC, the DRA is a federal-state partnership that shares administrative expenses equally, while activities are federally funded. The DRA consists of a federal co-chair appointed by the President with the advice and consent of the Senate, and the eight state governors, of which one is state co-chair. The governors are permitted to appoint a designee to represent the state, who also generally serves as the state alternate. Entities that are eligible to apply for DRA funding include: 1. state and local governments (state agencies, cities and counties/parishes); 2. public bodies; and 3. non-profit entities. These entities must apply for projects that operate in or are serving residents and communities within the 252 counties/parishes of the DRA's jurisdiction. DRA Strategic Planning Funding determinations are assessed according to the DRA's authorizing statute, its strategic plan, state priorities, and distress designation. The DRA strategic plan articulates the authority's high-level economic development priorities. The current strategic plan— Moving the Delta Forward , Delta Regional Development Plan III—was released in April 2016 and is in effect through 2021. The strategic plan lists three primary goals: 1. workforce competitiveness, to "advance the productivity and economic competitiveness of the Delta workforce"; 2. strengthened infrastructure, to "strengthen the Delta's physical, digital, and capital connections to the global economy"; and 3. increased community capacity, to "facilitate local capacity building within Delta communities, organizations, businesses, and individuals." State development plans are required by statute every five years to coincide with the strategic plan, and reflect the economic development goals and priorities of member states and LDDs. The DRA funds projects through 44 LDDs, which are multicounty economic development organizations financially supported by the DRA and advise on local priorities. LDDs "provide technical assistance, application support and review, and other services" to the DRA and entities applying for funding. LDDs receive administrative fees paid from awarded DRA funds, which are calculated as 5% of the first $100,000 of an award, and 1% for all dollars above that amount. Distress Designations The DRA determines a county or parish as distressed on an annual basis through the following criteria: 1. an unemployment rate of 1% higher than the national average for the most recent 24-month period; and 2. a per capita income of 80% or less than the national per capita income. The DRA designates counties as either distressed or not, and distressed counties received priority funding from DRA grant making activities. By statute, the DRA directs at least 75% of funds to distressed counties; half of those funds must target transportation and basic infrastructure. As of FY2018, 234 of the DRA's 252 counties are considered distressed. States' Economic Development Assistance Program The principal investment tool used by the DRA is the States' Economic Development Assistance Program (SEDAP), which "provides direct investment into community-based and regional projects that address the DRA's congressionally mandated four funding priorities." The DRA's four funding priorities are: 1. (1) basic public infrastructure; 2. (2) transportation infrastructure; 3. (3) workforce development; and 4. (4) business development (emphasizing entrepreneurship). The DRA's SEDAP funding is made available to each state according to a four-factor, formula-derived allocation that balances geographic breadth, population size, and economic distress ( Table 2 ). The factors and their respective weights are calculated as follows: Equity Factor (equal funding among eight states), 50%; Distressed Population (DRA counties/parishes), 20%; Distressed County Area (DRA counties/parishes), 20%; and Population Factor (DRA counties/parishes), 10%. DRA investments are awarded from state allocations. SEDAP applications are accepted through LDDs, and projects are sorted into tiers of priority. While all projects must be associated with one of the DRA's four funding priorities, additional prioritization determines the rank order of awards, which include county-level distress designations; adherence to at least one of the federal priority eligibility criteria (see below); adherence to at least one of the DRA Regional Development Plan goals (from the strategic plan); and adherence to at least one of the state's DRA priorities. The federal priority eligibility criteria are as follows: The DRA is also mandated to expend 50% of its appropriated SEDAP dollars on basic public and transportation infrastructure projects, which lend additional weight to this particular criterion. Legislative History In 1988, the Rural Development, Agriculture, and Related Agencies Appropriations Act for FY1989 ( P.L. 100-460 ) appropriated $2 million and included language that authorized the creation of the Lower Mississippi Delta Development Commission. The LMDDC was a DRA predecessor tasked with studying economic issues in the Delta and developing a 10-year economic development plan. The LMDDC consisted of two commissioners appointed by the President as well as the governors of Arkansas, Illinois, Kentucky, Louisiana, Mississippi, Missouri, and Tennessee. The commission was chaired by then-Governor William J. Clinton of Arkansas, and the LMDDC released interim and final reports before completing its mandate in 1990. Later, in the White House, the Clinton Administration continued to show interest in an expanded federal role in Mississippi Delta regional economic development. Key Legislative Activity In 1994, Congress enacted the Lower Mississippi Delta Region Heritage Study Act, which built on the LMDDC's recommendations. In particular, the 1994 act saw the Department of the Interior conduct a study on key regional cultural, natural, and heritage sites and locations in the Mississippi Delta region. In 1999, the Delta Regional Authority Act of 1999 was introduced in the House ( H.R. 2911 ) and Senate ( S. 1622 ) to establish the DRA by amending the Consolidated Farm and Rural Development Act. Neither bill was enacted, but they established the structure and mission later incorporated into the DRA. 106th Congress In 2000, the Consolidated Appropriations Act for FY2001 ( P.L. 106-554 ) included language authorizing the creation of the DRA based on the seven participating states of the LMDDC, with the addition of Alabama and 16 of its counties. 107th Congress The Farm Security and Rural Investment Act of 2002, or 2002 farm bill ( P.L. 107-171 ), amended voting procedures for DRA states, provided new funds for Delta regional projects, and added four additional Alabama counties to the DRA. 110th Congress The Food, Conservation, and Energy Act of 2008, or 2008 farm bill ( P.L. 110-234 ) reauthorized the DRA from FY2008 through FY2012 and expanded it to include Beauregard, Bienville, Cameron, Claiborne, DeSoto, Jefferson Davis, Red River, St. Mary, Vermillion, and Webster Parishes in Louisiana; and Jasper and Smith Counties in Mississippi. 113th Congress The Agricultural Act of 2014, or 2014 farm bill ( P.L. 113-79 ) reauthorized the DRA through FY2018. 115th Congress The Agriculture Improvement Act of 2018, or 2018 farm bill ( P.L. 115-334 ), reauthorized the DRA from FY2019 to FY2023, and emphasized Alabama's position as a "full member" of the DRA. Funding History Under "farm bill" legislation, the DRA has consistently received funding authorizations of $30 million annually since it was first authorized. However, appropriations have fluctuated over the years. Although the DRA was appropriated $20 million in the same legislation authorizing its creation, that amount was halved in 2002, and continued a downward trend through its funding nadir of $5 million in FY2004. However, funding had increased by FY2006 to $12 million. Since FY2008, DRA's annual appropriations have increased from almost $12 million to the current level of $25 million ( Table 3 ). Denali Commission The Denali Commission was established in 1998 to support rural economic development in Alaska. It is "designed to provide critical utilities, infrastructure, and economic support throughout Alaska." The Denali Commission is unique as a single-state commission, and in its reliance on federal funding for both administration and activities. Overview of Structure and Activities The commission's statutory mission includes providing workforce and other economic development assistance to distressed rural regions in Alaska. However, the commission no longer engages in substantial activities in general economic development or transportation, which were once core elements of the Denali Commission's activities. Its recent activities are principally limited to coastal infrastructure protection and energy infrastructure and fuel storage projects. Commission Structure The Denali Commission's structure is unique as the only commission with a single-state mandate. The commission is comprised of seven members (or a designated nominee), including the federal co-chair, appointed by the U.S. Secretary of Commerce; the Alaska governor, who is state co-chair (or his/her designated representative); the University of Alaska president; the Alaska Municipal League president; the Alaska Federation of Natives president; the Alaska State AFL-CIO president; and the Associated General Contractors of Alaska president. These structural novelties offer a different model compared to the organization typified by the ARC and broadly adopted by the other functioning federal regional commissions and authorities. For example, the federal co-chair's appointment by the Secretary of Commerce, and not the President with Senate confirmation, allows for a potentially more expeditious appointment of a federal co-chair. The Denali Commission is required by law to create an annual work plan, which solicits project proposals, guides activities, and informs a five-year strategic plan. The work plan is reviewed by the federal co-chair, the Secretary of Commerce, and the Office of Management and Budget, and is subject to a public comment period. The current FY2018-FY2022 strategic plan, released in October 2017, lists four strategic goals and objectives: (1) facilities management; (2) infrastructure protection from ecological change; (3) energy, including storage, production, heating, and electricity; and (4) innovation and collaboration. The commission's recent activities largely focus on energy and infrastructure protection. Distressed Areas The Denali Commission's authorizing statute obligates the Commission to address economic distress in rural areas of Alaska. As of 2018, the Commission utilizes two overlapping standards to assess distress: a "surrogate standard," adopted by the Commission in 2000, and an "expanded standard." These standards are applied to rural communities in Alaska and assessed by the Alaska Department of Labor and Workforce Development (DOL&WD), Research and Analysis Section. DOL&WD uses the most current population, employment, and earnings data available to identify Alaska communities and Census Designated Places considered "distressed." Appeals can be made to community distress determinations, but only through a demonstration that DOL&WD data or analysis was erroneous, invalid, or outdated. New information "must come from a verifiable source, and be robust and representative of the entire community and/or population." Appeals are accepted and adjudicated only for the same reporting year in question. Recent Activities The Denali Commission's scope is more constrained compared to the other federal regional commissions and authorities. The organization reports that due to funding constraints, the commission reduced its involvement in what might be considered traditional economic development and, instead, focused on rural fuel and energy infrastructure and coastal protection efforts. Since the Denali Commission's founding, bulk fuel safety and security, energy reliability and security, transportation system improvements, and healthcare projects have commanded the vast majority of Commission projects. Of these, only energy reliability and security and bulk fuel safety and security projects remain active and are still funded. Village infrastructure protection—a program launched in 2015 to address community infrastructure threatened by erosion, flooding and permafrost degradation—is a program that is relatively new and still being funded. By contrast, most "traditional" economic development programs are no longer being funded, including in housing, workforce development, and general economic development activities. Legislative History 106th Congress In 1999, the Consolidated Appropriations Act, 2000 ( P.L. 106-113 ) authorized the commission to enter into contracts and cooperative agreements, award grants, and make payments "necessary to carry out the purposes of the commission." The act also established the federal co-chair's compensation schedule, prohibited using more than 5% of appropriated funds for administrative expenses, and established "demonstration health projects" as authorized activities and authorized the Department of Health and Human Services to make grants to the commission to that effect. 108th Congress The Consolidated Appropriations Act, 2004 ( P.L. 108-199 ) created an Economic Development Committee within the commission chaired by the Alaska Federation of Natives president, and included the Alaska Commissioner of Community and Economic Affairs, a representative of the Alaska Bankers Association, the chairman of the Alaska Permanent Fund, a representative from the Alaska Chamber of Commerce, and representatives from each region. 109th Congress In 2005, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, or SAFETEA-LU ( P.L. 109-59 ), established the Denali Access System Program among the commission's authorized activities. The program was part of its surface transportation efforts, which were active from 2005 through 2009. 112th Congress 2012's Moving Ahead for Progress in the 21 st Century Act, or MAP-21 ( P.L. 112-141 ), authorized the commission to accept funds from federal agencies, allowed it to accept gifts or donations of "service, property, or money" on behalf of the U.S. government, and included guidance regarding gifts. 114th Congress In 2016, the Water Infrastructure Improvements for the Nation Act, or the WIIN Act ( P.L. 114-322 ), reauthorized the Denali Commission through FY2021, and established a four-year term for the federal co-chair (with allowances for reappointment), but provided that other members were appointed for life. The act also allowed for the Secretary of Commerce to appoint an interim federal co-chair, and included clarifying language on the non-federal status of commission staff and ethical issues regarding conflicts of interest and disclosure. Funding History Under its authorizing statute, the Denali Commission received funding authorizations for $20 million for FY1999, and "such sums as necessary" (SSAN) for FY2000 through FY2003. Legislation passed in 2003 extended the commission's SSAN funding authorization through 2008. Its authorization lapsed after 2008; reauthorizing legislation was introduced in 2007, but was not enacted. The commission continued to receive annual appropriations for FY2009 and several years thereafter. In 2016, legislation was enacted reauthorizing the Denali Commission through FY2021 with a $15 million annual funding authorization ( Table 4 ). Northern Border Regional Commission The Northern Border Regional Commission (NBRC) was created by the Food, Conservation, and Energy Act of 2008, otherwise known as the 2008 farm bill. The act also created the Southeast Crescent Regional Commission (SCRC) and the Southwest Border Regional Commission (SBRC). All three commissions share common authorizing language modeled after the ARC. The NBRC is the only one of the three new commissions that has been both reauthorized and received progressively increasing annual appropriations since it was established in 2008. The NBRC was founded to alleviate economic distress in the northern border areas of Maine, New Hampshire, New York, and, as of 2018, the entire state of Vermont ( Figure 4 ). The stated mission of the NBRC is "to catalyze regional, collaborative, and transformative community economic development approaches that alleviate economic distress and position the region for economic growth." Eligible counties within the NBRC's jurisdiction may receive funding "for community and economic development" projects pursuant to regional, state, and local planning and priorities ( Table C-4 ). Overview of Structure and Activities The NBRC is led by a federal co-chair, appointed by the President with the advice and consent of the Senate, and four state governors, of which one is appointed state co-chair. There is no term limit for the federal co-chair. The state co-chair is limited to two consecutive terms, but may not serve a term of less than one year. Each of the four governors may appoint an alternate; each state also designates an NBRC program manager to handle the day-to-day operations of coordinating, reviewing, and recommending economic development projects to the full membership. While program funding depends on congressional appropriations, administrative costs are shared equally between the federal government and the four states of the NBRC. Through commission votes, applications are ranked by priority, and are approved in that order as grant funds allow. Program Areas All projects are required to address at least one of the NBRC's four authorized program areas and its five-year strategic plan. The NBRC's four program areas are: (1) economic and infrastructure development (EID); (2) comprehensive planning for states; (3) local development districts; and (4) the regional forest economy partnership. Economic and Infrastructure Development (EID) The NBRC's state EID investment program is the chief mechanism for investing in economic development programs in the participating states. The EID program prioritizes projects focusing on infrastructure, telecommunications, energy costs, business development, entrepreneurship, workforce development, leadership, and regional strategic planning. The EID program provides approximately $3.5 million to each state for such activities. Eligible applicants include public bodies, 501(c) organizations, Native American tribes, and the four state governments. EID projects may require matching funds of up to 50% depending on the level of distress. Comprehensive Planning The NBRC may also assist states in developing comprehensive economic and infrastructure development plans for their NBRC counties. These initiatives are undertaken in collaboration with LDDs, localities, institutions of higher education, and other relevant stakeholders. Local Development Districts (LDD) The NBRC uses 16 multicounty LDDs to advise on local priorities, identify opportunities, conduct outreach, and administer grants, from which the LDDs receive fees. LDDs receive fees according to a graduated schedule tied to total project funds. The rate is 5% for the first $100,000 awarded and 1% in excess of $100,000. Notably, this formula does not apply to Vermont-only projects. Vermont is the only state where grantees are not required to contract with an LDD for the administration of grants, though this requirement may be waived. Regional Forest Economy Partnership (RFEP) The RFEP is an NBRC program to address economic distress caused by the decline of the regional forest products industry. The program provides funding to rural communities for "economic diversity, independence, and innovation." The NBRC received $7 million in FY2018 and FY2019 to address the decline in the forest-based economies in the NBRC region. Strategic Plan The NBRC's activities are guided by a five-year strategic plan, which is developed through "extensive engagement with NBRC stakeholders" alongside "local, state, and regional economic development strategies already in place." The 2017-2021 strategic plan lists three goals: 1. modernizing infrastructure; 2. creating and sustaining jobs; and 3. anticipating and capitalizing on shifting economic and demographic trends. The strategic plan also lists five-year performance goals, which are: 5,000 jobs created or retained; 10,000 households and businesses with access to improved infrastructure; 1,000 businesses representing 5,000 employees benefit from NBRC investments; 7,500 workers provided with skills training; 250 communities and 1,000 leaders engaged in regional leadership, learning and/or innovation networks supported by the NBRC; and 3:1 NBRC investment leverage. The strategic plan also takes stock of various socioeconomic trends in the northern border region, including (1) population shifts; (2) distressed communities; and (3) changing workforce needs. Economic and Demographic Distress The NBRC is unique in that it is statutorily obligated to assess distress according to economic as well as demographic factors ( Table C-4 ). These designations are made and refined annually. The NBRC defines levels of "distress" for counties that "have high rates of poverty, unemployment, or outmigration" and "are the most severely and persistently economic distressed and underdeveloped." The NBRC is required to allocate 50% of its total appropriations to projects in distressed counties. The NBRC's county designations are as follows, in descending levels of distress: Distressed counties (80% maximum funding allowance); Transitional counties (50%); and Attainment (0%). Transitional counties are defined as counties that do not exhibit the same levels of economic and demographic distress as a distressed county, but suffer from "high rates of poverty, unemployment, or outmigration." Attainment counties are not allowed to be funded by the NBRC except for those projects that are located within an "isolated area of distress," or have been granted a waiver. Distress is calculated in tiers of primary and secondary distress categories and constituent factors: Primary Distress Categories 1. Percent of population below the poverty level 2. Unemployment rate 3. Percent change in population Secondary Distress Categories 4. Percent of population below the poverty level 5. Median household income 6. Percent of secondary and/or seasonal homes Each county is assessed by the primary and secondary distress categories and factors and compared to the figures for the United States as a whole. Designations of county distress are made by tallying those factors against the following criteria: Distressed counties are those with at least three factors from both primary and secondary distress categories and at least one from each category; Transitional counties are those with at least one factor from either category; and Attainment counties are those which show no measures of distress. Legislative History 110th Congress The NBRC was first proposed in the Northern Border Economic Development Commission Act of 2007 ( H.R. 1548 ), introduced on March 15, 2007. H.R. 1548 proposed the creation of a federally-chartered, multi-state economic development organization—modeled after the ARC—covering designated northern border counties in Maine, New Hampshire, New York, and Vermont. The bill would have authorized the appropriation of $40 million per year for FY2008 through FY2012 ( H.R. 1548 ). The bill received regional co-sponsorship from Members of Congress representing areas in the northern border region. The NBRC was reintroduced in the Regional Economic and Infrastructure Development Act of 2007 ( H.R. 3246 ), which would have authorized the NBRC, the SCRC, and the SBRC, and reauthorized the DRA and the NGPRA (discussed in the next section) in a combined bill. H.R. 3246 won a broader range of support, which included 18 co-sponsors in addition to the original bill sponsor, and passed the House by a vote of 264-154 on October 4, 2007. Upon House passage, H.R. 3246 was referred to the Senate Committee on Environment and Public Works. The Senate incorporated authorizations for the establishment of the NBRC, SCRC, and the SBRC in the 2008 farm bill. The 2008 farm bill authorized annual appropriations of $30 million for FY2008 through FY2012 for all three new commissions. 115th Congress The only major changes to the NBRC since its creation were made in the Agriculture Improvement Act of 2018 ( P.L. 115-334 ), or the 2018 farm bill, which authorized the state capacity building grant program. In addition, the 2018 farm bill expanded the NBRC to include the following counties: Belknap and Cheshire counties in New Hampshire; Genesee, Greene, Livingston, Montgomery, Niagara, Oneida, Orleans, Rensselaer, Saratoga, Schenectady, Sullivan, Washington, Warren, Wayne, and Yates counties in New York; and Addison, Bennington, Chittenden, Orange, Rutland, Washington, Windham, and Windsor counties in Vermont, making it the only state entirely within the NBRC. Funding History Since its creation, the NBRC has received consistent authorizations of appropriations ( Table 5 ). The 2008 farm bill authorized the appropriation of $30 million for the NBRC for each of FY2008 through FY2013 ( P.L. 110-234 ); the same in the 2014 farm bill for each of FY2014 through FY2018 ( P.L. 113-79 ); and $33 million for each of FY2019 through FY2023 ( P.L. 115-334 ). Due to its statutory linkages to the SCRC and SBRC, all three commissions also share common authorizing legislation and identical funding authorizations. To date, the NBRC is the only commission of the three to receive substantial annual appropriations. Congress has funded the NBRC since FY2010 ( Table 5 ). The NBRC's appropriated funding level has increased from $5 million in FY2014, to $7.5 million in FY2016, $10 million in FY2017, $15 million in FY2018, and $20 million in FY2019. Northern Great Plains Regional Authority The Northern Great Plains Regional Authority was created by the 2002 farm bill. The NGPRA was created to address economic distress in Iowa, Minnesota, Missouri (other than counties included in the Delta Regional Authority), North Dakota, Nebraska, and South Dakota. The NGPRA appears to have been briefly active shortly after it was created, when it received its only annual appropriation from Congress. The NGPRA's funding authorization lapsed at the end of FY2018; it was not reauthorized. Structure and Activities Authority Structure The NGPRA featured broad similarities to the basic structure shared among most of the federal regional authorities and commissions, being a federal-state partnership led by a federal co-chair (appointed by the President, with the advice and consent of the Senate) and governors of the participating states, of which one was designated as the state co-chair. Unique to the NGPRA were certain structural novelties reflective of regional socio-political features. The NGPRA also included a Native American tribal co-chair, who was the chairperson of an Indian tribe in the region (or their designated representative), and appointed by the President, with the advice and consent of the Senate. The tribal co-chair served as the "liaison between the governments of Indian tribes in the region and the [NGPRA]." No term limit is established in statute; the only term-related proscription is that the state co-chair "shall be elected by the state members for a term of not less than 1 year." Another novel feature among the federal regional commissions and authorities was also the NGPRA's statutory reliance on a 501(c)(3) non-profit corporation—Northern Great Plains, Inc.—in furtherance of its mission. While Northern Great Plains, Inc. was statutorily organized to complement the NGPRA's activities, it effectively served as the sole manifestation of the NGPRA concept and rationale while it was active, given that the NGPRA was only once appropriated funds and never appeared to exist as an active organization. The Northern Great Plains, Inc. was active for several years, and reportedly received external funding, but is currently defunct. Activities and Administration Under its authorizing statute, the federal government would initially fund all administrative costs in FY2002, which would decrease to 75% in FY2003, and 50% in FY2004. Also, the NGPRA would have designated levels of county economic distress; 75% of funds were reserved for the most distressed counties in each state, and 50% reserved for transportation, telecommunications, and basic infrastructure improvements. Accordingly, non-distressed communities were eligible to receive no more than 25% of appropriated funds. The NGPRA was also structured to include a network of designated, multi-county LDDs at the sub-state levels. As with its sister organizations, the LDDs would have served as nodes for project implementation and reporting, and as advisors to their respective states and the NGPRA as a whole. Legislative History 103rd Congress The Northern Great Plains Rural Development Act ( P.L. 103-318 ), which became law in 1994, established the Northern Great Plains Rural Development Commission to study economic conditions and provide economic development planning for the Northern Great Plains region. The Commission was comprised of the governors (or designated representative) from the Northern Great Plains states of Iowa, Minnesota, North Dakota, Nebraska, and South Dakota (prior to Missouri's inclusion), along with one member from each of those states appointed by the Secretary of Agriculture. 104th Congress The Agricultural, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act, 1995 ( P.L. 103-330 ) provided $1,000,000 to carry out the Northern Great Plains Rural Development Act. The Commission produced a 10-year plan to address economic development and distress in the five states. After a legislative extension ( P.L. 104-327 ), the report was submitted in 1997. The Northern Great Plains Initiative for Rural Development (NGPIRD), a non-profit 501(c)(3), was established to implement the Commission's advisories. 107th Congress The Farm Security and Rural Investment Act of 2002, or 2002 farm bill ( P.L. 107-171 ), authorized the NGPRA, which superseded the Commission. The statute also created Northern Great Plains, Inc., a 501(c)(3), as a resource for regional issues and international trade, which supplanted the NGPIRD with a broader remit that included research, education, training, and issues of international trade. 110th Congress The Food, Conservation, and Energy Act of 2008, or 2008 farm bill ( P.L. 110-246 ), extended the NGPRA's authorization through FY2012. The legislation also expanded the authority to include areas of Missouri not covered by the DRA, and provided mechanisms to enable the NGPRA to begin operations even without the Senate confirmation of a federal co-chair, as well as in the absence of a confirmed tribal co-chair. The Agricultural Act of 2014, or 2014 farm bill ( P.L. 113-79 ), reauthorized the NGPRA and the DRA, and extended their authorizations from FY2012 to FY2018. Funding History The NGPRA was authorized to receive $30 million annually from FY2002 to FY2018. It received appropriations once for $1.5 million in FY2004. Its authorization of appropriations lapsed at the end of FY2018. Southeast Crescent Regional Commission The Southeast Crescent Regional Commission (SCRC) was created by the 2008 farm bill, which also created the NBRC and the Southwest Border Regional Commission. All three commissions share common authorizing language modeled after the ARC. The SCRC is not currently active. The SCRC was created to address economic distress in areas of Virginia, North Carolina, South Carolina, Georgia, Alabama, Mississippi, and Florida ( Figure 6 ) not served by the ARC or the DRA ( Table 13 ). Overview of Structure and Activities As authorized, the SCRC would share an organizing structure with the NBRC and the Southwest Border Regional Commission, as all three share common statutory authorizing language modeled after the ARC. As authorized, the SCRC would consist of a federal co-chair, appointed by the President with the advice and consent of the Senate, along with the participating state governors (or their designated representatives), of which one would be named by the state representatives as state co-chair. There is no term limit for the federal co-chair. However, the state co-chair is limited to two consecutive terms, but may not serve a term of less than one year. However, no federal co-chair has been appointed since the SCRC was authorized; therefore, the commission cannot form and begin operations. Legislative History The SCRC concept was first introduced by university researchers working on rural development issues in 1990 at Tuskegee University's Annual Professional Agricultural Worker's Conference for 1862 and 1890 Land-Grant Universities. In 1994, the Southern Rural Development Commission Act was introduced in the House Agricultural Committee, which would provide the statutory basis for a "Southern Black Belt Commission." While the concept was not reintroduced in Congress until the 2000s, various nongovernmental initiatives sustained discussion and interest in the concept in the intervening period. Supportive legislation was reintroduced in 2002, which touched off other accompanying legislative efforts until the SCRC was authorized in 2008. Funding History Congress authorized $30 million funding levels for each fiscal year from FY2008 to FY2018, and $33 million in FY2019, and appropriated $250,000 in each fiscal year from FY2010 to FY2019 ( Table 5 ). Despite receiving regular appropriations since it was authorized in 2008, a review of government budgetary and fiscal sources yields no record of the SCRC receiving, obligating, or spending funds appropriated by Congress. In successive presidential administration budget requests (FY2013, FY2015-FY2017), no funding was requested. In the U.S. Treasury 2018 Combined Statement of Receipts, Outlays, and Balances, Part III, the SCRC does not appear, further indicating that the SCRC remains unfunded. Notably, the Commission for the Preservation of America's Heritage Abroad, which has periodically shared a common section with the SCRC in presidential budgets, is listed in the 2018 Combined Statement, as it is elsewhere. Southwest Border Regional Commission The Southwest Border Regional Commission (SBRC) was created with the enactment of the Food, Conservation, and Energy Act of 2008, or the 2008 farm bill ( P.L. 110-234 ), which also created the NBRC and the SCRC. All three commissions share common statutory authorizing language modeled after the ARC. The SBRC was created to address economic distress in the southern border regions of Arizona, California, New Mexico, and Texas ( Figure 7 ; Table 1 5 ). The SBRC has not received an annual appropriation since it was created and is not currently active. Overview of Structure and Activities As authorized, the SBRC would share an organizing structure with the NBRC and the SCRC, as all three commissions share common statutory authorizing language modeled after the ARC. By statute, the SBRC consists of a federal co-chair, appointed by the President with the advice and consent of the Senate, along with the participating state governors (or their designated representatives), of which one would be named by the state representatives as state co-chair. As enacted in statute, there is no term limit for the federal co-chair. However, the state co-chair is limited to two consecutive terms, but may not serve a term of less than one year. However, as no federal co-chair has been appointed since the SCRC was authorized, it is not operational. Legislative History The concept of an economic development agency focusing on the southwest border region has existed at least since 1976, though the SBRC was established through more recent efforts. Executive Order 13122 in 1999 created the Interagency Task Force on the Economic Development of the Southwest Border, which examined issues of socioeconomic distress and economic development in the southwest border regions and advised on federal efforts to address them. 108th Congress In February 2003, a "Southwest Regional Border Authority" was proposed in S. 548 . A companion bill, H.R. 1071 , was introduced in March 2003. The SBRC was reintroduced in the Regional Economic and Infrastructure Development Act of 2003 ( H.R. 3196 ), which would have authorized the SBRC, the DRA, the NGPRA, and the SCRC. 109th Congress In 2006, the proposed Southwest Regional Border Authority Act would have created the "Southwest Regional Border Authority" ( H.R. 5742 ), similar to S. 458 in 2003. 110th Congress In 2007, SBRC was reintroduced in the Regional Economic and Infrastructure Development Act of 2007 ( H.R. 3246 ), which would have authorized the SBRC, the SCRC, and the NBRC, and reauthorized the DRA and the NGPRA in a combined bill. Upon House passage, the Senate incorporated authorizations for the establishment of the NBRC, SCRC, and SBRC in the 2008 farm bill. The 2008 farm bill authorized annual appropriations of $30 million for FY2008 through FY2012 for all three of the new organizations. Funding History Congress authorized annual funding of $30 million for the SBRC from FY2008 to FY2018, and $33 million in FY2019. The SBRC has never received annual appropriations and is not active. Concluding Notes Given their geographic reach, broad activities, and integrated intergovernmental structures, the federal regional commissions and authorities are a significant element of federal economic development efforts. At the same time, as organizations that are largely governed by the respective state-based commissioners, the federal regional commissions and authorities are not typical federal agencies but federally-chartered entities that integrate federal funding and direction with state and local economic development priorities. This structure provides Congress with a flexible platform for economic development efforts. The intergovernmental structure allows for strategic-level economic development initiatives to be launched at the federal level and implemented across multi-state jurisdictions with extensive state and local input, and more adaptable to regional needs. The federal regional commissions and authorities reflect an emphasis by the federal government on place-based economic development strategies sensitive to regional and local contexts. However, the geographic specificity and varying functionality of the statutorily authorized federal regional commissions and authorities, both active and inactive, potentially raise questions about the efficacy and equity of federal economic development policies. More in-depth analysis of these and other such issues related to the federal regional authorities and commissions, and their role as instruments for federal economic development efforts, is reserved for possible future companion products to this report. Appendix A. Basic Information at a Glance Contact Information (for active commissions and authorities) Appalachian Regional Commission Address:1666 Connecticut Avenue, NW Suite 700 Washington, DC 20009-1068 Phone:[phone number scrubbed] Website: http://www.arc.gov Delta Regional Authority Address:236 Sharkey Avenue Suite 400 Clarksdale, MS 38614 Phone:[phone number scrubbed] Website: http://www.dra.gov Denali Commission Address:510 L Street Suite 410 Anchorage, AK 99501 Phone:[phone number scrubbed] Website: http://www.denali.gov Northern Border Regional Commission Address:James Cleveland Federal Building, Suite 1201 53 Pleasant Street Concord, NH 03301 Phone:[phone number scrubbed] Website: http://www.NBRC.gov Appendix B. Map of Federal Regional Commissions and Authorities Appendix C. Service Areas of Federal Regional Commissions and Authorities Appalachian Regional Commission Delta Regional Authority Denali Commission Northern Border Regional Commission Northern Great Plains Regional Authority Southeast Crescent Regional Commission Southwest Border Regional Commission

This report describes the structure, activities, legislative history, and funding history of seven federal regional commissions and authorities: the Appalachian Regional Commission; the Delta Regional Authority; the Denali Commission; the Northern Border Regional Commission; the Northern Great Plains Regional Authority; the Southeast Crescent Regional Commission; and the Southwest Border Regional Commission. All seven regional commissions and authorities are broadly modeled after the Appalachian Regional Commission structure, which is composed of a federal co-chair appointed by the president with the advice and consent of the Senate, and the member state governors, of which one is appointed the state co-chair. This structure is broadly replicated in the other commissions and authorities, albeit with notable variations and exceptions to local contexts. In addition, the service areas for all of the federal regional commissions and authorities are defined in statute and thus can only be amended or modified through congressional action. While the service areas for the federal regional commissions and authorities have shifted over time, those jurisdictions have not changed radically in their respective service lives. Of the seven federal regional commissions and authorities, four could be considered active: the Appalachian Regional Commission; the Delta Regional Authority; the Denali Commission; and the Northern Border Regional Commission. The four active regional commissions and authority received $15 million to $165 million in congressional appropriations in FY2019 for their various activities. Each of the four functioning regional commissions and authority engage in economic development to varying extents, and address multiple programmatic activities in their respective service areas. These activities may include, but are not limited to: basic infrastructure; energy; ecology/environment and natural resources; workforce/labor; and business development. Though they are federally-chartered, receive congressional appropriations for their administration and activities, and include an appointed federal representative in their respective leadership structures (the federal co-chair and his/her alternate, as applicable), the federal regional commissions and authorities are quasi-governmental partnerships between the federal government and the constituent state(s) of a given authority or commission. This partnership structure, which also typically includes substantial input and efforts at the sub-state level, represents a unique federal approach to economic development and a potentially flexible mechanism for coordinating strategic economic development goals to local, state, and multi-state/regional priorities and contexts. Congress has expressed interest in the federal regional commissions and authorities pursuant to its appropriations and oversight authority, as well as its interest in facilitating economic development programming. Given relevant congressional interest, the federal regional commissions and authorities provide a model of functioning economic development approaches that are place-based, intergovernmental, and multifaceted in their programmatic orientation (e.g., infrastructure, energy, environment/ecology, workforce, business development).

CRS_R46333

Introduction Swiping a card to pay for something seems routine today; however, at one point in recent history, a piece of plastic with a magnetic strip capable of electronically communicating payment information between the banks of a consumer and a merchant was completely unprecedented. Financial technology, or fintech , refers to the broad subset of financial innovations that apply new technologies to a financial service or product. Although the term was coined only recently, it likely would have been applied to a broad set of innovations, such as the advent of automated teller machines, or ATMs, in the 1960s and mobile payments in the 2000s. There is no singular definition of fintech, often making policy discussions around this topic complicated. Further, U.S. financial system regulation is fragmented across many regulators by industry, business practice, and geographical jurisdiction, so regulating fintech is multifaceted. Each financial regulator has a different mandate, creating gaps and overlaps among their jurisdictions. Regulators have used various policy tools to approach the new technologies in a manner consistent with their mandate, which impacts both institutions under their direct jurisdiction and new firms that do not cleanly fit under one regulator's jurisdiction. Recent congressional interest in fintech has led to several hearings, the creation of fintech task forces, and legislation pertaining to one or multiple financial system regulators. This report examines activities and proposals initiated after the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank; P.L. 111-203 ) that are relevant to fintech. These can include fintech actions as defined by a regulator or actions pertaining to areas of financial services that intersect with technology but may not be explicitly considered fintech. Financial regulators generally fall into three groups, which are responsible for (1) depository institutions, (2) consumer protection, and (3) securities. Their approaches may include the following: writing new rules or amending existing ones; issuing guidance to clarify the applications of the rules to new types of business lines; creating new types of charters for institutions; using supervisory authorities to examine partnerships between regulated and unregulated entities; issuing enforcement actions to companies that violate regulations or laws; or establishing new offices and staffing experts to serve as outreach points-of-contact for relevant industry concerns. Table 1 summarizes the federal regulators discussed in this report, including their scope, and relevant authorities. The depository institution regulators discussed in this report include the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA)—these are referred to as banking regulators. The consumer protection agencies include the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC). The securities regulators include the Securities and Exchange Commission (SEC) and the Commodity Futures Trade Commission (CFTC). More information on the mandates and relevant authorities of these regulators can be found in Appendix A . Banking Regulators: Approach to Fintech The banking regulators—the Federal Reserve, FDIC, OCC, and NCUA—face particular fintech-related challenges regarding how to ensure banks and credit unions can efficiently and safely interact with nonbank fintech companies. Sometimes fintech companies partner with and offer services to banks or credit unions. Other times, they seek to compete with banks by offering bank or bank-like services directly to customers. In some circumstances, banks themselves can develop their own fintech. Given their broad responsibilities, banking regulators can engage with and respond to fintech in numerous ways, including by amending rules and issuing guidance to clarify how rules apply to new products; supervising the relationship banks form with fintech companies; granting banking licenses to fintech companies; and conducting outreach with new types of firms to facilitate communication between industry and regulators. Examples of these regulatory actions are discussed in more detail below. Each of the agencies has slightly different regulatory scope, so the efforts described in the sections below reflect each regulator's interest in balancing the risks and benefits of financial technologies. Partnerships with Technology Service Providers In general, banking regulators have not been active in issuing fintech-specific rules in the last 10 years. Instead, regulators have focused more heavily on issuing guidance on how new products and new relationships fit into the current regulatory framework. Relationships between banks and technology service providers (TSPs)—third-party partnerships—are particularly relevant because many TSPs are fintech companies. Banking regulators use their authority to examine the operations of these third-party partnerships as a critical tool to supervise the interactions between banks and nonbank technology firms. Further, third-party supervision demonstrates how regulators have used and applied the existing framework to fintech activities. Updated Guidance on Bank Partnerships with Technology Service Providers From a banking regulator's standpoint, an institution can be a bank, a nonbank, or a nonbank that partners with a bank. Bank regulators have jurisdiction over banks and their partnerships with nonbanks. Some insured depository institutions opt to partner with TSPs to receive software and technical support. Often, banks will use TSPs to support critical business needs, such as core processing, loan servicing, accounting, or data management—areas where fintech companies have become active market participants. As banks increasingly rely on TSP partnerships, regulators are becoming increasingly interested in how banks manage the risks associated with these partnerships. Banking regulators require a financial institution that chooses to partner with a TSP to ensure that the activities performed by the TSP for the institution meet the same regulatory requirements as if they were performed by the bank itself. Banking regulators' broad set of authorities to supervise TSPs are provided by the Bank Service Company Act (BSCA; P.L.87-856). Specifically, the BSCA provides banking regulators with authority to examine and regulate third-party vendors that provide services to banks. The banking regulators periodically issue and update guidance pertaining to third-party vendors. They issued interagency guidelines in 2001 that, among other things, require banks to provide continuous oversight of third-party vendors such as TSPs to ensure they maintain appropriate security measures. In 2017, the FDIC's Office of Inspector General issued an evaluation of TSP contracts, noting that many of the sampled institutional relationships did not adequately address the risks associated with TSP partnerships. In 2019, the FDIC issued a financial institution letter on TSP contracts, outlining the statutory obligations of firms pursuant to the BSCA and the Gramm-Leach-Bliley Act ( P.L. 106-102 ) and encouraging financial institutions to ensure service provider contracts adequately address business continuity and incident response risks. Brokered Deposits with Technology-Based Tools Rulemaking with a specific focus on fintech companies is relatively infrequent, but banking regulators occasionally issue rules or proposed rules that have some tangential impact on fintech companies, such as a recently proposed FDIC rule on brokered deposits. This proposed rule is another example of how regulators have used an existing regulatory framework to potentially accommodate fintech developments. FDIC Proposed Rulemaking on Brokered Deposits Generally, banks hold two types of deposits: core deposits and brokered deposits. Core deposits are funds individuals or companies directly place in checking and savings accounts, whereas brokered deposits are funds that a third-party broker places in a bank on behalf of a client, typically to maximize interest earned and possibly to ensure that the accounts are covered by the FDIC's $250,000 insurance limit. Brokered deposits are considered less stable than core deposits, as the former is typically moved around frequently depending on market conditions. If a bank is not considered well-capitalized by its regulator, the regulator can prohibit the bank from accepting brokered deposits. Consumers increasingly use nonbank technology-based tools, such as mobile phones and fintech apps, to move money between accounts. Under certain circumstances, rules against accepting brokered deposits could apply to money transfers using nonbank technologies. The FDIC, responding to concerns that regulators have applied the rules too broadly, published a notice of proposed rulemaking in December 2019 that would allow deposits to enter the banking system through new technological channels without being subject to brokered deposit rules. Regulatory Sandboxes Regulators occasionally create programs through which firms can experiment with new products in a way that allows industry and regulators to better understand how new technologies can impact consumers and the market. These programs are sometimes referred to as sandboxes or greenhouses . As a state-level example, Arizona created such a program in March 2018. At the federal level, these programs are being discussed but have not fully taken shape. Among the banking regulators, the OCC has proposed a regulatory sandbox program, discussed below. OCC Proposed Innovation Pilot Program In April 2019, the OCC proposed a voluntary Innovation Pilot Program to support the testing of innovative products, services, and processes that could significantly benefit consumers, businesses, and communities, including those that could promote financial inclusion—the OCC is considering public comments on the program as of the date of this report. This proposed program is similar to the concept of a regulatory sandbox or greenhouse, which is discussed in the " Sandboxes and No-Action Letters to Promote Innovation " section, below. Some key characteristics and considerations of the proposed program include the following: The pilot would be open to banks, their subsidiaries, and federal branches and agencies, including those partnering with third parties to offer innovative products, services, or processes. It would also be open to banks working together, such as in a consortium or utility. The OCC is considering a suite of regulatory tools during the pilot to communicate with banks, including interpretive letters, supervisory feedback, and technical assistance from OCC subject-matter experts—the tools would not include statutory or regulatory waivers. The OCC may address the legal permissibility of a product or service that a bank proposes to test as part of the program. The OCC would expect banks to address risks to consumers and would not permit into the program proposals that have potentially predatory, unfair, or deceptive features. Bank Charters for Fintech Companies One foundational way banking regulators can regulate institutions not traditionally covered by banking regulations, such as fintech companies, is to grant a banking license to a new type of firm. By doing this, the institution becomes covered by the regulatory framework that applies to other depository institutions, and the regulator can apply a similar supervisory framework to the new institution's operations. The OCC and FDIC recently have taken measures to consider charters for nonbank companies. The OCC's efforts are specifically targeted to fintech companies, and the FDIC's efforts could affect a fintech company's opportunity to become a chartered bank. OCC Special Purpose National Bank Charters for Fintech Companies Many nonbank financial companies are licensed at the state level. Thus, a fintech company wanting to do business across the United States would need to obtain 50 different state licenses and meet a complex set of 50 state regulations and standards in order to do so. In response to concerns about this complexity, the OCC requested comments in 2016 on a proposal to offer national bank charters to fintech companies. In 2018, it announced that it would begin offering charters to fintech companies. The OCC's charter initiative has been controversial. State regulators and consumer advocates have argued that granting such charters would inappropriately allow federal preemption of important state-level consumer protections, and that the OCC does not have the authority to grant bank charters to these types of companies. State regulators have filed lawsuits, and the matter is the subject of ongoing legal proceedings. Industrial Loan Company Charters and the FDIC24 In addition to traditional bank charters, several states offer a type of bank charter for industrial loan companies (ILCs). Recently, fintech firms have begun to explore these types of charters. ILCs chartered in some states are allowed to accept certain types of deposits if the FDIC has approved the ILC for deposit insurance. Given this condition, the FDIC is considering whether or not to grant deposit insurance to fintech firms; doing so would allow ILCs to operate, under certain state charters, what would be in effect full-service, FDIC-insured banks. Several technology-focused companies have applied to establish new ILCs. ILCs are regulated in two unique ways, which make them both attractive and controversial to certain fintech companies seeking to have deposit-taking bank operations: ILCs can be owned by a nonfinancial parent company, creating an avenue for commercial firms, such as fintech companies, to own a bank. Critics of ILCs argue this runs counter to the long-standing U.S. policy of separating banking and commerce. In some circumstances, these parent companies are not considered a bank-holding company; therefore a fintech company owning a bank as a nonfinancial parent company might not be subject to supervision by the Federal Reserve, pursuant to the Bank Holding Company Act of 1956 (BHCA; P.L. 84-511). Critics argue this would result in under regulation of an ILC parent company. In response to concerns over ILCs, the FDIC and Congress have in the past implemented moratoriums on approving FDIC-insurance for new ILCs. No new ILC charters have been granted since the end of the most recent moratorium in 2013, prompting ILC proponents to argue an unofficial moratorium is in effect without regulatory or statutory basis. By applying to establish new ILCs, technology companies have renewed public interest in ILCs in general. If the FDIC generally begins granting deposit insurance to ILCs, this could create a path for nontraditional banking companies beyond fintechs to offer bank services. FDIC Notice of Proposed Rulemaking on Parent Companies of Industrial Banks and Industrial Loan Companies The BHCA establishes the terms and conditions under which a company can own a bank in the United States and grants the Federal Reserve the authority to regulate these holding companies. In 1987, Congress enacted the Competitive Equality Banking Act of 1987 (CEBA; P.L. 100-86 ) to provide exemptions to permit certain financial and commercial companies to own and control industrial banks without becoming a bank-holding company under the BHCA. In granting deposit insurance for any insured depository institution, including industrial banks, the FDIC must assess the safety and soundness of the proposed institution and the risk posed to the Deposit Insurance Fund. Recent deposit insurance filings involving industrial banks have proposed ownership and control structures that would not be subject to federal consolidated supervision. To codify and enhance the FDIC's supervisory process with respect to these institutions, the FDIC issued a notice of proposed rulemaking on March 31, 2020, which would require certain conditions and commitments for agency approval of applications that would result in an insured industrial bank or ILC becoming a subsidiary of a company that is not subject to supervision by the Federal Reserve. The proposed rule would also require that the parent company and industrial bank or ILC enter into one or more agreements with the FDIC. Consumer Protection and Payments Innovation Many regulators have expressed interest in developing programs that facilitate innovation. Innovation can lead to new types of products for consumers, such as mobile payments, but it can also create obstacles for consumers to manage. Banking regulators and other financial system regulators, such as the Consumer Financial Protection Bureau (CFPB) (see " Consumer Protection Agencies: Approach to Fintech "), implement and promulgate rules pertaining to the payments system. (See Appendix B for these rules and other regulatory interests in payments innovation.) The payments system provides a few examples where new technologies create the potential for both benefits and risks to consumers. Federal Reserve FedNow Service The Federal Reserve's proposed FedNow Service payments initiative is one example of a regulator facilitating a new product for consumers. The Federal Reserve operates or regulates important elements of the payments and settlement system, including retail payment networks such as the FedACH network, multilateral settlement services such as the National Settlement Service, and real-time gross settlement systems such as Fedwire Funds Service. Recently, the Federal Reserve announced plans to develop the FedNow Service: a real-time payments and settlement system for peer-to-peer and business-to-consumer payments. The FedNow Service is expected to impact consumers as they continue to conduct commerce using electronic payments, mobile phones, and apps. Transacting in this way can lead to better outcomes for consumer budgeting, as transactions are settled in real time, but it also may impact a consumer's ability to resolve errors, as instantaneous payments are harder to stop or return. Given the importance of safety in the payments system, the Federal Reserve and a private organization called the Clearing House have both established real-time payments to create competition in the market for payments and settlement services, with the idea that competition will increase market discipline and enhance resiliency in the system. The Federal Reserve anticipates the FedNow Service will be available in 2023 or 2024. Outreach Offices for Stakeholders Each depository regulator has put together a working group or formal office to understand how new technologies may affect institutions under their jurisdictions and to establish a point of contact for industry. A summary of these efforts is presented below. Table B-1 in Appendix B provides a synopsis of the offices established by each financial regulator discussed in this report, and Appendix C summarizes other efforts, such as research programs, notable fintech conferences, and working groups. Federal Reserve Innovation Program In December 2019, the Federal Reserve established a series of programs to support financial innovation in the financial services marketplace. Part of this effort includes offering "office hours" to supervised financial institutions and nonbank fintech firms looking for information about financial innovation. These office hours are held at the various Federal Reserve Banks. The Federal Reserve also established a new website, which contains information about related supervisory information, regulatory guidance, staff speeches, publications, research, and events. The Reserve Banks have created working groups to address fintech issues, which are summarized in Appendix C . OCC Office of Innovation In 2015, the OCC began developing a "Responsible Innovation" framework to address issues of financial services innovations. This framework is summarized in Table C-1 of Appendix C . As part of the framework, the OCC created a group to meet with banks, fintech companies, consumer groups, regulators, and other stakeholders to discuss various issues, concerns, and areas of interest relevant to fintech. In 2017, the OCC formally established the Office of Innovation to implement its Responsible Innovation framework and provide a central point of contact for requests and information related to innovation. FDIC Tech Lab The FDIC recently has taken steps to establish fintech-specific programs. It created its own version of an office of innovation, the FDIC Tech Lab, or "FDiTech," in October 2018. The FDIC Tech Lab is intended to promote, coordinate, and understand the role of new innovations among technology firms, financial institutions, and other regulators. The Tech Lab's stated goals are to engage with financial and technology companies to identify opportunities to improve the safety and soundness of insured depository institutions, promote competition, increase economic inclusion, support risk management, and facilitate efficient resolution of failed institutions. Consumer Protection Agencies: Approach to Fintech The mandate for the consumer protection agencies—CFPB and FTC—is largely to ensure that consumers are unharmed by the practices of businesses under their jurisdiction while maintaining a competitive marketplace. Within the context of fintech, there are tradeoffs between these objectives. For instance, encouraging firms to offer new kinds of consumer-friendly financial services can help create a competitive market, but the new products also can create the potential for unforeseen risks to consumers. Similar to the banking regulators, the CFPB and FTC issue and promulgate regulations on issues pertinent to fintech, such as payments and data security, and both agencies have created outreach offices. The consumer protection agencies, however, tend to use enforcement actions as tools to manage the effects of fintech on the financial system to a greater extent than banking regulators. This partly is because the consumer protection agencies are responsible for implementing and enforcing consumer protection laws for many nonbank financial companies—unlike the banking regulators, which generally do not have enforcement authorities for nonbank financial companies. The consumer protection agencies use enforcement actions to balance their mandates with respect to fintechs in two additional ways: protect consumers by levying enforcement actions against firms that violate consumer protection laws, and promote market competition and facilitate innovations that benefit consumers by creating safe harbors for firms from enforcement actions in order to encourage firms to develop new technologies and solve challenges facing consumers. Whereas the CFPB has a broad range of regulatory authorities relevant to fintech, the FTC is somewhat limited to enforcement actions for many fintech activities, as it has some investigative authority but no supervisory authorities. Examples of these approaches are explored in more detail below. Enforcement Actions to Ensure Consumer Protection One way consumer protection agencies implement their legal authorities is through enforcement actions: agencies can take a number of actions to levy penalties against or stop firms that violate law or regulation. The FTC's enforcement actions include a number of orders that pertain to fintech firms. FTC Fintech Enforcement Actions The FTC enforces federal consumer protection laws that prevent fraud, deception, and unfair business practices, as well as federal antitrust laws that prohibit anticompetitive mergers and other business practices that could lead to higher prices, fewer choices, or less innovation. Companies that violate laws under FTC jurisdiction are liable for civil penalties for each violation. Over the past decade, the FTC has brought over 20 cases against telecommunications firms, money service businesses, prepaid card companies, and technology firms, among others, with operations relevant to fintech and in violation of FTC competition and fairness rules. Table 2 describes the outcomes of selected recent FTC fintech-related enforcement actions. Sandboxes and No-Action Letters to Promote Innovation Consumer protection agencies occasionally create policies or programs that temporarily shield firms from enforcement actions if they meet certain conditions. In the past few years, the CFPB has built upon its No-Action Letter (NAL) policy, which provides some assurances that if a company offers a product or service in a specific way, the agency will withhold enforcement actions for that particular activity. With respect to fintech, the CFPB has identified the NAL policy as a way to encourage firms to produce products and disclosures that may benefit consumers. Consumer protection agencies also promote innovation through programs such as sandboxes or greenhouses, which can allow firms to trial new ideas and products while being subject to a subset of the existing regulatory framework or while being granted safe harbor from certain enforcement actions (see " Regulatory Sandboxes "). CFPB No-Action Letter Policy In 2016, the CFPB introduced its NAL policy to withhold enforcement actions against qualifying consumer-friendly innovations and to help inform the CFPB on new products and services being offered. Although the CFPB anticipated limited participation in this original NAL policy, it announced its first NAL in 2017 to a company that used alternative data and machine learning in making credit underwriting and pricing decisions. To encourage more robust participation, the CFPB revised its NAL policy in 2019, amending the application and review process and reportedly strengthening its commitment to provide safe harbor to qualifying firms. CFPB Compliance Assistance and Revised Trial Disclosure Sandbox Policies The CFPB created sandbox programs to encourage certain firms to test consumer financial services by granting the firms temporary safeguards from liability and enforcement actions. In addition to creating the NAL policy, the CFPB created the Compliance Assistance Sandbox (CAS) policy to enable some firms to test certain innovative products by providing the firms with temporary safe harbor from liability under certain statutes. The CFPB expects participation in the CAS policy to be time-limited, typically two years, with extensions available in specific circumstances. In addition, Dodd-Frank allows the CFPB to provide trials for companies to test new types of disclosures—with safeguards from certain liabilities and on a basis that is limited in time and scope—to make them more effective for consumers. The CFPB first released a Trial Disclosure Policy (TDP) in 2013 and updated it in 2019 to encourage more robust participation. Outreach, Coordination, and Research Programs Similar to the banking regulators, the CFPB has an office that serves as a point of contact for industry and other stakeholders. The CFPB also created a network to facilitate policy coordination pertaining to fintech among the federal and state financial regulators. The FTC, to support its investigation authorities, has done research and outreach to try to better understand the ways fintech may impact consumer protection and market competition. These programs are briefly explained below, and additional information regarding these programs can be found in Appendix C . CFPB Office of Innovation In 2012, the CFPB created Project Catalyst to encourage "consumer-friendly innovation and entrepreneurship in markets for consumer financial products and services" by communicating and engaging with industry innovators. Through Project Catalyst, the CFPB studied issues surrounding access to credit, safeguarding financial records, cash flow management, student loan refinancing, mortgage servicing platforms, credit reporting, and peer-to-peer money transfers. The CFPB also held office hours, provided technical assistance, and offered an earlier version of the above-mentioned TDP and NAL policy programs—before the new Office of Innovation was created—designed to encourage firms to produce consumer-friendly innovations by safeguarding those products from CFPB enforcement actions. In 2018, the CFPB rebranded Project Catalyst, introducing a suite of policies and programs to centralize policies pertaining to consumer-focused innovation through a newly established Office of Innovation. The office provides a single point of contact for firms looking to participate in the revised NAL policy and sandbox policy programs, explained above. CFPB American Consumer Financial Innovation Network In September 2019, the CFPB launched the American Consumer Financial Innovation Network (ACFIN) of state regulators. The CFPB created ACFIN to enhance coordination among federal and state regulators and to facilitate financial innovation as regulators develop new regulations and apply existing ones. The network is open to all state and federal financial regulators, as well as state attorneys general. FTC Investigation of Fintech Issues The FTC develops policy and research tools through hearings, reports, workshops, and conferences to support its investigation authorities. Since 2012, the FTC has hosted numerous events and developed several reports on mobile payments, big data, marketplace lending, cryptocurrency scams, and small business financing. For example, the FTC has hosted several forums on fintech issues, including one on marketplace lending in June 2016, crowdfunding and peer-to-peer payments in October 2016, and artificial intelligence and blockchain technology in March 2017. In 2018, the FTC hosted an event on cryptocurrency scams for consumer groups, law enforcement, researchers, and the private sector as part of its consumer protection work. Securities Regulators: Approach to Fintech60 The securities regulators—the SEC and the CFTC—are focused on any securities-related activities, including those of fintech companies. Examples would include a fintech company raising capital by issuing equity through an initial coin offering or a firm creating a new technology for derivatives contracts. Given their mandate, the securities regulators have used a range of regulatory tools, largely focused on clarifying whether and how the existing regulatory framework applies to new types of technologies, including the following: writing rules and guidance to clarify how existing rules apply to new types of approaches to securities; issuing enforcement actions against any fintech firms that may violate the securities laws under their jurisdiction; and setting up fintech outreach offices to serve as points of contact for stakeholders. Examples of these regulatory approaches are provided below. Application of Existing Securities Rules to Fintech The SEC recently published guidance and rules on new capital-raising measures known as Initial Coin Offerings (ICOs) and crowdfunding, as well as on issues regarding automated investment advice ("robo advisors"). Both the SEC and CFTC have used their broad enforcement authorities to issue enforcement actions against digital asset practices that violated rules under their respective jurisdictions. Further, the SEC used its NAL policy (similar to that used by the CFPB, discussed above) to provide safe harbor to digital asset related companies. These initiatives are summarized below. SEC Guidance for Initial Coin Offerings Firms that issue cryptocurrencies may consider an ICO to raise capital by issuing digital assets to investors. In 2019, the SEC published a framework to build on 2018 guidance for companies to understand whether their ICOs qualify as securities and are subject to SEC regulation. The process of issuing an ICO is similar to a public companies' Initial Public Offering—a well- regulated and commonplace way to raise capital in equity markets for newly public companies—in that both aim to raise funding, but confusion may exist among investors and industry over whether digital assets are treated the same way under SEC regulation. SEC Crowdfunding Final Rule The Jumpstart Our Business Startups Act (JOBS Act; P.L. 112-106 ) contains provisions that establish a regulatory structure for startups and small businesses to raise capital through issuing securities using internet-based crowdfunding. Effective May 2016, the SEC adopted a rule to implement these provisions, thereby governing the offer and sale of such securities and providing a framework for regulating certain registered funding portals and other intermediaries. SEC Guidance for Automated Investment Advice The SEC has issued guidance for robo advisors, which provide automated investment advice. The staff guidance serves to inform registered and other investment advisers on how to comply with the relevant securities statutes. Compliance requires firms or sole practitioners compensated for advising others about securities investments to register with the SEC and conform to regulations designed to protect investors. SEC and CFTC Digital Asset Enforcement Actions and No-Action Letters The SEC has broad enforcement authorities, granting it the ability to suspend business practices through injunctions and to bring administrative proceedings, such as cease and desist orders. The SEC manages a robust enforcement action program across several industries and has issued 48 such actions against digital asset-related companies since 2013. Similarly, the CFTC issues enforcement actions to enforce derivatives laws; since 2018, it has issued more than 20 enforcement actions against firms related to Bitcoin and other cryptocurrency fraud schemes. In addition to its enforcement authority, the SEC grants NALs in some instances to provide relief from the SEC taking an enforcement action against a company. The SEC provided three such letters to digital asset companies in 2019. Outreach Offices for Stakeholders SEC Strategic Hub for Innovation and Financial Technology In 2018, the SEC created the Strategic Hub for Innovation and Financial Technology (FinHub) to serve as a resource for public engagement on fintech issues, such as distributed ledger technology, digital assets, automated investment advice, digital marketplace financing, and artificial intelligence/machine learning. FinHub, developed from numerous SEC internal working groups, also is designed to make the SEC's fintech work more accessible to industry and serve as a platform to inform the SEC's understanding of new financial technologies. LabCFTC LabCFTC is the focal point of the CFTC's efforts around financial innovation and is designed to make the CFTC more accessible to innovators. LabCFTC also serves as a platform to inform the CFTC's understanding of new technologies, providing information for CFTC staff that may influence policy development. LabCFTC seeks to promote responsible innovation to improve the quality, resiliency, and competitiveness of markets. It also aims to accelerate CFTC engagement with new technologies that may enable the CFTC to carry out its mission responsibilities more effectively and efficiently. There are two main components to LabCFTC: (1) GuidePoint, which creates a dedicated point of contact for stakeholders, and (2) CFTC 2.0, which serves as a beta testing environment for new technologies. Appendix A. Summary of Financial Regulator Mandates Banking Regulators Banks and credit unions serve a vital role in the economy. Thus, they are subject to a strong regulatory framework that requires institutions operate in a safe and sound manner. Depository institutions are routinely examined to ensure their business lines are healthy and to make sure they comply with various laws. These regulators also write and provide guidance on rules for depository institutions to implement their legal authorities over certain business practices. Although the mandates and authorities for each agency are a bit different, the agencies all serve as primary federal regulators for some kind of depository institution. The type of depository institution depends on whether a bank is chartered at the federal or state level and whether it is a member of the Federal Reserve System. (See Table A-1 .) Federal Reserve System The Federal Reserve Act of 1913 (P.L. 63-43) established the Federal Reserve as the central bank of the United States, comprising the Board of Governors and 12 Federal Reserve Banks. The Board generally sets policy, which is carried out by the Reserve Banks. In addition to its responsibility as the central bank to set monetary policy, the Federal Reserve is also responsible for supervising and regulating state banks that are members of the system and all bank-holding companies. The Federal Reserve also has an important role in operating the payments and settlement system. Table B-2 summarizes the Federal Reserve's notable recent activities in the payments system. Office of the Comptroller of the Currency The Office of the Comptroller of the Currency (OCC) was established in 1863 as a bureau of the U.S. Department of the Treasury. The OCC is the primary federal regulator for nearly 1,200 national banks, federal savings associations, and federal branches and agencies of foreign banks operating in the United States. The OCC grants national bank charters, which allow the charter holder to legally operate as a bank. Federal Deposit Insurance Corporation The Federal Deposit Insurance Corporation (FDIC), established by the Banking Act of 1933 (P.L. 73-66) and largely shaped into its modern form by the Federal Deposit Insurance Act of 1950 (P.L. 81-797), insures the deposits of banks and serves as the primary federal regulator for state-chartered banks and thrifts that are not members of the Federal Reserve. The FDIC manages the Deposit Insurance Fund, which provides the funds necessary to insure deposits and to resolve failed banks. The FDIC provides deposit insurance for deposits at all U.S. banks, both national and state, but most of the banks the FDIC supervises are smaller institutions, known as community banks. National Credit Union Administration In 1970, Congress amended the Federal Credit Union Act to establish the National Credit Union Administration (NCUA) as the regulator for the federal credit union system (P.L. 91-206). The NCUA supervises and insures deposit shares at federal credit unions and is responsible for resolving failing institutions. Consumer Protection Agencies Consumer protection laws and regulations are mainly within the jurisdiction of two agencies. The Consumer Financial Protection Bureau (CFPB) regulates certain financial firms for unfair, deceptive, and abusive acts and practices, as well as for compliance with several consumer protection laws. In addition, many firms—both financial and nonfinancial—are subject to oversight by the Federal Trade Commission (FTC), which regulates firms for competition and fairness. Consumer Financial Protection Bureau The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank; P.L. 111-203 ) established the CFPB to implement and enforce federal consumer financial law while ensuring that markets for consumer financial services and products are fair, transparent, and competitive. Dodd-Frank consolidated the consumer protection authorities promulgated by other agencies and provided CFPB new powers to issue rules declaring certain acts or practices associated with consumer financial products and services to be unlawful because they are unfair, deceptive, or abusive. The CFPB generally has regulatory authority over providers of an array of consumer financial products and services, including deposit taking, mortgages, credit cards and other extensions of credit, loan servicing, collection of consumer reporting data, and debt collection associated with consumer financial products. The scope of its supervisory and enforcement authority varies depending on an institution's size and whether it holds a bank charter. Federal Trade Commission Congress passed the Federal Trade Commission Act in 1914 to create the FTC and give it legal authority to protect consumers and promote competition. Specifically, the FTC looks to prevent unfair or deceptive acts or practices and to seek monetary redress or other relief for conduct deemed injurious to consumers. Generally, the FTC has broad investigation, rulemaking, and enforcement authorities that enable it to accomplish its mission. Securities Regulators Many companies issue stocks and bonds, trade derivatives, and offer other products collectively called securities. Securities are generally regulated by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). (The CFTC has specific responsibility for derivatives markets.) The securities regulators promulgate rules and provide oversight over the institutions in their jurisdiction. They also conduct enforcement actions to investigate and prosecute violations of relevant regulations. Securities and Exchange Commission Congress passed the Securities Exchange Act of 1934 (P.L. 73-291) to establish the SEC and restore confidence in the securities markets after the stock market crash of 1929. The SEC is an independent agency that has broad authority over much of the securities industry in order to protect investors, promote fair and efficient markets, and facilitate capital formation. Commodity Futures Trading Commission The CFTC was created in 1974 by the Commodity Futures Trading Commission Act ( P.L. 93-463 ) to address the expansion of commodities beyond agriculture. Prior to this law, commodities generally were regulated at the Commodity Exchange Authority, a former agency within the U.S. Department of Agriculture. The CFTC regulates the U.S. derivatives markets, including futures, options, and swaps, and implements the Commodity Exchange Act (CEA; P.L. 74-675). Similar to the SEC, the CFTC has rulemaking and enforcement authorities for a range of issues, but the CFTC's authorities focus on derivatives markets derived from the CEA. Appendix B. Financial Innovation Offices Appendix C. Select Regulatory Fintech Initiatives Federal Reserve System Innovation Programs OCC Responsible Innovation Framework The OCC's Office of Innovation implements its Responsible Innovation framework in a number of ways that are described and summarized in Table C-1 . For instance, the agency established an outreach and technical assistance program to establish a dialogue with banks, fintech companies, consumer groups, trade associations, and regulators. It engages in outreach through a variety of channels. Over the past two years, for example, the Office of Innovation hosted office hours in five different cities for over 125 stakeholders, approximately 250 additional meetings and calls with stakeholders, and over 100 conferences and other events. The office provides technical assistance to help banks and fintech companies understand OCC expectations, relevant laws, regulations, and guidance, such as the agency's third-party risk management guidance. The Office of Innovation also conducts research and develops content, including white papers, webinars, and collaborations with other OCC business units to deliver in-house training, including on payment technologies. The Office of Innovation convenes representatives from various OCC business units to develop a coordinated strategy on particular topics, and it forms working groups to consider particular issues to coordinate and facilitate discussion between stakeholders and the OCC. It also endeavors to reduce regulatory uncertainty and inconsistency, provides assistance to agencies interested in establishing innovation offices, and helps the OCC share information and communicate with other U.S. agencies on emerging trends and ways to improve its innovation initiatives. The OCC participates in various regulatory forums, such as the Financial Stability Board's Financial Innovation Network, and it serves as co-chair of the Task Force on Financial Technology, established by the Basel Committee on Banking Supervision (BCBS). Furthermore, the OCC collaborates on cybersecurity issues domestically and internationally through the Federal Financial Institutions Examination Council, the Financial and Banking Information Infrastructure Committee, and the BCBS. Consumer Financial Protection Bureau Financial Innovation Programs The CFPB's recent efforts pertaining directly to fintech are summarized in Table C-2 below. Financial Crimes Enforcement Network The Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Department of the Treasury charged with administering U.S. anti-money laundering (AML) and combating the financing of terrorism (CFT) laws, most notably the Bank Secrecy Act (BSA; P.L. 91-508). In 2018, FinCEN, along with the Federal Reserve, the FDIC, the NCUA, and the OCC, announced an effort to encourage banks and credit unions to take innovative approaches to combating money laundering, terrorist financing, and other illicit financial threats by enhancing the effectiveness and efficiency of BSA/AML compliance programs. FinCEN Innovation Initiative. FinCEN launched an Innovation Initiative to address the challenges and opportunities of BSA and AML-related innovation in the financial services sector. FinCEN's Innovation Initiative includes the FinCEN Innovation Hours Program and regulatory relief programs to facilitate innovation around AML/CFT compliance. Additionally, FinCEN suggested that it will consider incorporating testing programs, similar to sandboxes, and "Tech Sprints" to facilitate the development of innovative solutions to AML/CFT challenges. Innovation Hours Program. The Innovation Hours Program is the most recent addition to the FinCEN Innovation Initiative. FinCEN intends to host financial institutions, technology providers, and other firms involved in financial services to discuss their interests in innovation around AML/CFT compliance. Appendix D. Payments Regulation and Programs Consumers generally have shifted toward electronic payments such as debit and credit cards. Since 2001, the Federal Reserve has been studying consumer trends in payment activities on a triennial basis. In 2019, the CFPB issued a rule to grant protections to prepaid cards in a similar fashion to debit and credit cards—this reflects the shift in consumer preference toward electronic payments. However, regulatory actions around electronic payments may create adverse conditions for some consumers who rely on cash. Balancing the interests of a faster, efficient payment system with one that works for different types of consumers is a challenge currently facing the Federal Reserve and CFPB. Table B-1 shows a number of these rules, which can impact fintech companies that offer services or support payments operations through partnerships at banks. As the Federal Reserve contemplates the design of its proposed faster payments system, it has numerous long-standing payments groups working on fintech and related issues. Many of these groups focus on the payments market. An overview of the Federal Reserve's payments groups is provided in Table B-2 to show the scope of work of the agency and its Reserve Banks. Appendix E. CRS Fintech Products Cybersecurity CRS Report R44429, Financial Services and Cybersecurity: The Federal Role , by M. Maureen Murphy and Andrew P. Scott CRS Report R45631, Data Protection Law: An Overview , by Stephen P. Mulligan, Wilson C. Freeman, and Chris D. Linebaugh. CRS In Focus IF10559, Cybersecurity: An Introduction , by Chris Jaikaran. Lending CRS Report R44614, Marketplace Lending: Fintech in Consumer and Small-Business Lending , by David W. Perkins. CRS Report R45726, Federal Preemption in the Dual Banking System: An Overview and Issues for the 116th Congress , by Jay B. Sykes. Payments CRS Report R45927, U.S. Payment System Policy Issues: Faster Payments and Innovation , by Cheryl R. Cooper, Marc Labonte, and David W. Perkins. CRS Report R45716, The Potential Decline of Cash Usage and Related Implications , by David W. Perkins. Banks and Third-Party Vendor Relationships CRS In Focus IF10935, Technology Service Providers for Banks , by Darryl E. Getter. Cryptocurrency and Blockchain-Based Payment Systems CRS Report R45427, Cryptocurrency: The Economics of Money and Selected Policy Issues , by David W. Perkins. CRS Report R45116, Blockchain: Background and Policy Issues , by Chris Jaikaran. CRS Report R45664, Virtual Currencies and Money Laundering: Legal Background, Enforcement Actions, and Legislative Proposals , by Jay B. Sykes and Nicole Vanatko. CRS In Focus IF10824, Financial Innovation: "Cryptocurrencies" , by David W. Perkins. Digital Assets and Capital Formation CRS Report R46208, Digital Assets and SEC Regulation , by Eva Su. CRS Report R45221, Capital Markets, Securities Offerings, and Related Policy Issues , by Eva Su. CRS Report R45301, Securities Regulation and Initial Coin Offerings: A Legal Primer , by Jay B. Sykes. CRS In Focus IF11004, Financial Innovation: Digital Assets and Initial Coin Offerings , by Eva Su. High-Frequency Securities and Derivatives Trading CRS Report R44443, High Frequency Trading: Overview of Recent Developments , by Rena S. Miller and Gary Shorter. CRS Report R43608, High-Frequency Trading: Background, Concerns, and Regulatory Developments , by Gary Shorter and Rena S. Miller. Regulatory Approaches and Issues for Congress CRS In Focus IF11195, Financial Innovation: Reducing Fintech Regulatory Uncertainty , by David W. Perkins, Cheryl R. Cooper, and Eva Su. CRS Report R46332, Fintech: Overview of Innovative Financial Technology and Selected Policy Issues , coordinated by David W. Perkins.

New technologies in the financial services sector can create challenges for the various federal agencies responsible for financial regulation in the United States. As these regulators address the potential benefits and risks of innovation, policymakers have demonstrated significant interest in understanding the types of technologies that may benefit consumers and financial markets while identifying the risks that new financial services may present. As Congress considers the potential tradeoffs of financial technology or fintech , it can be useful to understand how the financial system regulators are approaching these issues. The financial system regulators can be grouped into three general categories: (1) depository institution regulators, (2) consumer protection agencies, and (3) securities regulators. Each type of regulator has the authority to write rules, publish guidance, supervise institutions, and enforce compliance with the laws they implement. Further, there are similarities and differences among each regulator's mandate, which shed light on the approaches the regulators tend to take when considering new fintech. The banking regulators generally are responsible for banks and credit unions, particularly focusing on the safety and soundness of these institutions. They have limited authority to write rules for, supervise the operations of, or enforce actions against firms outside their jurisdiction. Some banking regulators are responsible for granting licenses, or charters, to financial institutions so they can operate as banks and credit unions. Fintech firms typically are not licensed banks or credit unions; however, banks and credit unions often form partnerships with fintech firms, and banking regulators have legal authority to examine these types of relationships. This third-party partnership supervision allows the regulators to supervise depository institutions' interactions with new fintech firms. Banks and credit unions also have an important role in the payments system. Banking regulators have used some of their rulemaking authorities to influence technological advances in the payments system as consumers continue to shift toward electronic payment tools, such as debit and credit cards. The consumer protection agencies generally are responsible for protecting consumers from unfair and deceptive business activities while maintaining a fair, competitive marketplace. Similar to banking regulators, consumer protection agencies have rulemaking, supervision, and enforcement authorities to implement and ensure industry compliance with consumer protection and competition laws, but consumer protection agencies have broader jurisdiction than banking regulators. For example, often they can directly regulate fintech companies and use their enforcement authorities to interact with fintech. In addition, they have promulgated rules pertaining to aspects of fintech. Consumer protection agencies generally balance the potential benefits of new technologies that could improve consumer outcomes with the potential risks to consumers posed by new, untested products entering the marketplace. This mandate allows consumer protection agencies to take enforcement actions to protect consumers and create safeguards from enforcement actions to protect companies offering financial services that benefit consumers or the market. Securities regulators generally are concerned with protecting investors, maintaining fair and efficient markets, and facilitating capital formation. These regulators generally have limited concern for safety and soundness of the firms in their jurisdiction, focusing on disclosure requirements and contracts to promote investor protection and efficiency in the marketplace. Similar to the other regulators, they promulgate and enforce rules, but their mandate positions them somewhat differently than banking regulators and consumer protection agencies with respect to fintech. Securities regulators may endeavor to determine whether a new type of fintech product from a company counts as a security and how fintech is changing the way securities are offered. To this end, securities regulators tend to rely on their enforcement authority to ensure that new technologies do not violate securities laws.

GAO_GAO-20-70

Background Executive Retirement Plans Companies that offer executive retirement plans typically do so to supplement benefits provided under qualified retirement plans or to provide retirement benefits in lieu of a qualified retirement plan. In an executive retirement plan, a select group of managers or highly compensated employees defer the receipt of compensation earned in one year to be paid in a future year, generally at or after retirement. Executive retirement plans are not subject to certain statutory limits that apply to qualified retirement plans, such as limits on the annual amount of benefits received, the annual amount of contributions made to the plan, or the annual compensation level used to determine benefits and contributions. Executive retirement plans can be structured as defined benefit plans or defined contribution plans but generally must defer compensation to a future year. For executive retirement plans structured as a defined contribution plan, executives’ benefits are based on a plan account balance. During the deferral period, companies will typically allow executives to select from among a menu of market indices (e.g., of stock, or bond performance or of interest rates) or other investment options and base the plan account balance on the performance of those selections. The company generally credits plan contributions and changes in the value of the plan account balance to executives, but does not have to make actual investments that correspond to executives’ selections because companies are not obligated to designate funds for the plan before distributions are made. For executive retirement plans structured as a defined benefit plan, executives are typically paid based on a formula that accounts for salary and years of employment. Distributions from all executive retirement plans are made from company assets. In the first objective of this report, we discuss and illustrate the defined contribution form of executive retirement plans, except as otherwise indicated. Employee Retirement Income Security Act of 1974 ERISA contains various provisions intended to protect the interests of plan participants and beneficiaries in workplace retirement plans. These protections include requirements related to reporting and disclosure, participation, vesting, and benefit accrual, as well as plan funding. Generally, most of the substantive protections of ERISA do not apply to executive retirement plans. Specifically, ERISA requirements pertaining to participation, vesting, funding, and fiduciary responsibilities do not apply to executive retirement plans. The policy underlying the executive retirement plan exemption from the substantive provisions of ERISA has been described by DOL as based on a recognition by Congress that “certain individuals, by virtue of their position or compensation level, have the ability to affect or substantially influence, through negotiation or otherwise, the design and operation of their deferred compensation plan.” Additionally, ERISA grants DOL the authority to prescribe alternative methods of compliance for the reporting and disclosure provisions under Part 1 of Title I for any plan or class of plans, which includes executive retirement plans. Using this authority, DOL issued a regulation permitting administrators of executive retirement plans to submit a one- time single page filing statement to satisfy ERISA reporting requirements in 1975, according to DOL. DOL’s executive retirement plan filing statement includes: the name and address of the employer, the employer identification number (EIN) assigned by the IRS, a declaration that the employer maintains a plan or plans primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, and a statement of the number of such plans and the number of employees in each plan. In addition, plan administrators are required to provide plan documents to DOL upon request. The Internal Revenue Code and Tax Treatment of Executive Retirement Plans The Internal Revenue Code (IRC) provides preferential tax treatment for workplace retirement plans that meet certain qualification requirements set out in the IRC. The structure of tax incentives and certain limits on qualified retirement plans are intended to balance encouraging employers to establish and maintain voluntary, tax-qualified pension plans with ensuring lower-income employees receive an equitable share of the tax-subsidized benefits. Although executives may benefit from tax deferral under an executive retirement plan, these plans are not eligible for the same preferential tax treatment afforded to qualified retirement plans under the IRC. For the executive to be eligible for the tax deferral, executive retirement plans must be an “unfunded and unsecured” company promise to pay benefits in the future. Generally, for an executive retirement plan to be considered unfunded and unsecured, the executive’s rights to receive plan distributions will be no greater than the rights of an general unsecured creditor in the event of company bankruptcy or insolvency. Companies are not permitted to fund (i.e., set aside assets for the exclusive benefit of participants that are separate from company assets and beyond the reach of creditors) executive retirement plans while maintaining the benefits of tax-deferral for executives. However, companies are able to “informally fund” executive retirement plans by transferring amounts to a trust that remains part of the company’s general assets—often referred to as a “Rabbi Trust”—to help keep its promise to pay benefits. Because executive retirement plans are unfunded, executives’ benefits in these plans can be subject to credit risk of non-payment, such as in the event of a company bankruptcy, according to IRS officials. The IRC provides rules regarding deferring compensation in executive retirement plans, including restrictions on the timing of distributions, restrictions on payment acceleration, and restrictions on the timing of deferral elections. At the time of deferral, the amount of compensation deferred under the plan is generally excluded from executives’ income for tax purposes and not tax deductible for the company (see fig. 1). During the deferral period, because any assets associated with the executive retirement plan remain company assets (and subject to creditor claims), the company is subject to applicable taxes on any investment earnings attributable to the assets. Executives are subject to federal income taxes on their executive retirement plan distributions when they are received. However, if an executive retirement plan fails to meet the applicable requirements at any time during a taxable year, all of the compensation deferred, including investment earnings associated with the deferred compensation, is included in each executive’s gross income for the taxable year to the extent it is vested, along with an additional 20 percent tax on the compensation to be included in gross income plus additional income tax. Companies must defer taking their tax deductions, up to statutory limits, for plan contributions they make until the executive is taxed on those benefits. Additional Federal Regulatory Oversight In addition to DOL’s role under ERISA and IRS’s role administering the IRC requirements related to executive retirement plans, other federal agencies may have roles related to executive retirement plans. For example, SEC requires public companies to provide an annual proxy statement that includes information on the amount and type of executive compensation—including benefits from executive retirement plans—paid to their Chief Executive Officer (CEO), Chief Financial Officer (CFO), and the next three most highly compensated executive officers. Other federal agencies that play a role with respect to qualified retirement plans, such as the PBGC, may monitor the status of executive retirement plans in certain circumstances, such as in bankruptcy proceedings involving a company with both an executive retirement plan and a qualified single-employer defined benefit plan (see table 1). Most Large Public Companies Provide Their Top Executives with Executive Retirement Plans but the Federal Revenue Effects of these Plans Are Unknown Most Large Public Companies Provide Top Executives with Executive Retirement Plans According to our analysis, more than 400 of the 500 largest U.S. public companies provided executive retirement plans to almost 2,300 top executives, totaling about $13 billion in accumulated plan benefits in 2017 (see fig. 2). Although DOL collects limited data on the prevalence of executive retirement plans, public companies subject to SEC reporting requirements for executive retirement plans must report the benefits provided to the Chief Executive Officer (CEO), Chief Financial Officer (CFO), and the next three most highly compensated executive officers. Industry experts we interviewed said that most large companies offer executive retirement plans to help executives and highly compensated employees save more for retirement because most executives have reached the contribution and income limits imposed on savings in qualified retirement plans. Executive Retirement Plan Benefits Are Concentrated Among a Subset of Top Executives Top executives at large public companies generally accumulated more executive retirement plan benefits than top executives at smaller companies. The most recent available data from 2017 show that the average accumulated plan benefit among the top five executives in large companies was about $5.7 million, about twice as much as their counterparts in smaller companies, where the average was about $2.8 million. The average and median accumulated plan benefits generally remained consistent for large and smaller companies from 2013 to 2017 (see fig. 3). In addition, our analysis showed that, among the top five executives at large public companies, accumulated plan benefits are concentrated among a subset of these top executives based on their job title, company contributions, and plan type. The average accumulated plan benefit among top executives in large companies was consistently greater than the median accumulated plan benefit from 2013 to 2017 (see fig. 3). For example, as of 2017, the average accumulated plan benefit among top executives was more than four times the median, indicating that plan benefits for a smaller subset of executives is greater than a majority of other individual executives. Total Accumulated Plan Benefits by Title CEOs accumulated more executive retirement plan benefits than the next four highest compensated executives. As of 2017, the CEOs had accumulated, on average, about $14 million in executive retirement plan benefits. In contrast, CFOs had accumulated, on average, about $3 million and the next three most highly compensated executive officers with other titles accumulated an average of about $3.4 million in accumulated plan benefits. Our analysis also showed that, for each of the three job title categories (CEO, CFO, and the next three most highly compensated executive officers), the average accumulated plan benefits were at least twice the median amount from 2013 to 2017 (see fig. 4). Plans with Company Contributions From 2013 to 2017, about 80 percent of large companies that offered an executive retirement plan made company contributions to the plan. As of 2017, the average accumulated plan benefit for top executives among companies providing company contributions was more than $6.5 million. This was more than twice the average of nearly $2 million for executives in about 20 percent of the remaining companies that offered an executive retirement plan that did not include company contributions. Our analysis showed that plan benefits are also concentrated among a subset of executives as the average amount of accumulated plan benefits for executives in plans that received company contributions were several times greater than the median from 2013 to 2017 (see fig. 5). Executives with Defined Benefit Plans The top five executives with defined benefit executive retirement plans generally accumulated more plan benefits than those with defined contribution executive retirement plans alone. As of 2017, about 30 percent of large companies that sponsored an executive retirement plan offered a defined benefit plan, as compared with about 70 percent that only offered a defined contribution plan. In 2017, the top five executives at large companies with a defined benefit plan had accumulated plan benefits of nearly $9 million on average, more than twice the average of about $4.4 million for top five executives with defined contribution executive retirement plans alone. Our analysis showed that plan benefits are concentrated among a subset of executives as the average accumulated plan benefits for top five executives with a defined benefit plan was several times more than the median from 2013 to 2017 (see fig. 6). However, industry experts told us the number of companies offering defined benefit executive retirement plans has declined over time. Executive Retirement Plans Can Offer Executives Tax, Savings, and Financial Planning Advantages Executive retirement plans can help executives reduce their potential tax liability, increase retirement savings, and provide financial planning advantages through: (1) tax substitution of investment earnings, (2) additional company compensation for investment earnings, (3) additional company compensation for personal income taxes, and (4) allowable distributions during working years. Tax Substitution of Investment Earnings Treasury officials and some industry experts told us that executives who participate in executive retirement plans may be able to reduce their potential federal tax liability on plan investment earnings and increase their savings because these plans substitute the executive’s applicable individual tax rate on investment earnings with the company’s corporate tax rate (see fig. 7). In an executive retirement plan, the company defers compensation for the executive, but investment earnings on associated assets during the deferral period are taxed to the company at the company’s applicable corporate tax rate (see “Executive defers compensation” at top of fig. 7). In contrast, the executive who chooses not to defer compensation and instead takes the current compensation (paying income taxes) and invests the balance will pay taxes on investment earnings at the individual tax rate (see “Executive does not defer compensation” at bottom of fig. 7). The actual taxes paid under either scenario—deferring compensation or not—will depend on a number of factors, including the type of investments, if any, selected by the executive or the company, length of time invested, and applicable tax rates. For example, an executive who does not defer compensation and invests outside of the plan might select investments that are expected to produce long-term capital gains, which are taxed at lower individual rates than short-term capital gains. This same executive, if deferring compensation through the plan, might elect to invest in short-term bonds or investment earnings based on a market interest rate, which are taxed at a lower corporate tax rate inside the plan than outside. As another example, a company might invest deferred compensation in a tax-favored vehicle such as corporate- owned life insurance. According to Treasury officials and some industry experts, by participating in an executive retirement plan, executives may be able to effectively reduce their potential federal income tax liability during the deferral period because investment earnings on associated plan assets are taxed at the company’s corporate rate that may be lower than the executive’s individual tax rate. This tax substitution of investment earnings may allow the plan account to grow over time at a higher rate of investment return than if an executive invested in the same or similar assets outside the plan. Further, any such tax advantages may allow companies to reduce their total compensation costs. Conversely, Treasury officials told us the IRC may effectively disadvantage executive retirement plans to the extent the tax on an executive’s investment earnings outside the plan is lower than the tax the company would pay if invested through the plan. In this circumstance, the tax disadvantage may increase the cost of companies’ total compensation. However, our analysis of tax rates suggests that the corporate tax rate may be lower than the individual tax rate on several forms of investment income. In this case, the company may be able to achieve a higher after-tax rate of return on investments than the executive can, depending on the type of investment and amount of time invested. The lower the applicable corporate tax rate is relative to the applicable individual tax rate, the greater the tax benefit for the executive or the company. Treasury officials and some industry experts told us that, in this scenario, the potential tax advantage resulting from tax substitution of investment earnings is effectively a federal subsidy because the federal government receives less in tax revenue. And due to the effects of compounding, the tax advantage is also greater the longer the deferral period (and higher the investment return). Treasury officials and experts whose published work we reviewed and interviewed told us the potential effective federal tax subsidy for executive retirement plan investment earnings can be greater when companies have effective tax rates that are lower than statutory tax rates. This can occur, for example, when a company’s losses from the current year or losses carried over from prior years offset all other company income, including any investment earnings associated with their executive retirement plan. In these instances, the federal government could effectively subsidize the plan investment earnings because it receives no taxes on those earnings until funds are distributed. Additional Compensation for Investment Earnings Companies also provide executives with additional executive retirement plan compensation that increases their overall savings by not passing along taxes paid on investment earnings during the deferral period, according to Treasury officials and some industry experts. In this scenario, a company’s assets associated with the executive retirement plan are reduced for taxes it pays on investment earnings, but the executive’s corresponding plan account balance is unaffected by tax because the company provides the executive with additional plan compensation in the same amount as the taxes the company pays. Unaffected by taxation on investment earnings, the account balance accumulates over time at a pre-tax investment rate of return, rather than at the company’s potentially lower after-tax investment rate of return, until those funds are distributed to the executive. In this manner, this additional compensation provided by the company allows the account balance of an executive retirement plan to accumulate in the same way as in a qualified defined contribution retirement plan (e.g., a 401(k) plan). The additional compensation can result in a substantial benefit for an executive, and due to the effects of compounding, the benefit is greater the longer the deferral period (and higher the investment return). Additional Compensation for Personal Income Taxes Lastly, industry experts said some companies provide additional executive retirement compensation to pay for the personal income taxes that executives expect to pay when plan benefits are distributed. This practice is known as a tax “gross-up” because the company increases the amount of gross or pre-tax executive retirement plan benefits to pay for the executive’s anticipated income taxes at distribution. As a result, the executive effectively receives the total amount of the initial pre-tax benefit at distribution. For example, a company that wants an executive who is in the 37 percent income tax bracket to receive $1,000 from the plan on an after-tax basis would provide an additional $588 in plan compensation (for a total of $1588) to cover the executive’s anticipated taxes at distribution. Treasury officials said that while tax gross ups and other similar executive compensation practices provide an economic benefit to executives, these practices by companies to offset executives’ tax burden is a corporate governance issue for shareholders to decide and that tax law does not address their appropriateness. Some industry experts told us that it has become less common for public companies to offer tax gross-ups, mostly due to shareholder concerns about their appropriateness in light of required public disclosures. Plan Distributions during Working Years Executive retirement plans can also provide executives with financial planning benefits through allowable distributions during their working years. Treasury officials and industry experts said that while executive retirement plans are intended for retirement purposes, plans typically also allow executives to take distributions while still working. These distributions generally are allowed if they comply with applicable statutory requirements. Industry experts told us that executives can align distributions during their working years with income needs, such as to pay for a child’s college expense, or for specific goals, such as buying a home. Industry experts said that the ability to structure pre-retirement distributions can allow executives to smooth out their overall income over time to better coordinate use of other income sources during their working years and retirement, which they said can lead to overall tax savings. Federal Revenue Effects of Executive Retirement Plans Are Unknown Executive retirement plans can provide tax advantages that may have revenue effects for the federal government, but the extent of those effects currently is unknown. Treasury is responsible for providing economic analysis and revenue estimates of tax legislation for the executive branch, and Treasury officials said that the Congressional Joint Committee on Taxation prepares official revenue estimates of all tax legislation considered by the Congress. Treasury officials told us that while executive retirement plans do not receive the preferential tax treatment afforded to qualified retirement plans, these arrangements can result in tax advantages that may have revenue effects for the federal government. These officials explained that executive retirement plans are tax revenue neutral when corporate tax rates and individual tax rates (or taxes paid) are the same because the federal government would generally receive the same amount of taxes regardless of the executive’s decision to defer compensation. Treasury officials also told us that executive retirement plans could have federal revenue effects to the extent corporate and individual tax rates (or taxes paid) diverge from each other. Bankruptcies Reviewed Resulted in Various Expected Outcomes for Executive Retirement Plan Benefits Executive Retirement Plan Participants’ Expected Benefit Losses and Recoveries Varied Across Company Bankruptcies Reviewed Among the 38 Chapter 11 corporate bankruptcy cases we reviewed, 30 cases showed that participants in executive retirement plans expected to receive general unsecured creditor status when settling their plan benefit claims. As a general unsecured creditor, executives in these plans are part of what is typically the last creditor class to be paid in bankruptcy, and only if funds remain after claims from all other creditors with payment priority have been paid in full (see fig. 8). Our review of bankruptcy cases showed that executives’ expected losses and recoveries varied among the 30 Chapter 11 cases we reviewed where all or some plan participants were expected to receive general unsecured creditor status for their plan benefit claims (see fig. 9). In 21 of the 30 cases, plan participants were expected to sustain losses of more than 75 percent of their plan benefit claims, and in 17 of these 21 cases, participants were estimated to lose 90 percent or more. However, the remaining nine cases showed that participants were expected to recover more than half of their plan benefit claims with six of those cases expecting a full recovery and one case expecting a 99 percent recovery. Companies generally file for bankruptcy when they do not have sufficient assets to pay off their debts. Bankruptcy and industry experts said that executive retirement plan participants as general unsecured creditors may expect to sustain a significant or even a total loss of their deferred compensation in a company bankruptcy. However, bankruptcy and industry experts noted that the level of losses or recoveries depends on the facts and circumstances of each case, including the type of bankruptcy the company filed. Our review of bankruptcy cases showed differences in expected benefit losses and recoveries based on whether the bankrupt company intended to continue to operate by filing a reorganization plan or sell all of its assets to pay creditors by filing a liquidation plan. Among the 30 Chapter 11 bankruptcy cases where participants in executive retirement plans were expected to receive general unsecured creditor status, 14 filed a reorganization plan and 16 filed a liquidation plan. Reorganization Among the bankruptcy cases we reviewed, executives were generally estimated to sustain less severe claims losses and recover more of their plan benefits if their company filed a reorganization plan to continue to operate and restructure its debts. In seven of 14 reorganization cases we reviewed, executive retirement plan participants were estimated to recover about 80 percent or more of their plan benefit claims, with participants in six of those cases expected to fully recover their benefits. In contrast, participants in the remaining seven of 14 cases were estimated to sustain benefit claims losses of about 20 percent or more, with participants in five cases expected to lose 90 percent or more. Industry experts told us plan participants are more likely to sustain fewer losses when their bankrupt company reorganizes because it has a plan to emerge from bankruptcy and pay its debts as it continues to operate. Bankruptcy and industry experts noted that in some reorganization cases, general unsecured creditors can receive full recoveries. Liquidation Executives were generally estimated to sustain greater plan benefit claim losses if their company filed a liquidation plan. In 15 of 16 liquidation cases we reviewed, executive retirement plan participants were estimated to sustain losses of nearly 50 percent or more of their plan benefit claims. Participants in the remaining case were expected to nearly fully recover their benefits. Industry experts told us that whether a company has a viable post-bankruptcy future affects its ability to fulfill its debt obligations, including paying promised plan benefits to executive retirement plan participants. Bankruptcy experts said the severity of plan benefit claims losses for participants is generally greater when a bankrupt company liquidates because it signals the end of a company and is a last resort after it has exhausted all other options to restructure its debts and continue to operate. Executive Retirement Plan Benefits Were Expected to be Maintained in Some Bankruptcies Reviewed Where Participants Were Not Expected to Receive General Unsecured Creditor Status Among the 38 Chapter 11 bankruptcy cases we reviewed, 11 involved the situation where all or some of the executive retirement plan participants were not expected to receive general unsecured creditor status for their benefit claims. Although the circumstances varied among these 11 cases, the expected outcome was that some of these participants’ plan benefits which were accrued at or around the time the company filed for bankruptcy were expected to be preserved or paid. Reorganization Among the 11 cases we reviewed in which executive retirement plan benefits were expected to be maintained, eight occurred with a bankrupt company that filed a reorganization plan. In three of the eight cases, benefits for all plan participants were expected to be preserved; in five cases participants were divided into different groups where some were expected to have their benefits preserved and others were not. Bankruptcy and industry experts said that, paying plan benefit claims in a bankruptcy often depends on the financial health of the company and the value of the executive to the future of the company. These experts also said that not all executive retirement plan participants receive the same treatment for their claims. These experts added that a common scenario is to preserve in some manner the benefits for key executives who are retained, while giving executives who are not retained, or former executives no longer with the company, less favorable treatment as a general unsecured creditor. Industry experts also told us that some executive retirement plan participants’ benefits may be preserved or the participants may be provided with more favorable treatment because they are key executives who need to be retained to help ensure their company successfully reorganizes and emerges from bankruptcy. These experts explained that key executives may not be willing to risk staying on without assurances that accrued plan benefits will be preserved or made up in some manner. Bankruptcy and industry experts said that because key high-level executives can be integral to the success of a company reorganization, its major creditors are more likely to agree to preserve plan benefits for them because it will likely result in increased overall recoveries and greater benefits for their stake in the company. Lastly, bankruptcy and industry experts said that in order for bankrupt companies to retain key executives, they typically need to provide assurances that, in addition to executive retirement plan benefits, executives will receive other forms of compensation. Bankruptcy and industry experts noted that because various forms of executive compensation may be interchangeable to the executive, informal agreements may be arranged so that executive retirement plan benefit losses that may occur as a general unsecured creditor are made-up through other forms of compensation. However, they told us these types of arrangements are not discernable from bankruptcy filings. Liquidation In three of the 11 cases we reviewed in which executive retirement plan benefits were expected to be preserved, the companies filed a Chapter 11 liquidation plan. Court filings indicated executive retirement plan participants in two of the three cases received distributions shortly before the company filed bankruptcy. In one case, the bankruptcy estate chose not to seek to recover those funds despite restrictions for early distributions before a bankruptcy in part because the costs to recover the monies outweighed the benefits. Bankruptcy and industry experts said that while there are restrictions and penalties for early distributions before a bankruptcy, the costs and time associated with suing to recover monies can discourage bankruptcy estates from pursuing legal action. Opportunities Exist to Strengthen Agency Oversight Efforts to Protect Benefits and Prevent Ineligible Employees from Participating in Executive Retirement Plans IRS Provides Little Oversight of Companies with Executive Retirement Plans during a Restricted Period IRS oversees executive retirement plans for compliance with the IRC during audits of companies who offer such plans. The Pension Protection Act of 2006 amended the IRC to provide that, during a restricted period, which includes bankruptcy, if a company that sponsors a qualified single- employer defined benefit plan sets aside or reserves assets in a trust for the purposes of paying nonqualified deferred compensation (which includes executive retirement plan compensation) to applicable covered employees (key executives), the key executives are required to include the amount of assets in their gross income for the taxable year. A restricted period is defined as: (1) any period in which the plan sponsor is a debtor in bankruptcy; (2) any period when the qualified single-employer defined benefit plan of the company is in at-risk status; or (3) the 12- month period that begins 6 months before the date the qualified single- employer defined benefit plan is terminated if, as of the termination date, the plan’s assets are not sufficient to cover benefit liabilities. In general, a company’s qualified single-employer defined benefit plan is in at-risk status if it is less than 80 percent funded. As part of its oversight effort, IRS officials said that its examiners can use IRS’s Nonqualified Deferred Compensation Audit Techniques Guide (the guide) to audit these plans for compliance with the IRC, including the relevant provision, which was added by the Pension Protection Act of 2006. The guide describes the requirements in section 409A of the IRC related to deferred compensation set aside during a restricted period. While the guide is designed to provide guidance for IRS employees, the guide is publicly available and also useful for businesses and tax professionals who prepare returns. However, the guide does not instruct examiners or other users on how to determine compliance with the relevant provision. For example, the guide does not instruct examiners or other users to determine if the company has set aside assets—such as by making contributions of funds to a Rabbi Trust—to pay deferred compensation during bankruptcy. It also does not require examiners or other users to obtain data sufficient to determine whether there exists a restricted period with respect to the company’s qualified single-employer defined benefit plan. Lastly, it does not provide instructions regarding the type of data to collect or questions to ask to determine whether a company’s defined benefit plan is in a restricted period. When asked if additional instructions were available to examiners on auditing companies with these plans for compliance with the relevant provision, IRS officials pointed us to sections of the Internal Revenue Manual (IRM), IRS’s primary source of instructions to staff, and other internal training manuals. However, we found no specific instructions in these sources related to the relevant IRC provision or its oversight. IRS officials said examiners can also review SEC filings to determine whether there exists a restricted period with respect to a company’s qualified single-employer defined benefit plan. However, SEC filing requirements do not apply to many privately-held companies, limiting the usefulness of this information source for IRS audit examiners for this purpose. IRS officials also said that Form 5500, Annual Return/Report of Employee Benefit Plan, and the attached schedules are available on the DOL website and that examiners can download and review these data during their examinations. For example, officials said information on the 5500 Form’s Schedule SB, Single-Employer Defined Benefit Plan Actuarial Information, can be used to verify the income tax deduction for contributions to pension plans. Specifically, the schedule’s Item 4 box, Part I Basic Information, will be marked if the plan is in at-risk status. The form, however, does not capture whether companies set aside assets for the purpose of paying deferred compensation or elicit information about a company’s bankruptcy. Moreover, the IRM, the guide, and the IRS training manuals provide no instruction to examiners regarding how to review this information during audits of companies with executive retirement plans. IRS also may be able to use non-confidential information that PBGC collects to monitor the financial condition of companies that sponsor single-employer defined benefit plans. In its capacity to provide plan termination insurance, PBGC monitors single-employer defined benefit plans—including companies’ financial condition and plans’ at-risk status— through a variety of reporting requirements and initiatives. For example, because PBGC represents itself and the pension plan and participants as a creditor when companies (publicly and privately-held) sponsoring single-employer defined benefit plans file for bankruptcy, it is aware of such bankruptcy filings. PBGC also uses data that companies are required to report on Form 5500, describing the assets and liabilities of their single-employer defined benefit plans, to identify when a defined benefit plan is underfunded or in at-risk status. IRS may be able to use the timely, non-confidential information PBGC possesses to help IRS identify whether companies with single-employer defined benefit plans are setting aside assets for the purpose of paying deferred compensation under an executive retirement plan during a restricted period. Federal standards for internal control require federal agencies to obtain and use quality information and to communicate this information to internal and external parties that can help the agency achieve its objectives and address related risks. Without providing specific instruction to its examiners to collect and evaluate information that describes company actions relative to this requirement limiting tax deferral for key executives for amounts deferred under an executive retirement plan and set aside by the company during a restricted period, IRS cannot sufficiently determine if companies are including these amounts in the executives’ gross income as required by the IRC provision. Without taking steps to improve the sufficiency of its audit instructions to help strengthen its oversight, IRS cannot know if companies are reporting the correct amount of income for taxation for these key executives and if the correct amount of tax is being paid by the executives in these instances. IRS also may not be collecting additional taxes and interest due from key executives who participate in executive retirement plans. Absent improved IRS oversight in this area, companies may be failing to report assets set aside to pay deferred compensation to key executives while in a restricted period as income for these employees. To the extent some companies are failing to report this income, they may continue to do so at the cost of foregone federal tax revenues while lacking an important incentive from IRS to cease this practice. Required DOL Reporting on Executive Retirement Plans Does Not Include Complete and Timely Data on Employee Participation Another aspect of executive retirement plan oversight is ensuring that only eligible executives are allowed to participate since these plans are excluded from most of ERISA’s substantive protections. DOL requires companies to report on their executive retirement plans, but the reporting lacks important information that could allow the agency to identify plans that may be including ineligible employees. Currently, under its alternative reporting method regulation, DOL regulations require the administrator of the executive retirement plan, typically the sponsoring company, to submit a one-time single page filing statement within 120 days of the executive retirement plan being established to satisfy ERISA reporting requirements (see fig. 10). According to DOL officials, no other filings are required for executive retirement plans to comply with Part 1 of Title I of ERISA. The information provided in the filing statement does not describe the job title or salary of executives participating in the plan, the percentage of the company’s workforce that is eligible to participate, or the actual percentage of employees who participate in the plan; nor does it compare the salaries of executives with rank-and-file workers. Because DOL only requires companies to submit the filing statement once within 120 days of plan formation, the agency is not aware when participation in the plan changes over time or if plans are terminated. When asked if these additional data would be useful to the agency, one DOL official said that they could be used to increase oversight of executive retirement plans. For example, the official said if the filing statement included the percentage of the company’s workforce that participated in such a plan, a high participation percentage could signal to DOL that the company might be permitting employees to participate in the plan who do not meet the “select group” requirements, and that such information could prompt a DOL audit. However, the DOL official said the agency would need to evaluate how the data would be used and the collection costs before determining the data’s overall value. The preamble to DOL’s regulation states that the agency chose to require limited reporting because these plans are for executives who generally have access to information concerning their rights and obligations under the plan and do not need ERISA protections. Moreover, DOL officials said there is no statutory requirement specifically directing the agency to collect executive retirement plan data and no requirement for companies to file an amended filing statement to report substantive plan changes. However, ERISA authorized DOL to prescribe an alternative method of reporting and the agency chose to require a limited one-time single page filing statement for executive retirement plans. DOL officials said the data currently collected can only be used for simple analysis or to facilitate the agency’s ability to respond to requests from Congress, the media, or the public. This limited usefulness regarding eligibility is due to the age and limits of the original data submitted. However, officials told us there currently is no plan to place executive retirement plan reporting on DOL’s regulatory project agenda. Federal standards for internal control state that agencies should (a) use quality information to achieve its objectives; (b) obtain data from reliable sources in a timely manner based on identified information requirements; and (c) process the data into quality information—information that is appropriate, current, complete, accurate, accessible, and timely—to support its internal control system. Without reviewing or clarifying its reporting requirements to allow the agency to collect more useful information on executive retirement plans, DOL will continue to lack insight into the composition of these plans and, as a result, may be missing opportunities to ensure that companies with executive retirement plans are meeting the eligibility requirements for the plan. Experts Have Indicated Companies are Often Unclear on How to Establish Executive Retirement Plan Eligibility Many industry experts we spoke to said that eligibility requirements for executive retirement plans are not clearly defined and that companies are unclear on how to establish eligibility. DOL has acknowledged that at least in one case a company may have denied ERISA protections to rank- and-file employees by allowing them to participate in executive retirement plans. DOL officials also said the agency has issued guidance on the executive retirement plan provisions in ERISA. For example, DOL pointed us to Advisory Opinion 90-14A, which DOL officials said is the agency’s most recent advisory opinion on provisions related to plan participant eligibility. The Advisory Opinion restates that executive retirement plans are excluded from most of ERISA’s substantive protections and describes DOL’s view that the term “primarily,” as used in the statute, refers to the purpose of the plan—the benefits provided—rather than the participant composition of the plan (see fig. 11). The Advisory Opinion further states DOL’s view that executive retirement plans that include employees who are not from a select group of management or highly compensated would fail to constitute a “select group” under ERISA, which would subject the plan to all of the requirements of Title I. Despite the information in the Advisory Opinion, several industry experts expressed the view that DOL’s current policy lacks specific information on the factors companies should consider when establishing eligibility for participation in these plans. Recent industry surveys we reviewed have suggested some companies may be extending employee eligibility to a relatively high percentage of their workforce—in some cases, more than 30 percent—and to relatively lower-paid or lower-ranked employees. For example, results from a recent survey of executive retirement plan sponsors suggested that just over 8 percent of respondents offer eligibility to between 20 to 30 percent of their workforce and just over 4 percent offer eligibility to more than 30 percent of their employees. Further, over 20 percent of respondents indicated that over 15 percent of their workforce was considered highly compensated employees and eligible to participate in an executive retirement plan. Industry experts pointed to court cases that they identified as contributing to the confusion regarding executive retirement plan eligibility, including cases that have suggested a limit on the percentage of employees who may participate in an executive retirement plan and still constitute a select group. Several industry experts suggested that DOL could help to address this issue in the future by providing a safe harbor that describes limits or thresholds companies could follow to establish eligibility. Two industry experts identified a range of possible information DOL could provide, such as a ceiling on the percentage of the company’s workforce permitted to participate, job titles that could be eligible for participation, or a compensation threshold. Industry experts also suggested more detailed information on factors to consider for eligibility, rather than a “one-size-fits-all” design, would help to ensure the information would be flexible enough for a variety of companies to apply. We asked DOL officials about issuing clarifying information on the statutory requirements under ERISA for eligibility into these plans. DOL officials stated that the agency has the authority to do so but has no plans to issue guidance because it has not encountered eligibility problems during plan audits and enforcement actions. Rather, DOL officials said that in light of resource constraints, other high priority guidance projects, and the absence of systematic abuses involving these plans, it does not believe it advisable to shift resources from other projects to undertake a guidance project in this area. DOL officials said the agency no longer renders decisions on the status of “select group” eligibility for executive retirement plans in advisory opinions or in response to external inquiries because such determinations involve factual questions that are not well suited to an advisory opinion or informal participant assistance process. Federal standards for internal control require federal agencies to communicate quality information externally through reporting lines so that external parties can help the entity achieve its objectives and address related risks. By exploring ways it may be able to help reduce the incidence of ineligible employees participating in executive retirement plans, DOL could help ensure ineligible rank-and-file employees are not participating in these plans and are receiving the applicable protections under ERISA. One such way may be by providing information to companies on factors to consider when determining a “select group” to aid companies in establishing plan eligibility. A related issue that companies can face is dealing with eligibility decisions that turn out to be in error. DOL officials told us they have not issued any guidance on how companies are to correct eligibility errors found in executive retirement plans. Officials referred us to a 2015 amicus brief DOL filed in a particular case that described the department’s views on how companies might consider addressing eligibility errors. The amicus brief suggests that the company could modify the plan to exclude the ineligible rank-and-file employees and award them the full vesting and other protections under ERISA while maintaining the plan’s status under ERISA as an executive retirement plan for those executives who do qualify. However, the amicus brief states that DOL took no position on the form of equitable relief appropriate under ERISA to redress an employer’s violation of vesting requirements by including rank-and-file employees in an executive retirement plan. The amicus brief also suggests that this approach would avoid providing a windfall gain to executives who properly could have been included in such a plan, because they possess sufficient bargaining power to protect their rights, and are not the intended beneficiaries of the substantive provisions under Parts 2, 3, and 4 of Title I of ERISA. When asked about this remedy, DOL officials said that funds from the executive retirement plan could be distributed to a qualified retirement plan for rank-and-file employees, with their benefits immediately fully vested and receiving ERISA protections. When we discussed the possible remedy described in the amicus brief with IRS officials, they said that while 409A regulations were being drafted, they were aware that applying strict distribution rules could have adverse tax consequences for rank-and-file employees participating in executive retirement plans. IRS officials said that removing these employees from these plans and awarding them full vesting of their benefits under Title I of ERISA could violate section 409A, raising concerns that the possible remedy noted in DOL’s amicus brief may be inadequate for companies seeking a method to correct plan errors. Officials also said that there are certain exceptions under section 409A when accelerated payments may be permitted; however, IRS officials said there is no current exception permitting an accelerated payment to be made to a rank-and-file employee in order to correct a violation of Title I of ERISA. IRS officials said they are willing to work with DOL to promulgate new section 409A regulations to create an exception to the accelerated payment rule for plans that seek to remove ineligible rank-and-file employees from the plan and make distributions to an employee’s qualified retirement plan in order to maintain the plan’s ERISA exemption. However, IRS officials said that prescribing corrective action in these situations is under DOL’s purview and that DOL first would need to further delineate the meaning of an executive retirement plan employee and then decide the proper approach for removing ineligible rank-and-file employees from a plan before any new regulations under section 409A could be considered. As mentioned above, federal standards for internal control require federal agencies to externally communicate necessary quality information to achieve their objectives. Without additional information from DOL on what companies can do to reduce the incidence of ineligible rank-and-file employees participating in these plans, some ineligible employees may continue to participate in some instances, potentially subjecting them to unexpected tax consequences such as if they are removed from the plan and the payment of their deferred compensation is accelerated. Further, without knowing how to properly remove ineligible rank-and-file employees when they are found participating in executive retirement plans, companies may be uncertain on how to re-establish an executive retirement plan’s exemption from the substantive provisions of Title I of ERISA for otherwise eligible participants. Conclusions Although executive retirement plans are an important retirement savings vehicle for corporate executives and other highly compensated employees, little is known about certain key aspects of these arrangements. While some federal regulatory data exist on plans provided to the top five executives of publicly owned companies, information about the design, participation, and benefits provided under plans offered by privately owned companies or offered to employees beyond top five executives are largely unknown, as is their net revenue effect on the federal government. In addition, IRS has not taken steps nor collected adequate information to know if companies under audit with a qualified single-employer defined benefit plan are setting aside assets for the purpose of paying benefits deferred under executive retirement plans while the companies are in at- risk status—a practice the law intended to discourage. Through effective oversight, IRS can help ensure that it is collecting the appropriate amount of income taxes as a result of this potential practice. Another important consideration with respect to executive retirement plans is their potential to permit ineligible rank-and-file employees to participate in the plan, thereby leaving such employees without the protections of ERISA. Little information is available at the federal level about who is included in executive retirement plans because companies provide minimal information to DOL only once when they implement such a plan. By revisiting its reporting requirements, DOL can help ensure that only executives who can bear the risks inherent in these plans are permitted to participate. DOL has other opportunities to diminish this risk by providing assistance to companies, such as additional information describing plan eligibility, which could help companies reduce the incidence of rank-and-file employees participating in these plans. In addition, DOL can provide direction that companies can follow to remove rank-and-file employees found participating in these plans to ensure their benefits are protected and coordinate with the IRS so that these employees do not incur unexpected tax consequences that could result from erroneous inclusion in an executive retirement plan. Recommendations for Executive Action We are making a total of four recommendations, including one to IRS and three to DOL. The IRS Commissioner should develop specific instructions within the Internal Revenue Manual, the Nonqualified Deferred Compensation Audit Techniques Guide, or other IRS training material to aid examiners in obtaining and evaluating information they can use to determine whether there exists a restricted period with respect to a company with a single- employer defined benefit plan and if a company with a single-employer defined benefit plan has, during a restricted period, set aside assets for the purpose of paying deferred compensation under an executive retirement plan. (Recommendation 1) The Secretary of Labor should review and determine whether its reporting requirements for executive retirement plans should be modified to provide additional information DOL could use to oversee whether these plans are meeting eligibility requirements. (Recommendation 2) The Secretary of Labor should explore actions the agency could take to help companies prevent the inclusion of rank-and-file employees in executive retirement plans and determine which, if any, actions should be implemented. (Recommendation 3) The Secretary of Labor should provide specific instructions for companies to follow to correct eligibility errors that occur when rank-and-file employees are found to be participating in executive retirement plans, and should coordinate with other federal agencies on these instructions, as appropriate. (Recommendation 4) Agency Comments and Our Evaluation We provided a draft of this report to DOL, IRS, PBGC, SEC, Treasury, and the United States Trustee Program within the Department of Justice for review and comment. DOL, IRS, PBGC, SEC, and Treasury provided technical comments, which we have incorporated where appropriate. IRS and DOL also provided formal comments, which are reproduced in appendices II and III, respectively. In response to our recommendation to develop specific instructions to aid IRS examiners in monitoring executive retirement plans for compliance with federal tax law, IRS stated that they would review and consider developing further specific instructions within the Internal Revenue Manual, the Nonqualified Deferred Compensation Audit Techniques Guide or other IRS training material to aid examiners. GAO continues to maintain that implementing this recommendation will help ensure that IRS is aware of when companies with at-risk single-employer defined benefit plans are reporting assets set aside to pay deferred compensation to key executives while in a restricted period as income for those employees. DOL stated that it does not have plans to issue guidance or regulations regarding executive retirement plans, citing, among other considerations, existing resource constraints and priority regulatory and guidance projects in development, and that it would not be advisable to shift resources from other projects. GAO continues to maintain that DOL’s one-time single page alternative reporting for executive retirement plans lacks important information sufficient to help the agency identify whether companies may be including ineligible employees in its plan and DOL’s current data on executive retirement plans has limited usefulness due to the age and limits of the original data submitted. DOL also stated that the agency has not encountered evidence of systematic abuses involving executive retirement plans or that ERISA’s claims procedure rules and judicial remedies are inadequate to protect participants’ benefit rights. As we report, industry surveys indicate that some companies may be extending employee eligibility to high percentages of their workforce who are lower- paid and lower-ranked employees who may not be considered a part of a select group. Industry experts also told us that plan eligibility requirements for executive retirement plans are not clearly defined and that companies are unclear on how to establish eligibility, and they identified court cases that contribute to the confusion regarding plan eligibility. Additionally, the remedy DOL suggested in an amicus brief for companies to follow to correct eligibility errors in these plans could have unintended consequences for participants because, according to IRS officials, it could result in violations of federal tax law and additional tax for participants. Without implementing our recommendations, DOL will continue to be unable to ensure that only executives who can bear the risks inherent in these plans are participating. We urge DOL to develop instructions to correct eligibility errors, in coordination with other federal agencies, as needed, in a way that does not adversely affect rank-and-file employees participating in these plans. 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 to the appropriate congressional committees; the Secretaries of the Departments of the Treasury, Labor, and Justice; the Commissioner of the Internal Revenue Service; the Chairman of the Securities and Exchange Commission; and the Director of the Pension Benefit Guaranty Corporation. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or jeszeckc@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 contributions to this report are listed in appendix IV. Appendix I: Objective, Scope, and Methodology This report examines (1) what is known about the prevalence, key advantages, and revenue effects of executive retirement plans; (2) the potential outcomes of executive retirement plan benefits in company bankruptcy; and (3) how federal agency oversight protects benefits and prevents ineligible participation in executive retirement plans. Overall Methodology To address these objectives, we reviewed relevant federal laws, regulations, guidance, and other agency documents related to executive retirement plans. We reviewed relevant research on executive retirement plans, which we identified with the help of a GAO librarian, through stakeholder interviews, by reviewing sources cited in documents we obtained, and through limited internet searches driven by stakeholder and documentary evidence. This research included published research on the costs of executive retirement plans on the companies that offer them and the revenue effects on the federal government. We interviewed a non- generalizable sample of executive retirement plan experts representing different roles in the industry, including plan consultants, plan providers (including record keepers and insurers), attorneys, investment advisors, actuaries, proxy advisors, and researchers. We also interviewed an array of bankruptcy experts—including those with experience in executive compensation—to understand bankruptcy procedure and the treatment of executive retirement plans in company bankruptcy. We selected executive retirement plan and bankruptcy experts to interview based on a combination of published work, breadth and depth of experience, as well as peer referrals. We interviewed representatives from industry associations representing a diverse range of stakeholder groups, such as those that offer, provide services to, or conduct research on executive retirement plans. As part of this effort, we contacted the American Institute of Certified Public Accountants to discuss their perspective on the use of executive retirement plans but they declined to meet with us. We also interviewed agency officials from the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA), Department of the Treasury’s Office of Tax Policy, the Internal Revenue Service (IRS), the Securities and Exchange Commission, the Pension Benefit Guaranty Corporation (PBGC), and the United States Trustee Program within the Department of Justice. Prevalence of Executive Retirement Plans To understand the prevalence of executive retirement plans, we analyzed data provided by the Main Data Group (MDG), an executive compensation benchmarking and corporate governance analytics firm. MDG compiled the data provided from required SEC disclosures from filing years 2013 to 2017 (the most recent data available at the time of our analysis) for executive retirement plan benefits provided to top executives in Standard & Poor’s (S&P) 500 and Russell 3000 companies as reported in the annual 10-K, proxy statement, and other documents. Companies listed in the S&P 500 are generally also listed in the Russell 3,000. The SEC generally requires public companies to disclose executive compensation information—including executive retirement plan benefits— provided to the Chief Executive Officer, Chief Financial Officer, and the next three most highly compensated executive officers. These data are principally found in the annual proxy statement within the Summary Compensation Table, Pension Benefits Table, and Nonqualified Deferred Compensation Table. The data include executive retirement plan benefits offered as a defined benefit plan and defined contribution plan. For a given year, the total accumulated value of executive retirement plans structured as a defined benefit provided to top executives are based on the “present value of accumulated benefit” and “payments during the last fiscal year” as reported in the Pension Benefits Table. For defined contribution plans, the total accumulated values are based on the “aggregate balance at last fiscal year end” and the “aggregate withdrawals/distributions” for the reporting period as disclosed in the Nonqualified Deferred Compensation Table. To determine the average level of plan benefits for top executives, we summed the total accumulated plan benefits for all top executives in a given year and divided them by the total number of executives. For the median, we sorted the total accumulated plan benefits for all executives in a given year and determined the midpoint. To assess the reliability of the data provided, we interviewed MDG officials regarding their data collection processes. We also independently compared executive retirement plan data from a random sample of SEC filings obtained from Edgar (the SEC’s public database for required disclosures) with data for the same companies as reported by MDG. We found the data to be sufficiently reliable for the purpose of describing the prevalence of executive retirement plans among companies subject to SEC’s disclosure requirements. Corporate Bankruptcy Case Reviews To understand the expected outcomes for executive retirement plan benefits during company bankruptcy, we analyzed data collected from our non-generalizable review of a random sample of companies that offered an executive retirement plan and filed for bankruptcy during the period from October 17, 2005—the effective date for most of the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (2005 Bankruptcy Act)—through November 30, 2017— the most recent at the time of our analysis. The 2005 Bankruptcy Act made significant changes to federal bankruptcy law, including provisions limiting executive compensation in corporate bankruptcy. Using the unique Employer Identification Number (EIN) the IRS assigns to companies, we matched corporate Chapter 7 and Chapter 11 bankruptcy cases with DOL’s database of executive retirement plans to obtain lists of companies that filed for bankruptcy and offered at least one executive retirement plan. We obtained lists of corporate bankruptcy filings from New Generation Research Inc.’s (NGR) online database. NGR is a provider of data on corporate bankruptcies and companies in financial distress. We obtained from DOL its comprehensive list of executive retirement plans as filed with the agency from July 1982 to August 2017. The NGR and DOL data are not exclusive to public or private companies. To assess the reliability of the NGR and DOL data, we corresponded with officials regarding their respective data collection processes and requirements. We found the data to be sufficiently reliable for our purposes. The results of our data matching produced 138 Chapter 7 cases and 594 Chapter 11 cases of companies that filed for bankruptcy and offered an executive retirement plan. We reviewed a random selection of 151 cases (30 Chapter 7 and 121 Chapter 11) from a total of 732 relevant bankruptcy cases. To review bankruptcy court cases, we developed a standardized protocol to review each identified case and data collection instrument to input the data. The protocol included step-by-step instructions for reviewers to follow, including prescribed court documents to review and data to be collected. We obtained feedback on our case review protocol and data collection instrument from two outside bankruptcy experts—an attorney with expertise in the tax aspects of corporate bankruptcies and a bankruptcy law professor and former attorney who previously served as a federal bankruptcy judge—and incorporated their technical feedback on the documents. We also worked with a GAO methodologist to pretest our case review protocols and data collection instruments on a review of a select sample cases from the matched list to ensure our review process could collect reliable data between different reviewers. To obtain bankruptcy case documents to review, we used court filings obtained from PACER exclusively and did not rely on other data sources. PACER is an electronic public access service provided by the Federal Judiciary that allows users to obtain case and docket information online from federal appellate, district, and bankruptcy courts. Case documents are available on PACER as they are filed or entered into the court’s case system. Based on our case review protocol, we reviewed (where available), the court docket, case summary, bankruptcy petition, first day motions, management affidavit, schedule of assets and liabilities, statement of financial affairs, court-approved disclosure statement, court- approved plan (of reorganization or liquidation), and settlement agreements, among other documents with information relevant to executive retirement plans and their expected resolution in bankruptcy. We reviewed cases based on documents available in PACER between April and May 2018. Our review of 151 cases (30 Chapter 7 and 121 Chapter 11) from the matched lists resulted in 38 Chapter 11 cases where we identified executive retirement plan benefits in existence at or around the time of company bankruptcy and were able to determine the expected resolution of those benefits for employees as a result of the bankruptcy proceeding. As part of our review, we excluded cases if: (1) we were unable to confirm the presence of an executive retirement plan through review of court documents, (2) the case did not have a court-approved disclosure statement with estimated recovery percentages for various creditor classes in the case docket, or (3) if the case was open (i.e., not terminated) and had a reorganization or liquidation plan confirmed on or after May 2016, about 2 years from the start of our review. For the foregoing reasons, we were unable to identify expected outcomes in any of the Chapter 7 cases reviewed. For Chapter 11 cases, we were unable to ascertain actual outcome information for any of the cases we reviewed, but based the expected outcome of the executive retirement plan benefits on estimates provided in the court-approved disclosure statement, bankruptcy plan (reorganization or liquidation), or settlement agreement, which may differ from actual recoveries. To determine the expected resolution of executive retirement plan benefits, we reviewed case filings for evidence of specific treatment provided to employees with these claims. To the extent we did not find evidence of specific treatment for executive retirement plan benefits, we relied on estimated recovery information for the class of general unsecured creditors. Because the nature of bankruptcy proceedings depends on the facts and circumstances of each individual cause, the results of our analysis are not generalizable but provide illustrative examples of the potential outcomes of such cases. Review of Selected Court Cases and Surveys on Plan Eligibility and Participation We reviewed selected court cases related to employee eligibility in executive retirement plans as identified by DOL, industry experts, and other literature. We also reviewed executive retirement plan surveys produced by industry firms, including plan sponsor organizations, benefit consultancies, record keepers, and other plan providers. We also interviewed representatives from many of these organizations regarding the use of executive retirement plans and determined that their survey data generally accorded with these discussions. We found the data to be sufficiently reliable for our purposes. Appendix II: Comments from the Internal Revenue Service Appendix III: Comments from the Department of Labor Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, the following individuals made important contributions to this report: Tamara Cross (Assistant Director), David Lin (Analyst-in-Charge), Ted Burik, Dan Powers, and David Reed. Also contributing to this report were James Bennett, Joanna Berry, Colenn Berracasa, Sherwin Chapman, Nina Daoud, Sarah Gilliland, Laura Hoffrey, Angie Jacobs, Kirsten Lauber, Ted Leslie, Avani Locke, Sheila R. McCoy, James R. McTigue Jr., Jeffrey Miller, Ed Nannenhorn, Oliver Richard, Marylynn Sergent, Frank Todisco, Walter Vance, Kathleen Van Gelder, and Adam Wendel.

Some types of employers offer executive retirement plans to help select employees save for retirement. There are no statutory limits on the amount of compensation that executives can defer or benefits they can receive under these plans. However, employees in these plans do not receive the full statutory protections afforded to most other private sector employer-sponsored retirement plans, such as those related to vesting and fiduciary responsibility, among other things. These plans can provide advantages but they also have disadvantages because plan benefits are subject to financial risk, such as in a company bankruptcy. GAO was asked to review these plans. This report examines, among other objectives, (1) the prevalence, key advantages, and revenue effects of executive retirement plans and (2) how federal oversight protects benefits and prevents ineligible participation. GAO analyzed industry-compiled Securities and Exchange Commission plan data for 2013 to 2017 (the most recent data available at the time of our analysis); reviewed relevant federal laws, regulations, and guidance; and interviewed officials from IRS and DOL, among others. Executive retirement plans allow select managers or highly compensated employees to save for retirement by deferring compensation and taxes. As of 2017, more than 400 of the large public companies in the Standard & Poor's 500 stock market index offered such plans to almost 2,300 of their top executives, totaling about $13 billion in accumulated benefit promises. Top executives at large public companies generally accumulated more plan benefits than top executives at the smaller public companies in the Russell 3000 stock market index. Advantages of these plans include their ability to help executives increase retirement savings and potentially reduce tax liability, but the plans come with risks as well. To receive tax deferral, federal law requires the deferred compensation to remain part of a company's assets and subject to creditor claims until executives receive distributions (see figure). Department of Treasury officials and industry experts said executive retirement plans can be tax-advantaged and may have revenue effects for the federal government; however, the revenue effects are currently unknown. The Internal Revenue Service (IRS) oversees executive retirement plans for compliance with federal tax laws. For example, IRS must ensure that key executives are taxed on deferred compensation in certain cases where that compensation has been set aside, such as when a company that sponsors a qualified defined benefit retirement plan is in bankruptcy. However, IRS audit instructions lack sufficient information on what data to collect or questions to ask to help its auditors know if companies are complying with this requirement. As a result, IRS cannot ensure that companies are reporting this compensation as part of key executives' income for taxation. The Department of Labor (DOL) oversees these plans to ensure that only eligible employees participate in them since these plans are excluded from most of the federal substantive protections that cover retirement plans for rank-and-file employees. DOL requires companies to report the number of participants in the plan; however, the one-time single page filing does not collect information on the job title or salary of executives or the percentage of the company's workforce participating in these plans. Such key information could allow DOL to better identify plans that may be including ineligible employees. Without reviewing its reporting requirements to ensure adequate useful information, DOL may continue to lack insight into the make-up of these plans and will lack assurance that only select managers and highly compensated employees are participating.

CRS_R46334

Introduction The global pandemic of Coronavirus Disease 2019 (COVID-19) is affecting communities around the world and throughout the United States, with the number of confirmed cases and fatalities growing daily. Containment and mitigation efforts by U.S. federal, state, and local governments have been undertaken to "flatten the curve"—that is, to slow the widespread transmission that could overwhelm the nation's health care system. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P.L. 116-136 ) was enacted on March 27, 2020. It is the third comprehensive law to address the pandemic. In addition to its health provisions, the CARES Act provides additional supplemental appropriations to support federal response efforts and authorizes a number of economic stimulus measures, among other things. The CARES Act follows two other laws that made supplemental appropriations and amended health care financing and public health authorities to respond to the pandemic. The first, the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 ( P.L. 116-123 ), enacted on March 6, 2020, provides roughly $7.8 billion in discretionary supplemental appropriations to the Department of Health and Human Services (HHS), the Department of State, and the Small Business Administration. This act also waives certain telehealth restrictions to make telehealth services more available during the emergency. The second, the Families First Coronavirus Response Act (FFCRA, P.L. 116-127 ), enacted on March 18, 2020, provides authority, funding, and/or requirements to cover COVID-19 testing and related services under federal programs, many private health insurance plans, and for the uninsured (as defined in the act). Among other provisions, it temporarily increases the federal share of Medicaid assistance to states, provides additional Medicaid assistance to territories, and waives liability and establishes injury compensation for certain respiratory protection devices. A Snapshot of CARES Act Health Provisions Medical supply shortages. The COVID-19 pandemic has affected the medical product supply chain both globally and domestically, resulting in widespread shortages of medical countermeasures (MCMs) and other critical medical supplies. MCMs are medical products that may be used to treat, prevent, or diagnose conditions associated with emerging infectious diseases or chemical, biological, radiological, or nuclear threats. Examples of MCMs include biologics (e.g., vaccines), drugs (e.g., antivirals), and devices (e.g., diagnostic tests and personal protective equipment, or PPE). The CARES Act includes several provisions to address such shortages, including expanding reporting requirements for firms that experience interruptions in drug and device manufacturing; explicitly requiring that the Strategic National Stockpile (SNS) contain PPE, ancillary medical supplies, and other applicable supplies; and extending liability protections for certain respiratory protective devices used during emergencies. The CARES Act also requires a study of U.S. dependence on critical drugs and medical devices imported from or manufactured in other countries. Vaccine access and cost. A vaccine(s) for the COVID-19 virus, if and when it becomes available, will be provided or required to be covered without cost-sharing to patients and beneficiaries of federal health programs and most private health insurance enrollees, pursuant to numerous provisions in Division A, Title III, of the CARES Act. The CARES Act does not explicitly address vaccine access for the uninsured. However, with available appropriations and preexisting authorities, the HHS Secretary could assist safety net providers (e.g., health centers), health departments, and other entities in furnishing vaccines to this population. The medical workforce. The CARES Act makes a number of changes to health workforce programs. Some changes aim to extend the services available during the COVID-19 period and beyond, particularly for rural or otherwise underserved populations. For example, the CARES Act confers medical malpractice liability on health professionals who choose to volunteer during the emergency period and amends the program rules for the National Health Service Corps (NHSC) program to permit individuals to volunteer during the emergency period. The CARES Act also reauthorizes a number of health workforce programs that had been considered for reauthorization during the 116 th Congress, but prior to the CARES Act no reauthorization of these programs was enacted. Marketing of over-the-counter drugs. The CARES Act establishes a new process for the marketing of certain over-the-counter (OTC) drugs, including hand sanitizer and sunscreen. Specifically, Title III replaces the current OTC drug monograph rulemaking process with an administrative order process—a less burdensome alternative. It also provides an expedited process for removing from the market certain OTC drugs that pose a public health hazard and for requiring certain safety labeling changes. The CARES Act provides an incentive—18 months of marketing exclusivity—to firms that make certain changes to previously marketed OTC drugs and creates a new user fee program to fund FDA's OTC monograph drug activities. Report Contents This report describes the majority of health-related sections in Division A, Title III of the CARES Act, "Supporting America's Health Care System in the Fight Against the Coronavirus." Relevant background is provided for context. Specifically, this report describes provisions regarding, among other things the following: The medical countermeasures (MCMs)—drugs, tests, treatments, medical devices, and supplies such as PPE—including research and development; product regulation by the Food and Drug Administration (FDA); the strategic national stockpile (SNS); and other supply chain matters. The health workforce, including telehealth programs, the rural health care system, and the Commissioned Corps of the U.S. Public Health Service (USPHS). Additional workforce provisions described in this report include reauthorization and extension of appropriations for existing Health and Human Services (HHS) health workforce programs, and liability limitation. Provisions addressed at the Medicare and Medicaid programs and on private health insurance plans to temporarily require, or increase payment for, telehealth services and specified services related to COVID-19 testing, diagnosis, or treatment. A newly established FDA authority for OTC drug review. This report does not address education or labor provisions in Subtitle B or C in Part IV of Title III, or provisions in Subtitle E of Part IV of Title III, "Health and Human Services Extenders," which are described in another CRS report. The report also does not include Division B of the act, which provides emergency supplemental appropriations for the COVID-19 response. Division B includes additional funding for numerous HHS public health and social services activities, and a $100 billion fund to reimburse eligible health care providers for health care-related expenses or lost revenues attributable to COVID-19. This report concludes with an Appendix that catalogues deadlines, effective dates, and reporting requirements for provisions described in the report. The report does not discuss cost estimates for specific provisions; however, the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) provided a preliminary estimate of the budget effects of the CARES Act. Overall, the act is estimated to increase federal deficits by $1.8 trillion over the 2020-2030 period. This estimate breaks down these budgetary effects into three categories: a $988 billion increase in mandatory outlays; a $446 billion decrease in revenues; and a $326 billion increase in discretionary outlays from supplemental appropriations. The estimates that CBO generated for health programs in Title III include programs in Subtitle E of Part IV of Title III, "Health and Human Services Extenders," which are not discussed in this report. Among the provisions discussed in this report, JCT estimates that Section 3702, which expands the products that are eligible for tax-advantaged distributions from health savings accounts (HSAs), health flexible spending arrangements (FSAs), and other similar tax-advantaged savings arrangements, will reduce revenues by $9 billion over a ten-year period from 2020-2030. CBO also estimated the costs of a number of Medicare payment changes included in CARES Sections 3701-3715. These provisions generally increase the amount that Medicare will reimburse for services; as such, CBO estimates that they will increase Medicare spending from 2020-2030. CBO also noted that some provisions—e.g., the requirement for Medicare to cover the costs of vaccines for COVID-19—cannot be estimated because no such vaccine has been developed at this time. In general, these CBO estimates are based on assumptions about the severity and duration of the pandemic, and they may vary substantially from final estimates to be provided later this year. This report is intended to reflect the CARES Act at enactment (i.e., March 27, 2020). It does not track the law's implementation or funding and will not be updated. This report is one of a number of CRS reports related to COVID-19; additional CRS products on COVID-19 are available at https://www.crs.gov/resources/coronavirus-disease-2019 . Definitions, Abbreviations, and Acronyms "Section 319" Public Health Emergency Numerous provisions in the CARES Act refer to the Public Health Emergency declaration made pursuant to Section 319 of the Public Health Service Act (PHSA). The "Section 319" authority allows the HHS Secretary to carry out a specified set of actions to address public health emergencies, such as expediting or waiving certain administrative requirements that would otherwise apply to federal activities or federally administered grants. Some provisions refer to "the emergency period declared under section 319" or similar construction, meaning the time during which a Section 319 declaration is in effect. The declaration for COVID-19 was made on January 31, 2020, retroactive to January 27, 2020. It is in effect for 90 days and is expected to be renewed and remain in effect for the duration of the response. Several provisions in Title III, Subtitle D, regarding health care financing and amending the Social Security Act (SSA), refer to "the emergency period described in section 1135(g)(1)(B)" or comparable construction. Section 1135 allows the HHS Secretary, under certain conditions, to waive specified requirements and regulations to ensure that health care items and services are available to enrollees in the Medicare, Medicaid, and State Children's Health Insurance Program (CHIP) programs during emergencies. Paragraph (1)(B) of SSA Section 1135(g) refers specifically to "the public health emergency declared with respect to the COVID-19 outbreak by the Secretary on January 31, 2020, pursuant to section 319 of the [PHSA]," and any renewal of such declaration. Hence, these references to SSA Section 1135(g)(1)(B) simply mean the period during which the Section 319 public health emergency declaration for COVID-19—whether initial or renewed—is in effect. Additional Definitions and Acronyms Throughout this report, unless otherwise stated, the "Secretary" means the HHS Secretary. Mentions of "this section" refer to matters addressed under that specific section of the CARES Act. This report uses a number of acronyms, listed in the table below. CARES Act Health Provisions in Title III Subtitle A—Health Provisions Part I—Addressing Supply Shortages—Subpart A—Medical Product Supplies The COVID-19 pandemic has affected the medical product supply chain both globally and domestically. Domestically, the pandemic has highlighted existing limitations in the U.S. medical product supply chain, including lack of transparency regarding where specific medical products and their components are manufactured and heavy reliance on foreign countries for drugs and medical devices. Perhaps most salient has been the impact of COVID-19 on the availability of PPE, such as respirators for health care personnel, and other respiratory devices, such as ventilators for patients. Although the federal government and states generally have stockpiles of PPE and ventilators to distribute during public health emergencies, stockpiled quantities have been insufficient to meet current needs. FDA, with other agencies, has taken various steps to prevent and mitigate shortages of critical PPE and respiratory devices, for example, by waiving certain regulatory requirements and by enabling access to respirators and other medical devices that have not received agency clearance prior to marketing. Section 3101. National Academies Report on America's Medical Product Supply Chain Security Background The extent to which the United States relies on other countries for medical products is not completely known, but available data suggest a heavy reliance. According to FDA, as of August 2019, 72% of facilities that manufacture active pharmaceutical ingredients (APIs) and 53% of facilities manufacturing finished drugs for the U.S. market are located outside of the United States. FDA is unable to determine the volume of APIs that a specific country manufactures for the domestic or global market. The 2019 annual report from the U.S.-China Economic and Security Review Commission states that the United States sources 80% of its APIs from foreign countries and has identified China as the world's largest producer of APIs. Recent reports have identified limitations in FDA's ability to oversee foreign drug manufacturing facilities and have indicated that FDA inspections of these facilities have decreased since 2016. The COVID-19 pandemic has further restricted FDA's ability to oversee the increasingly globalized medical product supply chain, causing FDA to postpone most foreign facility inspections until at least May 2020. Provision Section 3101 requires the Secretary, within 60 days of enactment, to enter into an agreement with the National Academies of Science, Engineering, and Medicine (NASEM) to examine and report, "in a manner that does not compromise national security," on the security of the U.S. medical product supply chain. The report must assess and evaluate U.S. dependence on critical drugs and devices from other countries; provide recommendations (e.g., a plan to improve resiliency of the supply chain); and address any supply vulnerabilities or potential disruptions that would significantly affect or pose a threat to public health or national security, as appropriate. In conducting the study and developing the report, NASEM must consider input from federal departments and agencies and consult with stakeholders through public meetings and other forms of engagement. Section 3102. Requiring the Strategic National Stockpile to Include Certain Types of Medical Supplies Background The federal government maintains a supply of medicine and medical supplies to respond to a public health emergency severe enough to deplete local supplies (e.g., hurricane, infectious disease outbreak, or terrorist attack). This supply, known as the Strategic National Stockpile (SNS), includes antibiotics, intravenous fluids, and other medical supplies such as PPE and ventilators. In addition, the SNS contains certain medicines, such as anthrax and smallpox vaccines and treatments that may not be otherwise available for public use. In 2019, HHS stated the SNS contained approximately $8 billion worth of supplies. In FY2018, management of the SNS transferred from the Centers for Disease Control and Prevention (CDC) to the Assistant Secretary for Preparedness and Response (ASPR). Provision This section amends PHSA Section 319F-2(a)(1) to require the Secretary to maintain a stockpile of "drugs, vaccines and other biological products, medical devices, and other supplies." This act further defines "other supplies" as "including PPE, ancillary medical supplies, and other applicable supplies required for the administration of drugs, vaccines and other biological products, medical devices, and diagnostic tests in the stockpile." Some of these types of supplies, such as PPE, were included in the stockpile even before enactment of this clarifying language. Section 3103. Treatment of Respiratory Protective Devices as Covered Countermeasures Background In 2005 Congress passed the Public Readiness and Emergency Preparedness Act (PREP Act, P.L. 109-417 ), which authorizes the federal government to waive liability (except for willful misconduct) for manufacturers, distributors, and providers of MCMs, such as drugs and medical supplies, needed to respond to a public health emergency. The act also authorizes the federal government to establish a program to compensate eligible individuals who suffer injuries from administration or use of products covered by the PREP Act's immunity provisions. Section 6005 of FFCRA ( P.L. 116-127 ) explicitly added personal respiratory protective devices used for the COVID-19 response to the list of countermeasures covered by the PREP Act. Provision Section 3103 amends PHSA Section 317F-3 to change the definition of such covered devices to apply more broadly, to "a respiratory protective device that is approved by the National Institute for Occupational Safety and Health (NIOSH) under part 84 of title 42, Code of Federal Regulations (or any successor regulations), and that the Secretary determines to be a priority for use during a public health emergency declared under [PHSA] section 319." Subpart B—Mitigating Emergency Drug Shortages Background Drug shortages have remained a serious and persistent public health concern, despite the prevention and mitigation efforts of Congress, FDA, and the private sector. Causes of drug shortages include manufacturing and quality issues, lack of transparency in the supply chain, and business decisions made by individual firms (e.g., low profit margins leading to market exit). The Federal Food Drug and Cosmetic Act (FFDCA) and FDA regulations require manufacturers of certain drugs to submit to FDA specified information related to product shortages. In addition, the FFDCA and FDA regulations allow FDA to take action to mitigate or prevent shortages and require FDA to make public certain information about drug shortages. More specifically, FFDCA Section 506C(a) requires that the manufacturer of a drug that is life-supporting, life-sustaining, or intended for use in the prevention or treatment of a debilitating disease or condition notify the Secretary (FDA by delegation of authority) of any permanent discontinuance or interruption in the manufacture of the drug that is likely to disrupt its U.S. supply. The notification must include the reasons for the interruption or discontinuance. FFDCA Section 506C(g) allows FDA, based on notifications received pursuant to Section 506C(a), to expedite facility inspections and review of supplements to new drug applications (NDAs), abbreviated NDAs (ANDAs), and supplements to ANDAs that could help mitigate or prevent a drug shortage. FFDCA Section 506E requires FDA to maintain a public, up-to-date list of drugs that are in shortage. The list must include the name of the drug in shortage, the name of the manufacturer, and, as determined by FDA, the estimated duration of and reason for the shortage. Persons that engage in the "manufacture, preparation, propagation, compounding or processing" of a drug must register their facility with FDA. FFDCA Section 510(j) requires that at the time of registration, such persons must file a list of all drugs being "manufactured, prepared, propagated, compounded or processed" for commercial distribution. Facilities registered with FDA are subject to inspection by the agency. FFDCA Section 704(b) requires that after a facility has been inspected, the inspector must provide a report, in writing, to the person in charge of that facility detailing the observations that led the inspector to determine that a product made in that facility may be adulterated. A copy of this report also must be sent to FDA. Section 3111. Prioritize Reviews of Drug Applications; Incentives Section 3111 amends FFDCA Section 506C(g) to require —rather than allow as was the case prior to the CARES Act—FDA to prioritize and expedite—rather than expedite as prior to CARES—facility inspections and review of ANDAs and supplements to NDAs and ANDAs that could help mitigate or prevent a drug shortage. Section 3112. Additional Manufacturer Reporting Requirements in Response to Drug Shortages Section 3112(a) amends FFDCA Section 506C(a) to extend notification requirements to the manufacturer of any drug "that is critical to the public health during a public health emergency declared by the Secretary" under PHSA Section 319. It also requires a manufacturer to notify FDA of any permanent discontinuance or interruption in the manufacture of an API—not just the finished drug—that is likely to lead to a meaningful disruption in the supply of the API of such drug. The notification must include, in addition to the reasons for the drug's discontinuance or interruption, as applicable, information about the source of the API and alternative sources, as well as whether any associated device used in the preparation or administration of the drug has contributed to the shortage, among other information. Section 3112(b) amends FFDCA Section 506C to add a new subsection (j). New FFDCA Section 506C(j) requires the manufacturer of a drug, API, or associated medical device subject to the notification requirements under FFDCA Section 506C(a), as amended, to develop, maintain, and implement a redundancy risk management plan, as appropriate. Such plan should identify and evaluate risks to the supply of the drug, as applicable, for each facility in which the drug or API is manufactured. The plan is subject to inspection and copying by the Secretary. Section 3112 (c) amends FFDCA Section 506E to require the Secretary, not later than 180 days after enactment and every 90 days thereafter, to transmit to the Centers for Medicare & Medicaid Services (CMS) a report regarding the drugs on the current drug shortage list. Section 3112 (d) amends FFDCA Section 704(b) to require that following the inspection of a facility manufacturing a drug at risk of shortage or with limited competition, a copy of the inspection report be sent "promptly" to all appropriate FDA offices with expertise in drug shortages. Specifically, this requirement applies to the inspection of a facility manufacturing a drug—approved under an NDA or ANDA—for which a notification has been submitted under FFDCA Section 506C(a) (regarding an interruption in manufacturing or discontinuance), a drug that has been on the shortage list under FFDCA Section 506E in the past five years, or a drug with no blocking patents or exclusivities for which there are not more than three approved drugs listed in the Orange Book. Section 3112(e) amends FFDCA Section 510(j) to require each drug manufacturer that registers with FDA to report annually to the Secretary for each listed drug "the amount that was manufactured, prepared, propagated, compounded, or processed by such person for commercial distribution." The Secretary may require this information to be submitted in electronic format, may require that this information be submitted at the time a public health emergency is declared under PHSA Section 319, and may exempt certain biologics from these reporting requirements if the Secretary determines it is not necessary to protect the public health. Subpart C—Preventing Medical Device Shortages Section 3121. Discontinuance or Interruption in the Production of Medical Devices Background FDA regulates the safety and effectiveness of medical devices in the United States. All medical device manufacturers are required to register their establishments with FDA, and such establishments are subject to inspections by FDA personnel or representatives. In addition, most medical devices are required to be reviewed by the agency prior to marketing; such premarket review mechanisms include premarket notification (510(k)), premarket approval, de novo classification request, and humanitarian device exemption, among others. Prior to the COVID-19 outbreak, concerns arose about potential medical device shortages due to the closure of ethylene oxide sterilization facilities that were not in compliance with U.S. Environmental Protection Agency (EPA) standards. In contrast to the agency's authority to compel manufacturers of certain drugs to report discontinuances or interruptions in production, FDA did not have such authority for medical devices prior to the CARES Act. Rather, FDA relied on manufacturers to voluntarily report such information to the agency. In its FY2021 Congressional Justification, FDA requested additional authority to "require firms to notify FDA of an anticipated significant interruption in the supply of an essential device; require all manufacturers of devices determined to be essential to periodically provide FDA with information about the manufacturing capacity of the essential device(s) they manufacture; and authorize the temporary importation of devices whose risks presented when patients and healthcare providers lack access to critically important medical devices outweigh compliance with U.S. regulatory standards." Legislation introduced in the 116 th Congress would provide FDA with additional authority to mitigate potential device shortages, generally through adding required reporting requirements on device manufacturers and allowing for expedited premarket review and inspections in certain cases of shortage. However, some bills propose providing FDA with more authority than others, such as those allowing for importation of unapproved devices in the case of a device shortage. Provision Section 3121 creates a new FFDCA Section 506J, which requires medical device manufacturers to report to FDA during or prior to a public health emergency any permanent discontinuance of production, or interruption in production, likely to lead to a meaningful disruption in supply of a medical device, including the reasons for the discontinuance or interruption. Medical device manufacturers are required to report this information to FDA at least six months prior to occurrence, or as soon as is practical. In turn, FDA is required to make such information public to appropriate organizations (e.g., physicians, supply chain partners) unless such a disclosure would adversely affect the public's health. If a manufacturer fails to submit information about discontinuances or interruptions, FDA is required to submit a letter to the manufacturer documenting this failure. The manufacturer is required to respond with reasons for noncompliance, as well as with information on interruptions or discontinuances as originally required, within 30 days. FDA would make such information public within 45 days of receipt but is not able to disclose to the public any information considered confidential or a trade secret. New FFDCA Section 506J also requires FDA to establish and maintain a device shortage list that includes, among other things, the category or name of the device in shortage and, as determined by FDA, the reason(s) for the shortage (e.g., demand increase for the device) and the expected duration of the shortage. Such information must be made public, except if such information is considered confidential, a trade secret, or determined by FDA to be harmful to the public's health (e.g., increases the possibility of hoarding). Finally, new FFDCA Section 506J requires FDA to expedite premarket review and facility inspections of medical devices considered to be, or likely to be, in shortage and defines the terms "meaningful disruption" and "shortage." Part II—Access to Health Care for COVID-19 Patients Subpart A—Coverage of Testing and Preventive Services This subpart includes three provisions related to coverage of COVID-19 tests and subsequent vaccines that may be developed to prevent COVID-19. They primarily address private health insurance coverage, including insurer payments to providers who furnish the test. One provision expands the FFCRA definition of testing that must be covered without cost-sharing by most private health insurance plans, and by other public and private health coverage programs and plans that reference the FFCRA definition. Section 3201. Coverage of Diagnostic Testing for COVID-19 Background Through multiple provisions in Divisions A and F, FFCRA provides payment for or requires coverage of testing for the COVID-19 virus, and items and services associated with such testing, without any cost-sharing. Several of these provisions refer to a definition for COVID-19 testing established in FFCRA Section 6001(a)(1), which defines such tests to include in vitro diagnostics (IVDs), as defined in FDA regulation, that detect the SARS-CoV-2 virus or diagnose COVID-19 and that have received either 510(k) clearance, premarket approval, authorization pursuant to de novo classification, or emergency use authorization (EUA) for marketing. This definition is used or cross-referenced in the following provisions providing payment for or requiring coverage of testing for the COVID-19 virus: (1) Section 6001(a)(1)-(2), with respect to specified types of private health insurance coverage; (2) Section 6006, with respect to TRICARE, veterans' health care, and federal civilian employee health coverage (Federal Employees Health Benefits Program or FEHBP); and (3) Section 6007, with respect to the Indian Health Service (IHS). In addition, appropriations provided in FFCRA Division A to the Defense Health Program, Veterans Health Administrations, IHS, and Public Health and Social Services Emergency Fund are to be used, in whole or in part, to pay for COVID-19 testing and related services, with reference to FFRCA Section 6001(a)(1). On March 16, 2020, FDA updated guidance relating to COVID-19 diagnostic tests during the public health emergency. In this guidance, the agency detailed four policies, whereby manufacturers or laboratories could develop, use, or market laboratory-developed tests or test kits for COVID-19. Two of these policies allowed for laboratories and test kit manufacturers to begin using or distributing their tests prior to receiving an EUA from the agency, as long as they submitted an EUA application within 15 business days of beginning clinical testing or distribution of the test kit and notified the agency that the test was in use. Therefore, tests and test kits would be in clinical use without having been granted an EUA (or 510(k) clearance, de novo authorization, or premarket approval). In addition, the agency outlined a policy allowing states to authorize laboratories within their state to carry out testing without FDA involvement; therefore, these tests would also be in clinical use without authorization from the FDA (or 510(k) clearance, de novo authorization, or premarket approval). Therefore, pursuant to the FDA's updated March 16 guidance, some tests in clinical use would fall outside the definition at FFCRA Section 6001(a)(1) and may not be included in the above-referenced provisions' requirements providing payment for or requiring coverage of testing for the COVID-19 virus. Provision Section 3201 amended FFCRA Section 6001(a)(1) to include those IVDs (1) that have received either 510(k) clearance, premarket approval, authorization pursuant to de novo classification, or an EUA; (2) where the developer has requested, or intends to request, an EUA; (3) that are developed in and authorized by a state that has notified the Secretary of its intention to review tests intended to diagnose COVID–19; and (4) that are determined appropriate through guidance by the Secretary. Section 3202. Pricing of Diagnostic Testing Background FFCRA Section 6001 created a requirement for most private health insurance plans to cover specified COVID-19 testing and testing-related items and services. The coverage must be provided without consumer cost-sharing, including deductibles, copayments, or coinsurance. This coverage requirement applies to the specified items and services that are furnished during the COVID-19 public health emergency described in FFCRA. The provision did not address the reimbursement amount that a provider must receive from a health plan for furnishing COVID-19 testing. In private health insurance, the amount paid for covered items and services is generally contingent upon whether a consumer's health plan has negotiated with a provider to enter into a contract. The contract between the health plan and the provider generally specifies the total amount that a provider may receive for furnishing particular items or services to that health plan's enrollees. A provider that enters into a contract with a health plan is considered to be part of the health plan's network, otherwise referred to as being in-network. A provider that does not enter into a contract with a health plan is considered out-of-network and as such there is no negotiated rate between the provider and the health plan. In situations involving services provided by an out-of-network provider, the amount that a provider will receive from a health plan depends on whether the health plan covers out-of-network services. In situations where health plans do not cover out-of-network services, the health plan will not pay any amount to a provider for services provided to an enrollee of the health plan. In situations where plans do cover out-of-network services, as there is no negotiated rate between health plans and out-of-network providers, health plans will use their own methodologies for calculating how much they will pay out-of-network providers for services. Provision Section 3202 establishes a methodology for determining the amount that a health plan must reimburse a provider for the COVID-19 testing, and testing-related items and services that are required to be covered under FFCRA Section 6001(as amended). If a health plan had a negotiated rate with a provider prior to the declaration of the COVID-19 public health emergency declared under PHSA Section 319, then the health plan must apply that negotiated rate throughout the period of the COVID-19 public health emergency. If a health plan did not have a negotiated rate with a provider prior to the emergency declaration, then the health plan must either reimburse the provider an amount that equals the cash price for the COVID-19 testing, as listed on the provider's public website, or the health plan and provider may negotiate a rate that is less than the cash price. During the period of the COVID-19 public health emergency, providers of COVID-19 diagnostic testing must make public the cash price for the COVID-19 test on the provider's public website. The Secretary may impose a civil monetary penalty on a provider of COVID-19 diagnostic testing that is not in compliance with the requirement to post the cash price for the COVID-19 testing and has not completed a corrective action plan to comply with the requirement. The amount of the civil monetary penalty may not exceed $300 per day that the violation is ongoing. Section 3203. Rapid Coverage of Preventive Services and Vaccines for Coronavirus Background PHSA Section 2713 and accompanying regulations require most private health insurance plans to cover, without cost-sharing, specified types of clinical preventive services. These include any preventive service recommended with an A or B rating by the United States Preventive Services Task Force (USPSTF), or any immunization with a recommendation by the Advisory Committee on Immunization Practices (ACIP), adopted by CDC, for routine use for a given individual. These coverage requirements apply no sooner than one year after a recommendation is published. Requirements of Section 2713 apply to individual health insurance coverage and to small- and large-group plans, whether fully insured or self-insured. The requirements do not apply to grandfathered individual or group plans, or to short-term, limited duration insurance (STLDI). By regulation, plans are generally not required to cover preventive services furnished out-of-network. Cost-sharing for office visits associated with a furnished preventive service may or may not be allowed, as specified in regulation. Provision Section 3203 requires specified plans — the same types of plans as those subject to PHSA Section 2713—to cover a COVID-19 vaccine and potentially other COVID-19 preventive services, as recommended by ACIP or USPSTF, respectively. This coverage must be provided without cost-sharing. Section 3203 also applies an expedited effective date for coverage of 15 business days after an applicable ACIP or USPSTF recommendation is published. Otherwise, requirements of Section 3203 mirror existing requirements under PHSA Section 2713. Subpart B—Support for Health Care Providers This subpart includes provisions that aim to extend the services available during the COVID-19 period and beyond, particularly for rural or otherwise underserved populations. The subpart includes additional appropriations for health centers that provide care to populations that are underserved or are located in underserved areas. Other provisions relate directly to health care providers; for example, by conferring medical malpractice liability on health professionals who choose to volunteer during the emergency period, by amending program rules for the NHSC program to permit individuals to volunteer during the emergency period, and by clarifying aspects of the USPHS Ready Reserve Corps program. The Ready Reserve Corps is composed of reserve officers serving in other roles who would be subject to intermittent involuntary deployment ("call up") to bolster the available workforce for public health emergency missions. Finally, the subpart reauthorizes and amends existing programs related to supporting rural health care providers and encouraging the use of telehealth to expand access to care. Section 3211. Supplemental Awards for Health Centers Background The federal health center program, authorized by PHSA Section 330 and administered by the Health Resources and Services Administration (HRSA), provides grants to not-for-profit organizations or state and local government entities to operate outpatient health centers. Participation in the program requires grantees to provide care regardless of a patient's ability to pay, and grant funding is provided to support this care. These centers are also required to be located in medically underserved areas (MUAs) or to provide care to a population that is designated as underserved. Health centers are part of the health care safety net, and they have been used as a way to fund safety net providers during prior disasters, when additional funds were appropriated to make awards to existing grantees to respond to an emerging need. In FY2020, health centers received a combination of discretionary and mandatory funding, which together provided more than $5.6 billion to support the program. Health centers also received additional funds in P.L. 116-123 , Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, the first law to respond to COVID-19. That law provided the program with an additional $100 million. These funds were awarded via formula to supplement existing health center funding. Provision This section appropriates $1.32 billion in supplemental funding for health centers for FY2020 for the detection of the COVID-19 virus, or prevention, diagnosis, and treatment of COVID-19 illnesses. The section also applies the limits on using these funds for abortion that were included in Further Consolidated Appropriations Act, 2020 ( P.L. 116-94 ), which provided FY2020 appropriations for HHS, among other agencies. Section 3212. Telehealth Network and Telehealth Resource Centers Grant Programs Background PHSA Section 333(I) authorizes two telehealth programs that were authorized at "such sums as may be necessary" through FY2006. Both programs have been funded since that time, despite the lapsed authorization of appropriation. The programs are administered by HRSA. The first program, authorized in PHSA Section 333I(d)(1), is the Telehealth Network Grant Program (TNGP). This program aims to demonstrate how telehealth technologies can be used through telehealth networks for medically underserved populations who live in rural areas, frontier communities, and MUAs. Prior to passage of the CARES Act, only nonprofit entities were eligible to apply for TNGP grants; however, prior law permitted both nonprofit and for-profit organizations to participate in the grantees' telehealth networks. The second program is the Telehealth Resource Centers (TRC) Program. This program aims to coordinate telehealth organizations that serve rural and underserved communities throughout the country, by providing technical assistance to those organizations through national and regional TRCs. FY2020 appropriations report language provides $28.5 million to HRSA's overarching Telehealth Program, which includes both of these programs. Provision This section amends PHSA Section 330I to make changes to both the TNGP and the TRC programs. It makes the following changes: (1) The Telehealth Network Grant Program (TNGP) Grants. Section 3212 amends PHSA Section 330I by replacing the HRSA Administrator's Director's authority to award grants to eligible grantees to demonstrate how telehealth technologies can be used through telehealth networks, with the authority to award grants to evidence-based projects that utilize telehealth technologies through telehealth networks. The purpose of the TNGP now includes improving access to and quality of health care services for the TNGP patient population. Grantees may no longer use TNGP funds to expand health care provider training or for decision-making purposes. Grant period. Section 3212 allows the HRSA Administrator to extend the period of performance for the TNGP from four years to five years. This section also makes administrative changes to the statutory requirements on telehealth networks, including the nature of entities and composition of telehealth networks. This section removes the statutory requirements that grantees of TNGP be nonprofit entities and that telehealth networks be composed in a certain manner. Applications. Grant applicants are now required to describe within their applications how the applicants' proposed TNGP projects will, among other things, improve access and quality of the health care services that patients will receive. Prior to passage of the CARES Act, this provision was optional. Terms , conditions , maximum amount of assistance. Section 3212 removes the statutory requirements that the Secretary has to establish the terms and conditions of the TNGP, as well as the maximum amounts awarded to each TNGP recipient for each fiscal year. This section removes the federal mandate that required the Secretary to publish, through HRSA, a notice of application requirements for the TNGP program for each fiscal year. Preferences. The Secretary is required to also give preference to eligible entities that develop plans for or establish telehealth networks that provide mental health care services, public health care services, long-term care, home care, preventive care, case management services, or prenatal care for high-risk pregnancies. This section also expands preference to eligible entities that propose projects that promote local and regional connectivity within areas, communities, and populations served. The Secretary, however, may no longer give preference to applicants that demonstrate integration of health care information into TNGP projects. Distribution of funds. The HRSA Administrator no longer has to ensure that the total amount of funds awarded in a given fiscal year is not less than the total amount awarded for projects in FY2001. The HRSA Administrator must continue to ensure that no less than 50% of funds are awarded to TNGP projects in rural areas. Use of funds. Grantees no longer have the authority to use TNGP funds to purchase certain equipment. Grantees are prohibited from purchasing computer hardware and software, audio and video equipment, computer network equipment, interactive equipment, and data terminal equipment. However, grantees may continue to purchase equipment that furthers the objectives of the TNGP, such as to expand access to health care services. Prohibited uses of funds. TNGP grantees are prohibited from using more than 20% of total grant funds to purchase or lease equipment. Under prior law, grantees were allowed to use no more than 40% of total grant funds. Section 3212 also removes the examples of transmission equipment from the list of items that TNGP funds cannot be used to purchase. Report and regulations . The section requires the Secretary to submit a report, to specified congressional committees, that describes the activities and outcomes of the TNGP, no later than March 27, 2024, and every five years thereafter. The Secretary is no longer required to issue regulations specifying the definition of frontier area. (2) The Telehealth Resource Centers (TRC) Program Grants and eligibility . Section 3212 amends PHSA Section 330I by replacing the HRSA Administrator's authority to award grants for projects to demonstrate how telehealth technologies can be used in certain areas and communities, with the authority to award grants to support initiatives that utilize telehealth technologies. The CARES Act removes the program's authority to establish new TRCs, which essentially makes the current TRCs permanent recipients of federal funds under the program and does not allow for other entities to participate as TRCs. The section also permits the HRSA Administrator to extend the period of performance for the TRC program from four years to five years. Section 3212 removes the statutory requirement that grantees of the TRC program be nonprofit entities. Terms , conditions , maximum amount of assistance. Section 3212 removes the statutory requirement that the Secretary has to establish the terms and conditions of the TRC program, as well as the maximum amount awarded to each TRC program recipient for each fiscal year. This section no longer requires the Secretary to publish, through HRSA, a notice of application requirements for the TRC program for each fiscal year. Preferences. The section requires the Secretary to also give preference to eligible entities with successful records in delivering health care services to rural areas, MUAs, and medically underserved populations. Use of funds. The section specifies that grantees no longer have the authority to use TRC program funds to foster certain telehealth activities. It also prohibits grantees from using funds to foster the use of telehealth technologies to provide health care information. However, grantees may continue to foster the use of telehealth technologies to educate health care providers and consumers in an effective manner. Report and regulations . The section requires the Secretary to submit a report, to specified congressional committees, on the activities and outcomes of the TRC program, no later than March 27, 2024, and every five years thereafter. (This report need not to be a separate report from that required of the TNGP.) The Secretary is no longer required to issue regulations specifying the definition of frontier area. Authorization of appropriations. The section authorizes an appropriation of $29 million for each of FY2021 through FY2025. Section 3213. Rural Health Care Services Outreach, Rural Health Network Development, and Small Health Care Provider Quality Improvement Grant Programs Background PHSA Section 330A authorizes three grant programs supporting rural health care providers: the rural health care services outreach grants, the rural health network development grants, and the small health care provider quality improvement grants. These programs are administered by HRSA's Federal Office of Rural Health Policy (FORHP). In each case, grants are available to nonprofit or governmental health entities for a period of three years. The Rural Health Network Development program also permits additional one-year planning grants. Funds for the program had been authorized at $45 million annually through FY2012, and required a one-time report to Congress that was required at the end of FY2005. Despite the lapsed authorizations of appropriations, these programs have continued to be funded in recent years. Most recently, the programs received an appropriation of $79.5 million in FY2020. Provision This section makes a number of technical corrections to PHSA Section 330A. It also replaces language related to essential health services to make reference to basic health services, extends the duration of Rural Health Care Service Outreach grants and Rural Health Network Development grants from three to five years, and expands eligibility for the programs to any rural health entity (prior eligibility was limited to rural public or nonprofit health entities). The section also eliminates the one-year planning grants from the Rural Health Network Development program and extends the grant period of the Small Health Care Quality Improvement grants from three to five years. Finally, the section requires a report, to be delivered to specified congressional committees, on these grant programs, not later than four years after enactment and every five years thereafter, and authorizes an appropriation of $79.5 million for each of FY2020 through FY2025. No additional funding for FY2020 is appropriated in this provision. Section 3214. United States Public Health Service Modernization Background The USPHS Commissioned Corps is a branch of the U.S. uniformed services, but it is not one of the armed services. The Corps is based in HHS under the authority of the U.S. Surgeon General (SG). USPHS-commissioned officers are physicians, nurses, pharmacists, engineers, and other public health professionals who serve in federal agencies, or as detailees to state or international agencies, to support a variety of public health activities. ACA (the Patient Protection and Affordable Care Act, P.L. 111-148 , as amended), Section 5210, authorized a USPHS Ready Reserve Corps—reserve officers serving in other roles who would be subject to intermittent involuntary deployment ("call up") to bolster the available workforce public health emergency missions. HHS had not received an appropriation for this purpose and had not established a Ready Reserve Corps. It has been reported that the ACA authority did not fully authorize this action, and legislation ( S. 2629 , the United States Public Health Service Modernization Act of 2019) was introduced to address this. Provision Section 3214 enacts the language of S. 2629 , making several technical and substantive amendments to PHSA Title II to clarify provisions regarding deployment readiness, retirement, compensation, and other matters as they would affect the Ready Reserve Corps. Section 3215. Limitation on Liability for Volunteer Health Care Professionals During COVID-19 Emergency Response Background In 1997, Congress enacted the Volunteer Protection Act of 1997 (VPA; P.L. 105-19 ). This act provides that a volunteer at a nonprofit organization or governmental entity is not liable for the harm he or she causes by an act (or an act of omission) on behalf of the organization, provided the following: (1) the volunteer was, among other things, properly licensed, certified, or authorized for the activities in a state, if applicable; (2) the volunteer was acting within the scope of his or her responsibilities in the organization at the time of the act (or act of omission); and (3) the harm was not caused by "willful or criminal misconduct, gross negligence, reckless misconduct, or a conscious, flagrant indifference to the rights or safety of the individual harmed by the volunteer." The law does not convey liability protections in certain instances (e.g., when misconduct is a criminal act or when the defendant acted under the influence of drugs or alcohol), and the law specifies how it interacts with relevant state law. This law was not specific to health professionals in a volunteer capacity but, rather, covered all types of volunteers. Provision This section limits the medical malpractice liability of health professionals who volunteer during the COVID-19 emergency. Specifically, it limits the liability under federal and state law for any harm caused by an act or omission while providing health services during the emergency, provided that the health services are within the scope of the health professional's license registration, or certification, and that the health professional acted in good faith. The section specifies that health professionals do not have liability protections in situations where harm was caused by "willful or criminal misconduct, gross negligence, reckless misconduct, or a conscious flagrant indifference to the rights or safety of the individual harmed by the health care professional," or when services were provided by a health professional who was under the influence of drugs or alcohol. The section specifies that it preempts state or local laws that are inconsistent with this section, unless those laws provide great liability protections, and specifies that the liability protections are in addition to those provided under the VPA. Finally, the section defines relevant terms and specifies that this provision is effective at enactment and will remain in effect for the length of the public health emergency declared by the Secretary under PHSA Section 319, declared by the Secretary on January 30, 2020. Section 3216. Flexibility for Members of National Health Service Corps During Emergency Period Background The federal government supports a number of health workforce programs administered by HRSA. Among the largest of these programs is the NHSC, which provides scholarships and loan repayment to health care providers in exchange for a two-year or more service commitment in a health professional shortage area (HPSA). The program is authorized in PHSA Sections 332-338I. PHSA Section 333 specifies the types of health care facilities and the conditions they must meet to receive NHSC personnel. Generally, these are outpatient health facilities in HPSAs. Provision This section specifies that for the duration of the public health emergency declared under PHSA Section 319 for the COVID-19 response, the Secretary may waive the requirements in PHSA Section 333 in order to assign NHSC members to voluntarily provide health services to respond to the emergency. The provision allows NHSC members to volunteer services for the number of hours that the Secretary determines appropriate. The provision further specifies that NHSC members must be assigned voluntarily, that the assignment site must be in reasonable proximity to the NHSC corps member's original practice site, and that these hours are to count toward fulfilling their NHSC service commitment. Subpart C—Miscellaneous Provisions Section 3221. Confidentiality and Disclosure of Records Relating to Substance Use Disorder Background Generally, the privacy of health information is governed by the HIPAA (Health Insurance Portability and Accountability Act of 1996, P.L. 104-191 , as amended) Privacy Rule, which establishes requirements for covered entities' (health care plans, providers, and clearinghouses) and their business associates' use and disclosure of protected health information (PHI). All health information is generally treated similarly under the HIPAA Privacy Rule, with certain exceptions in place relating to the use and disclosure of psychotherapy notes. In contrast, stricter federal privacy requirements at PHSA Section 543—requirements promulgated in and commonly known as the "Part 2" rule—apply to individually identifiable patient information received or acquired by federally assisted substance use disorder programs. Specifically, the Part 2 rule governs any information that would identify a patient as having or having had a substance use disorder, and that is obtained or maintained by a federally assisted substance use disorder program for the purpose of treating a substance use disorder, making a diagnosis for that treatment, or making a referral for that treatment. Part 2 requirements apply to an individual or entity (other than a general medical facility) that is federally assisted and provides—and holds itself out as providing—diagnosis, treatment, or referral for treatment of substance use disorders. "Federally assisted programs" include programs that are carried out in whole or in part by the federal government or supported by federal funds. The Part 2 rule strictly regulates the disclosure and redisclosure of patient identifying information held by Part 2 programs. The rule allows disclosure of this information only either (1) with written patient consent or (2) pursuant to exceptions in statute or regulation (e.g., for a medical emergency, for research). A general authorization for the release of medical information does not satisfy the rule's requirement for written consent, although a general designation in consent is allowed in cases where a class of participants may receive and redisclose amongst themselves Part 2 information if there exists a treatment relationship. Further, the rule strictly prohibits the subsequent redisclosure of information received from a Part 2 program without consent from the patient, and a notification clearly prohibiting this redisclosure by the receiving entity travels with any disclosed Part 2 information. Under PHSA Section 543(f), any person who violates any provision of the section or any regulation issued pursuant to the section shall be fined in accordance with Title 18 of the U.S. Code . Provision Section 3221 amends PHSA Section 543 to allow for, pursuant to written consent, the use or disclosure of covered records by a covered entity, business associate, or a Part 2 program for purposes of treatment, payment, and health care operations as permitted by the HIPAA Privacy Rule. In addition, the section allows information disclosed pursuant to this exception to be subsequently redisclosed in accordance with the HIPAA Privacy Rule. It further allows the disclosure of deidentified records to public health authorities, without written consent, if the information meets the deidentification standards in the HIPAA Privacy Rule. Section 3221 applies the penalties under SSA Sections 1176 and 1177 for violations of PHSA Section 543, as specified. It also prohibits discrimination against an individual on the basis of information received pursuant to an inadvertent or intentional disclosure of covered records, or information contained in covered records, in multiple instances (e.g., employment, access to courts). The section applies the HIPAA breach notification requirements to a program or activity under PHSA Section 543 in case of a breach of records. Section 3221 requires the Secretary to revise regulations as necessary such that changes in the section apply with respect to uses and disclosures of covered records occurring on or after the date that is 12 months after enactment. It also requires the Secretary, not later than one year after enactment and in consultation with appropriate legal, clinical, privacy, and civil rights experts, to update the notice of privacy practices requirement in the HIPAA Privacy Rule to require covered entities and entities creating or maintaining covered records to provide notice, in plain language, of privacy practices regarding those records. The section also establishes that nothing in the act shall be construed to limit (1) the right of an individual to request a restriction on the use or disclosure of a record under PHSA Section 543 for purposes of treatment, payment, or health care operations, and (2) the choice of a covered entity to obtain consent to use or disclose a covered record for purposes of treatment, health care operations, or payment. Section 3222. Nutrition Services Background The OAA (Older Americans Act, P.L. 89-73, as amended; 42 U.S.C. §§ 3001 et seq.) Nutrition Services Program provides grants to states and U.S. territories under Title III of the act to support congregate nutrition services (i.e., meals served at group sites such as senior centers, community centers, schools, churches, and senior housing complexes) and home-delivered nutrition programs for individuals aged 60 and older. The Nutrition Services Program is designed to address problems of food insecurity, promote socialization, and promote the health and well-being of older persons through nutrition and nutrition-related services. The program is administered by the Administration for Community Living (ACL) under HHS. States and territories receive separate funding allotments for each program based on a statutory funding formula. Under OAA, states and U.S. territories have authority to transfer up to 40% of their allotments between congregate and home-delivered nutrition services and can request waivers to transfer up to 10% of additional funding between these programs. In addition, OAA provides states authority to transfer up to 30% of program funding from the Supportive Services Program to the Nutrition Services Program. Nutrition services providers are required to offer at least one meal per day, five or more days per week (except in rural areas, where the provision of meals may be less frequent). The meals must comply with the Dietary Guidelines for Americans published by the Secretary of HHS and the Secretary of Agriculture. Providers must serve meals that meet specified minimum amounts for the daily recommended dietary reference intakes (DRIs) established by the Food and Nutrition Board of the National Academies of Sciences, Engineering, and Medicine based on the number of meals served by the project each day. With respect to home-delivered nutrition programs, individuals aged 60 or older and their spouses (regardless of age) may participate in the home-delivered nutrition program. Persons aged 60 or over who are frail, homebound by reason of illness or disability, or otherwise isolated, are also prioritized for OAA Title III services. Services may be available to individuals under age 60 with disabilities if they reside at home with the older individual. Service eligibility is determined by the states and local Area Agencies on Aging (AAA); however, according to the ACL, entities may waive any eligibility requirements they have established for home-delivered meals in response to the COVID-19 pandemic. Provision During any portion of the COVID-19 public health emergency declared under PHSA Section 319, the section sets forth additional transfer authority between OAA nutrition programs, clarifies participant requirements for home-delivered meals, and authorizes the Assistant Secretary for Aging to waive certain dietary requirements for nutrition services. Specifically, the HHS Secretary is required to allow a state agency or an AAA to transfer up to 100% of the funds appropriated and received for congregate and home-delivered nutrition between these two programs, for such use as the state or area considers appropriate to meet service needs without prior approval. For purposes of state agencies' determining the delivery of nutrition services, the provision requires the same meaning to be given to individuals who are unable to obtain nutrition because they are practicing social distancing due to the emergency as is given to an individual who is homebound because of illness. And, to facilitate implementation of nutrition services programs, the Assistant Secretary is authorized to waive compliance with the Dietary Guidelines for Americans and the specified minimum amounts for the daily recommended DRI requirements. The provision defines the terms ''Assistant Secretary,'' ''Secretary,'' ''State agency,'' and ''area agency on aging'' to have the same meanings as under OAA Section 102. Section 3223. Continuity of Service and Opportunities for Participants in Community Service Activities Under Title V of the Older Americans Act Background OAA Title V establishes the Community Service Employment for Older Americans program (CSEOA), sometimes referred to as the Senior Community Service Employment Program (SCSEP). CSEOA promotes part-time employment opportunities in community service activities for unemployed low-income persons aged 55 and older and who have poor employment prospects. The Title V program is administered by the Department of Labor's (DOL's) Employment and Training Administration. DOL allocates Title V funds for grants based on a statutory funding formula to state agencies in all 50 states, the District of Columbia, Puerto Rico, and the U.S. territories, and to national organizations. Program participants work part-time in community service jobs, including employment at schools, libraries, social service organizations, and senior-serving organizations. Program participants earn the higher of minimum wage or the typical wage for the job in which they are employed. An individual may typically participate in the program for a cumulative total of no more than 48 months. Provision Due to the effects of the COVID-19 public health emergency declared under PHSA Section 319, this section specifies additional flexibility for the Secretary of Labor with respect to administration and implementation of the CSEOA program. Specifically, it authorizes the Secretary to allow individuals participating in OAA Title V projects as of March 1, 2020, to extend their participation for a period that exceeds 48 months in the aggregate, as determined by the Secretary. It authorizes the Secretary to increase the average participation cap for grantees of 27 months for eligible individuals to a cap the Secretary determines is appropriate. And it authorizes the Secretary to increase the amount available to pay the authorized administrative costs for a project, which is currently 13.5% of the grant amount, to not exceed 20% of the grant amount, if the Secretary determines that such increase is necessary to adequately respond to additional administrative needs. Section 3224. Guidance on Protected Health Information Background The HIPAA Privacy Rule governs covered entities' (health care plans, providers, and clearinghouses) and their business associates' use and disclosure of PHI. In addition, it establishes strong individual rights of access to an individual's own PHI. PHI is defined as individually identifiable health information created or received by a covered entity that is transmitted by electronic media, maintained in electronic media, or transmitted or maintained in any other form or medium. The rule sets forth multiple situations in which covered entities may permissibly use or disclose PHI without written authorization, while generally all other uses and disclosures of PHI (i.e., those that are not expressly permitted under the rule) require an individual's prior written authorization. Broadly, covered entities may share PHI between and among themselves for the purposes of treatment, payment, or health care operations, with few restrictions and, specifically, without the individual's authorization. The Privacy Rule also recognizes that PHI may be useful or necessary in circumstances besides health care treatment and payment for a given individual or general health care operations, or entirely unrelated to health care or the health care system. For this reason, the rule lists a number of "national priority purposes" for which covered entities may disclose PHI without an individual's authorization or opportunity to agree or object. Examples of these include disclosures for public health activities, health oversight, and pursuant to a requirement in law (e.g., state law). In response to the COVID-19 pandemic, the Office of Civil Rights (OCR)/HHS has issued guidance relating to the disclosure of PHI to first responders and law enforcement, as well as on telemedicine and the HIPAA Privacy Rule. OCR has also released several notifications of exercise of enforcement discretion during the COVID-19 public health emergency, specifically with respect to use and disclosure of PHI by business associates (BAs); the operation of Community-Based Testing Sites during the COVID-19 public health emergency; and the provision of care using telehealth. In addition, under authorities in SSA Section 1135 and the Project Bioshield Act ( P.L. 108-276 ), the Secretary has the authority to waive sanctions and penalties for certain HIPAA Privacy Rule violations during certain emergency periods. These have been waived. The specific HIPAA Privacy Rule requirements for which penalties may be waived are as follows: (1) the requirement to distribute a notice of privacy practices (45 C.F.R. §164.520); (2) the patient's right to request certain privacy restrictions (45 C.F.R. §164.522(a)); (3) the patient's right to request confidential communications (45 C.F.R. §164.522(b)); (4) the requirement to honor a request to opt out of a facility directory (45 C.F.R. §164.510(a)); and (5) the requirement to obtain agreement to share information with family and friends involved in a patient's care (45 C.F.R. §164.510(b)). These waivers apply only (1) in the emergency area identified in the public health emergency declaration and for the duration of the emergency, (2) to those hospitals that have a disaster plan; and (3) for the first 72 hours after the hospital's plan has been initiated. Provision Section 3224 requires the Secretary, not later than 180 days after enactment, to issue guidance on the sharing of patients' PHI (as defined at 45 C.F.R. §106.103) during emergency declarations and determinations, with respect to COVID-19, pursuant to PHSA Section 319, Section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), and the National Emergencies Act. The section requires the guidance to address compliance with the HIPAA Privacy Rule and applicable policies, including any policies that may come into effect during these emergencies. Section 3225. Reauthorization of Healthy Start Program Background The Healthy Start Program (Healthy Start), which is authorized in PHSA Section 330H and administered by HRSA, is a competitive grant program. The program enables eligible public or private entities, community-based organizations, faith-based organizations, and Indian or tribal organizations to propose and administer innovative, community-based ways to decrease U.S. infant mortality rates (IMRs), improve perinatal and maternal health outcomes, and reduce ethnic and racial health disparities in perinatal health. ( I nfant mortality refers to the death of an infant before his or her first birthday. An infant mortality rate refers to the comparison of the number of infant deaths against 1,000 live births in a given year.) Healthy Start participants consist of women, men, infants, children, and involved parties such as family members. The program requires participants to reside in communities with IMRs that are at least 1.5 times greater than the U.S. IMR and/or have high rates of adverse perinatal outcomes such as preterm births and maternal deaths. The program's authorization of appropriations, which expired in 2013, was "the amount authorized for the preceding fiscal year increased by the percentage increase in the Consumer Price Index (CPI) for all urban consumers for such year." Provision Purpose and considerations in making grants. Section 3225 amends PHSA Section 330H by expanding the Healthy Start project areas to those with increasing IMRs that are above the U.S. IMR. Section 3225 removes the mandate that required applicants to include consumers of project services as participants in community-based consortiums. The Secretary instead must require applicants to include state substance abuse agencies, participants, and former participants of project areas as participants in community-based consortiums. The Secretary, when considering grant awards, is required to consider factors that contribute to infant mortality, including poor birth outcomes (e.g., low birthweight and preterm birth) and social determinants of health. In addition, the Secretary must consider factors such as applicants' collaboration with the local community in developing Healthy Start projects and applicants' use and collection of data demonstrating the program's effectiveness in decreasing IMRs and improving perinatal outcomes. Coordination. Section 3225 makes conforming changes and moves the current language in subsection (c) to a new paragraph (1) and adds a new paragraph (2), under subsection (c). The new paragraph (2) requires the Secretary to ensure the Healthy Start program coordinates with similar programs and activities administered by HHS that aim to reduce IMRs and improve infant and perinatal health outcomes. Funding. The section authorizes an appropriation of $125.5 million for each of FY2021-FY2025, eliminates the CPI requirement, and authorizes the Secretary to reserve 1% of appropriated funds to evaluate Healthy Start projects. Section 3225 expands the Secretary's use of the reserved funds to evaluate information related to, among other things, progress made toward meeting program metrics or health outcomes on reducing IMRs, improving perinatal outcomes, and diminishing health disparities. GAO report. Section 3225 makes conforming changes and adds a new subsection (f). The new subsection requires the Government Accountability Office (GAO) to conduct an independent evaluation of Healthy Start and to submit a report to appropriate congressional committees, no later than March 27, 2024. The section specifies that the evaluation must include a determination of whether Healthy Start projects have been effective in reducing the health disparity in health care outcomes between the general population group and racial and minority population groups, where applicable and appropriate. The report must also contain a review, an assessment, and recommendations on, among other topics, HRSA's allocation of funding to urban and rural areas and progress towards meeting the evaluation criteria for programs that increase and decrease IMRs, improve and adversely affect perinatal outcomes, and affect disparities in infant mortality and perinatal health outcomes. Section 3226. Importance of the Blood Supply Background The nation's blood supply is largely managed by a network of independent blood centers and the American Red Cross, with some oversight from HHS. These organizations collect blood product donations (e.g., whole blood, platelets) from individuals through scheduled appointments, walk-in appointments, and blood drives. The COVID-19 pandemic poses significant challenges for the United States' blood supply. Mitigation strategies to prevent the spread of COVID-19, such as closures of schools and workplaces, have led to blood drive cancellations, resulting in a critical blood supply shortage. In addition, individuals are reluctant to schedule blood donations while advised to social distance from others. Provision This section requires the Secretary to carry out a national campaign to improve awareness of, and support outreach to the public and health care providers about, the importance and safety of blood donation and the need for donations for the blood supply. The section requires the Secretary to consult with heads of relevant federal agencies (including FDA, CDC, and National Institutes of Health [NIH]), accrediting bodies, and representative organizations to carry out the campaign. In addition, the Secretary is authorized to enter into contracts with public or private nonprofit entities to carry out the campaign. The section requires the Secretary to submit a report to specified congressional committees, not later than two years from enactment that (1) describes the activities carried out, (2) describes trends in blood supply donations, and (3) evaluates the impact of the public awareness campaign. Part III—Innovation This part adds two new authorities to the broad body of law that provides incentives for medical product research and development. Section 3301. Removing the Cap on OTA During Public Health Emergencies Background The Biomedical Advanced Research and Development Authority (BARDA) supports the clinical research and development, regulatory approval, and procurement of new MCMs (e.g., vaccines, treatments, and diagnostics) planned for use in public health emergencies. In addition to grants, contracts, and cooperative agreements, the PHSA permits BARDA to enter into "other transactions," which are exempt from many statutory provisions and procurement regulations. In February 2020, BARDA announced it was using its other transaction authority (OTA) to expand existing relationships with private partners to speed the development of COVID-19 countermeasures. In general, such transactions above $100 million require a written determination "by the Assistant Secretary for Financial Resources, that the use of such authority is essential to promoting the success of the project." Provision Section 3301 amends PHSA Section 319L in a number of ways that appear to be somewhat ambiguous, but the intent seems to be to waive the requirement for a written determination for transactions above $100 million during a public health emergency declared under PHSA Section 319. Transactions made under this provision would not be terminated solely due to the expiration of the public health emergency. The Secretary is required to report the use of this provision to specified congressional committees after the public health emergency ends. Section 3302. Priority Zoonotic Animal Drugs Background A zoonotic disease is an infectious disease that is transmissible between humans and nonhuman animals. Many emerging infections that have caused significant outbreaks among humans, are believed to have arisen from animal-to-human transmission. Drugs to treat animals are evaluated for approval by FDA. An animal origin for the COVID-19 virus is considered likely but unproven. Provision Section 3302 adds a new Section 512A to the FFDCA regarding Priority Zoonotic Animal Drugs. It requires the Secretary, upon an applying drug sponsor's request, to expedite the development and review of a new animal drug "if preliminary clinical evidence indicates that the new animal drug, alone or in combination with 1 or more other animal drugs, has the potential to prevent or treat a zoonotic disease in animals, including a vector borne-disease, that has the potential to cause serious adverse health consequences for, or serious or life-threatening diseases in, humans." The request may be made upon, or any time after, the opening of an investigational new animal drug file or filing of an application for approval, and the Secretary shall act on such request within 60 days. Actions that may be used to expedite review include expanded consultations and guidance regarding novel designs or drug development tools to make clinical trials more efficient. Part IV—Health Care Workforce PHSA Title VII authorizes a number of programs to support the health workforce. These include scholarships, loans, and academic programs that seek to diversify the workforce, train primary care providers, and increase the number of geriatric health care providers, among other things. PHSA Title VIII authorizes similar programs to support the nursing workforce. Many of Title VII and Title VIII programs were most recently reauthorized in Title V of the ACA, which made program changes, added new programs, and generally provided authorizations of appropriations through either FY2013 or FY2014. Although authorizations of appropriations for most Title VII and Title VIII have lapsed, a number of these programs have continued to receive appropriations through HRSA's Bureau of the Health Care Workforce. These programs have also been considered for reauthorization in the 116 th Congress, where bills would typically provide a five-year authorization of appropriations at the amounts provided in the most recent fiscal year. For example, S. 2997 , Title VII Health Care Workforce Reauthorization Act of 2019, would have reauthorized a number of Title VII programs for five years, and would have authorized funding at FY2019 funding levels. Much of S. 2997 was included in Sections 3401-3403 of the CARES Act, generally with funding amounts reflective of FY2020 appropriations and with a five-year authorization that begins in FY2021. Similarly, S. 1399 , Title VIII Nursing Workforce Reauthorization Act of 2019, would have reauthorized a number of Title VIII programs for five years, and would have authorized funding at FY2019 funding levels. Much of what was included in S. 1399 was enacted in Section 3404 of the CARES Act, with funding amounts reflective of FY2020 appropriations and with a five-year authorization that begins in FY2021. Section 3401. Reauthorization of Health Professions Workforce Programs Background PHSA Title VII authorizes a number of programs to support the health workforce. Though authorizations of appropriations for most Title VII programs have lapsed, several programs have received appropriations in recent years. The relevant Title VII programs (with their FY2020 appropriation level, if appropriate) are summarized below. The summary also notes other relevant PHSA Title VII advisory groups amended by this section. Centers of Excellence (Section 736) supports centers that seek to recruit, retain, and train underrepresented minorities in the health professions. The program received an appropriation of $23.711 million in FY2020. Health Professions Training for Diversity (Section 740) authorizes appropriations for a number of diversity-related training programs. Subsection (a) authorizes appropriations for scholarships for disadvantaged students (PHSA §737), which received an appropriation of $51.47 million in FY2020; subsection (b) authorizes appropriations for loan repayment and fellowships for minority health professional faculty (PHSA §738), which received an appropriation of $1.19 million in FY2020; subsection (c) authorizes appropriations for the Health Careers Opportunity Program (PHSA §739), which provides grants for programs that provide health career training to individuals from disadvantaged backgrounds. This program received an appropriation of $15 million in FY2020, and subsection (d) required a report on diversity in the health professions that was due not later than six months after enactment. Primary Care Training and Enhancement (Section 747) authorizes grant programs to support primary care medicine and physician assistant training. The program received an appropriation of $48.925 million in FY2020. Training in General, Pediatric, and Public Health Dentistry (PHSA Section 748) authorizes grants to support dentists and dental hygienist training. The program received an appropriation of $28 million in FY2020. Advisory Committee on Training in Primary Care Medicine and Dentistry (Section 749) authorizes the advisory committee that provides oversight over PHSA Section 747 and Section 748 programs. Authorizations of appropriations for those programs are contained in their respective authorizing provisions. Section 749 was renumbered in the ACA, but its language was not amended at that time. Area Health Education Centers (Section 751) authorizes grants for centers at medical or nursing schools that provide training for students from underserved backgrounds or in underserved (often rural) areas. This program received $41.25 million in FY2020. Quentin N. Burdick Program for Rural Interdisciplinary Training (Section 754) provided grants for interdisciplinary rural-focused health workforce training projects. This program has not been funded in the past decade and does not have a current authorization of appropriations. Allied Health and Other Disciplines (Section 755) authorizes grants to support allied health professionals. This program has not been funded in recent years. Health Workforce Information and Analysis (Section 761) established HRSA's National Center for Health Workforce Analysis and authorizes grant programs to support state, local, and longitudinal workforce analyses. This program received an appropriation of $5.663 million in FY2020. The C ouncil on Graduate Medical Education (COGME; Section 762) analyzes and reports to relevant congressional committees on issues related to the physician workforce, training, and the financing of training. The committee is authorized in Section 762, which lays out the committee membership and its reporting requirements. The section also specifies that the committee was to sunset in 2003; however, language in appropriations laws have waived this sunset date. Public Health Training Centers (Section 766) authorizes grants at public health schools to train public health professionals in health promotion and preventive medicine, among other things. This program receives its authorizations of appropriation in PHSA Section 770(a). Authorization of Appropriations (Section 770) authorizes appropriations for the group of public health workforce programs authorized in PHSA Sections 765-770. Public health workforce programs received an appropriation of $17 million in FY2020. Pediatric Subspecialty Loan Repayment Program (Section 775) authorizes loan repayment to specific pediatric subspecialists (including behavioral health specialists) in exchange for a service requirement in underserved areas. This program was created in the ACA but has never been funded or implemented. Provision This section extends authorizations of appropriations for a number of sections in PHSA Title VII. In each case, appropriations are authorized for each of FY2021-FY2025. The section reauthorizes the health workforce diversity programs as follows: $23.711 million for PHSA Section 736, $51.470 million PHSA Section 740(a), $1.19 million for PHSA Section 740(b), and $15 million for PHSA Section 740(c). The section also amends the date of a report on diversity in the health professions required in PHSA Section 740(d) to require that the report is due to the appropriate congressional committees not later than September 30, 2025, and every five years thereafter. The section also amends and extends the authorizations of appropriations for a number of programs related to primary care medical and dental training, as specified below. The section amends PHSA Section 747, which authorizes training programs for primary care physicians and physician assistants. The section makes the following changes: (1) removes reference to demonstration projects in grants related to innovative care models; (2) amends granting priorities to permit the Secretary to give preference to qualified applicants that train residents in rural areas, including for Tribes or Tribal Organizations that are located in rural areas; (3) changes references from "substance-related disorders" to "substance use disorders;" and (4) authorizes an appropriation of $48.294 million annually for each of FY2021-FY2025. The section amends PHSA Section 748, which authorizes training programs for general, pediatric, and public health dentists and dental hygienists; it changes references from "substance-related disorders" to "substance use disorders" and authorizes an appropriation of $28.531 million for each of FY2021-FY2025. The section amends PHSA Section 749(d), which authorizes the Advisory Committee on Training in Primary Care Medicine and Dentistry, to update references to congressional committees to reflect the current committee names. The section amends PHSA Section 751, which authorizes the Area Health Education Center program, to authorize an appropriation of $41.25 million for each of FY2021-FY2025. The section amends PHSA Section 754, which authorizes the Quentin N. Burdick Program for Rural Interdisciplinary Training, to revise language related to using grant funds by replacing "new and innovate" with "innovative or evidence-based." The section amends in PHSA Section 755, which authorizes grants for training in Allied Health and Other Disciplines to replace language related to the elderly with reference to "geriatric populations or for maternal and child health." The section amends PHSA Section 761, which authorized Health Workforce Information and Analysis, to authorize to be appropriated $5.663 million annually for each of FY2021-FY2025. The section amends PHSA Section 762 (COGME) to update references to congressional committees to reflect the current committee names; change language from the Health Care Financing Administration to CMS; make conforming changes; add the HRSA Administrator to the council; delete language related to reports required at COGME's outset and the council's termination; and add new reporting requirement dates. Specifically, it requires a report to be delivered to specified congressional committees not later than September 30, 2023, and not less than every five years thereafter. The section amends PHSA Section 766 (Public Health Training Centers) to delete language related to Healthy People 2000 and to add language related to rural areas. The section amends PHSA Section 770 (Authorization of Appropriations), which authorizes appropriations for Public Health Workforce Programs, to authorize $17 million to be appropriated for each of FY2021-FY2025. The section amends PHSA Section 775 (Loan Repayment for Pediatric Subspecialists) to authorize such sums as may be necessary for each of FY2021-FY2025. Section 3402. Health Workforce Coordination Background HRSA administers a number of health workforce programs through its Bureau of Health Workforce. A number of these programs also have advisory committees that advise HRSA and Congress about specific programs (e.g., the Advisory Committee on Training in Primary Care Medicine and Dentistry provides oversight of programs authorized in Sections 747 and 748 related to primary care medicine and dental training). Each of these advisory groups has a specific charge or scope, and their work is generally not coordinated. For example, although COGME evaluates graduate medical education (GME) policy, the bulk of GME funding is from CMS, while the relevant advisory group is administered through HRSA. Experts have recommended the need for more coordinated GME and overall health workforce policy as a way to better focus federal health workforce investments across the federal government. Provision This section requires the Secretary, in consultation with the Advisory Committee on Training in Primary Care Medicine and Dentistry and the COGME, to develop a comprehensive plan that coordinates HHS's health care workforce development programs. The plan must include certain specified elements such as performance measures, as specified; gap analyses and plans to rectify these gaps; and barriers to implementing strategies to rectify the identified gaps. It also requires the Secretary to coordinate with other federal agencies and departments that administer relevant education and training programs. The purpose of such coordination is to evaluate whether these programs are meeting U.S. health workforce needs and identify opportunities to improve information collected to better inform program improvements. Finally, the section requires the Secretary to submit a report describing the comprehensive health workforce plan and its implementation to specified congressional committees no later than two years after enactment. Section 3403. Education and Training Relating to Geriatrics Background PHSA Section 753 authorizes a number of geriatric workforce programs. Separately, PHSA Section 865 authorizes similar geriatric workforce programs focused on nurses, because nurses are generally not eligible for programs in Title VII. Beginning in FY2015, HRSA opted to consolidate and administer these geriatric workforce programs together and has since supported two training programs: the Geriatrics Workforce Enhancement Program (GWEP) and the Geriatrics Academic Career Awards (GACA). GWEP provides grants to create training programs that focus on training inter-professional teams to increase geriatric competence among primary care and other types of health care providers. GACA makes awards to institutions on behalf of junior (non-tenured) faculty to support the career development of academic geriatricians in medicine, pharmacy, nursing, social work, and other health professions. The expectation is that GACA award recipients will provide inter-professional clinical training and become leaders in academic geriatrics. PHSA Section 753 was most recently reauthorized in the ACA, which added a number of new subsections within the section that authorized new geriatric training programs. These new programs were never implemented. Appropriations were authorized through FY2014, with the exception of the Geriatric Career Incentive Award program, which had been authorized through FY2013. Despite the lapsed authorization of appropriations, these programs have been funded in recent years; most recently they received $40.737 million in FY2020. Provision This section replaces PHSA Section 753 with a new PHSA Section 753, "Education and Training Related to Geriatrics." The new section codifies two existing geriatric workforce training programs: (1) GWEP and (2) GACA. It deletes existing unfunded geriatric training programs. The section, in new subsection (a) requires the Secretary to award grants, contracts, or cooperative agreements to specified health professional schools, including schools of allied health, nursing schools, and programs that focus on geriatric education, to establish GWEPs. It specifies the GWEP requirements that include health trainee support, and an emphasis on patient and family engagement and primary care integration. The section also specifies the activities that GWEP programs are authorized to provide, including specific types of training and Alzheimer's disease education. The section specifies that GWEP grants may not be awarded for more than five years; that applicants must submit an application, as specified; and that the Secretary is required to use certain awarding priorities but may also take into account specified awarding considerations. Finally, with regard to the GWEP program, the section specifies grantee reporting requirements, requires the Secretary to report to specified congressional committees not later than four years after the enactment of Title VII Health Care Workforce Reauthorization Act of 2019 and every five years thereafter, and requires that the report be made publicly available. New PHSA Section 753(b) establishes the GACA grant program where grants are awarded to eligible entities to support their geriatric careers. The section defines the entities eligible for GACA awards, including nursing schools and the health professionals who are eligible to receive support. The section also specifies that academics must be junior non-tenured faculty at the time the award is made, but that they remain eligible for the award if they receive tenure during the award period. The section specifies the application requirements and the assurances regarding service requirements that the application must contain. It specifies that, when making awards, the Secretary is required to ensure a geographical distribution among award recipients, including among rural MUAs. The section also specifies that grants must be a minimum of $75,000 in FY2021, to increase annually by the CPI thereafter; that award periods may not exceed five years; and the service requirement that awardees must fulfill as a condition of receiving an award. Finally, for both GWEP and GACA, the section waives certain awarding preferences that otherwise apply to Title VII grants, and it authorizes to be appropriated $40.737 million for each of FY2021-FY2025. Section 3404. Nursing Workforce Development Background PHSA Title VIII authorizes a number of nursing workforce programs. Part A provides general provisions of the title, including definitions and entities eligible for the grants made available under the title. Part B authorizes grant programs to support advance practice nurses, including nurse practitioners, nurse anesthetists, and nurse midwives. Part C authorizes grant programs that seek to increase nursing workforce diversity, and Part D authorizes grant programs that aim to strengthen the nursing workforce and improve nursing practice. This effort includes programs that seek to expand the nursing career ladder whereby individuals in lower skilled health professions receive training and education to advance in the nursing field (e.g., from a nursing assistant to a registered nurse). Finally, Part E establishes the nursing student loan program. These programs were most recently reauthorized in the ACA, with authorizations of appropriations through FY2013 or FY2014. Despite the lapsed authorization, these programs have been funded in recent years. Specifically, in FY2020, they received an appropriation of $260 million. Provision This section reauthorizes programs in PHSA Title VIII in subsection (a), while subsection (b) requires a GAO report on nursing loan programs. General Provision s . Subsection (a) makes the following changes to Title VIII. It adds nurse-managed health clinics to the definition of entities eligible for grants authorized in Title VIII; adds new language to applications (in Section 802), to use of funds (in Section 803), and to provisions that are generally applicable to Title VIII (Section 806). Specifically, the subsection adds new language that grants should be awarded to address national nursing needs, as specified; to require new information from grantees; and to add new language requiring a biennial report that includes certain specified elements to be delivered not later than September 30, 2020, to specified congressional committees. The subsection also makes a number of changes to Section 811 (grants for advance education nursing grants) to replace language that references master's level nurses to graduate level nurses, to change language referencing clinical nurse leaders to nurse administrators, and to add that clinical nurse specialist programs, as specified, are eligible for grants under this section. Nurse Education, Quality, and Retention Grants . The subsection amends Section 831 to rename the section "Nurse Education, Quality, and Retention Grants." It also amends the description of practice priority groups and retention priority areas within the nursing career ladder by adding language, that among other things, specifies that grants help individuals, including health aides or community health practitioners certified under the IHS Community Health Aide Program, enter the nursing career ladder. It adds language to Section 831 specifying that grants may be used to develop and implement fellowship and residency programs and to encourage the mentoring and development of nursing specialties. It also deletes subsection (e), referring to grant awards preferences in prior years, and (h), which had authorized appropriations from FY2010-FY2014, and renumbers the subsection accordingly. The subsection also amends the reporting requirements in Section 831 to require the Secretary to submit a report on the grants in this section as part of a larger report required under Section 806, and expands the entities eligible for grants under this section to add, in addition to nursing schools, health care facilities, Federally Qualified Health Centers (FQHCs), nurse-managed health clinics, and a partnership of such a school and facility. Deletions . The subsection deletes PHSA Section 831A (Nurse Retention Grants), because grants for this purpose are now included in the amended PHSA Section 831. It then amends PHSA Section 846 (Loan Repayment and Scholarship Program) to permit individuals to fulfill their service commitment and for-profit health facilities, to make language gender neutral, and to remove the sections authorization of appropriation and make reference to an amount allocated under PHSA Section 871(b). The section also deletes the separate authorization of appropriations from PHSA Section 846A (Nurse Faculty Loans) and Section 847 (Eligible Individual Student Loan Repayment); adds language referencing clinical nurse specialists to PHSA Section 851 (National Advisory Council on Nurse Education and Practice); amends the committees that the council is required to report to update to current committee names; and amends language related to amounts available to fund the council's activities. The section also deletes PHSA Section 861 (Public Service Announcements) and PHSA Section 862 (State and Local Public Service Announcements). Appropriation Changes . Finally, the subsection amends Section 871, which authorizes appropriations for the title to authorize $137.837 million for each of FY2021-FY2025 to carry out Parts B, C, and D of Title VIII and to authorize $117.135 million for each of FY2021-FY2025 to carry out Part E (Student Loan Funds). Subsection (b) of the provision requires a GAO report that evaluates nurse loan repayment programs, as specified, to be delivered to specified congressional committees, no later than 18 months after enactment. Subtitle D—Finance Committee Subtitle D makes a series of changes in the Medicare and Medicaid programs in response to the COVID-19 public health emergency declared by the Secretary. The Medicare provisions increase certain payments to providers, including hospitals; expand the use of allowable telehealth services; make any potential COVID-19 vaccine available under Medicare Part B without cost-sharing; and relax certain program requirements to make it easier for Medicare patients to obtain certain services. The provisions also address cost-sharing to states for Medicaid services. Section 3701. Exemption for Telehealth Services Background A health savings account (HSA) is a tax-advantaged account that individuals can use to pay for unreimbursed medical expenses (e.g., deductibles, co-payments, coinsurance, and services not covered by insurance). Individuals are eligible to establish and contribute to an HSA if they have coverage under an HSA-qualified high-deductible health plan (HDHP), do not have disqualifying coverage, and cannot be claimed as a dependent on another person's tax return. To be considered an HSA-qualified HDHP, a health plan must meet several criteria: (1) it must have a deductible above a certain minimum level, (2) it must limit out-of-pocket expenditures for covered benefits to no more than a certain maximum level, and (3) it can cover only preventive care services before the deductible is met. For example, if a health plan satisfies the first two of the aforementioned criteria and provides coverage for preventive care services and prescription drugs before the deductible is met, that health plan would not be considered an HSA-qualified HDHP because it provides prescription drug benefits before the deductible is met. Disqualifying coverage is generally considered any other health coverage that is not an HSA-qualified HDHP or that provides coverage for any benefit that is covered under their HSA-qualified HDHP. Provision Section 3701 amends Internal Revenue Code (IRC) Section 223(c) for plan years beginning on or before December 31, 2021, to allow HSA-qualified HDHPs to provide "telehealth and other remote care services" before the deductible is met and still be considered an HSA-qualified HDHP. For plan years beginning on or before December 31, 2021, Section 3701 provides that telehealth and other remote care would not be considered disqualifying coverage that would prevent an otherwise eligible individual from being considered HSA-eligible. These provisions were effective upon the date of enactment (i.e., March 27, 2020). Section 3702. Inclusion of Certain Over-The-Counter Medical Products as Qualified Medical Expenses Background There are four categories of health-related tax-advantaged accounts/arrangements: HSAs, Archer medical savings accounts (Archer MSAs), flexible spending arrangements (FSAs), and health reimbursement arrangements (HRAs). Distributions from HSAs and Archer MSAs and reimbursements from FSAs and HRAs that are used to pay for qualified medical expenses are not taxed. Each account/arrangement category has a different set of medical expenses that would be considered a qualified medical expense, but all accounts/arrangements generally consider, at a minimum, the following as qualified medical expenses: the costs of diagnosis, cure, mitigation, treatment, or prevention of disease and the costs for treatments affecting any part of the body; the amounts paid for transportation to receive medical care; and qualified long-term care services. Most recently, OTC medicines and drugs (other than insulin) were not considered a qualified medical expense for any account/arrangement category unless an individual received a corresponding prescription for each non-prescribed expense. Provision Section 3702 amends Sections 106, 220(d)(2)(A), and 223(d)(2) of the IRC to allow OTC medicines and drugs (without a prescription) and menstrual care products to be considered qualified medical expenses for HSAs, Archer MSAs, FSAs, and HRAs. This change in the definition of qualified medical expenses applies to amounts paid or expenses incurred after December 31, 2019. Section 3703. Increasing Medicare Telehealth Flexibilities During Emergency Period Background Medicare coverage under Part B (fee-for-service) for telehealth services is defined under SSA Section 1834(m), which places certain conditions on such care, including who can furnish and be paid for the service, where the patient is located (the originating site), where the physician is located (the distant site), and the types of services that are covered. Recent legislation has modified some of the conditions under which telehealth services may be furnished under Medicare. The Coronavirus Preparedness and Response Supplemental Appropriations Act ( P.L. 116-123 ) Division B, Section 102, added certain Medicare telehealth restrictions to the list of applicable conditions for which the Secretary could temporarily waive or modify program requirements or regulations during the COVID-19 emergency. The provision also defined a qualified telehealth provider, requiring a prior relationship within the past three years between the patient and the provider under Medicare. Subsequently, FFCRA Division F, Section 6010, expanded the definition of a qualified provider to include those who had provider-patient relationships within the past three years outside of Medicare. Provision Section 3703 removes the list of telehealth restrictions the Secretary was allowed to waive under P.L. 116-123 and broadens the Secretary's authority to temporarily waive any of the SSA Section 1834(m) telehealth requirements. The provision also removes the definition of a "qualified provider" for telehealth services during the COVID-19 emergency period pursuant to SSA Section 1135. The provision strikes the specific subsection added under P.L. 116-123 related to telephone use, such that the waiver authority applies more broadly to include "a telehealth service […] furnished in any emergency area (or portion of such an area) during any portion of any emergency period to an individual." In addition, removing the "qualified provider" definition eliminates the requirement of a prior relationship between the patient and the provider for telehealth services to be delivered and covered under the COVID-19 emergency declaration. Section 3704. Enhancing Medicare Telehealth Services for Federally Qualified Health Centers and Rural Health Clinics During Emergency Period Background Under current law, FQHCs and rural health clinics (RHCs) are allowed to be originating sites for covered telehealth services (sites where a patient is located) but are not allowed to be distant sites, where physicians may provide telehealth services to eligible patients at other locations (originating sites). Generally, both FQHC and RHCs are not paid under the Medicare physician fee schedule (MPFS). Rather, FQHCs are paid through an FQHC-specific prospective payment system (PPS), while RHCs are reimbursed as an all-inclusive rate for the services they provide. Provision Section 3704 allows FQHCs and RHCs to serve as distant sites for the furnishing of telehealth services to telehealth-eligible individuals during the emergency period. The Secretary is required to develop and implement, through program instruction or otherwise, payment methods for this purpose that apply to FQHCs and RHCs serving as a distant sites that furnish telehealth services to eligible telehealth individuals during such an emergency period. Such services are to be paid similar to the national average amount for comparable telehealth services under the MPFS. The costs associated with this care are not to be included when calculating the payments for the FQHC PPS or the RHC all-inclusive rates, under current law. Section 3705. Temporary Waiver of Requirement for Face-To-Face Visits Between Home Dialysis Patients and Physicians Background Medicare is the main source of health care coverage for Americans with end-stage renal disease (ESRD). Individuals with ESRD have substantial and permanent loss of kidney function and require either a regular course of dialysis (a process that removes harmful waste products from an individual's bloodstream) or a kidney transplant to survive. Medicare covers beneficiaries aged 65 and older who have ESRD, as well as qualified individuals with ESRD who are under the age of 65. Medicare ESRD benefits include thrice-weekly dialysis treatment and coverage for kidney transplants. CMS pays physicians, typically nephrologists, and other practitioners a monthly per-patient rate for most dialysis-related services. Physicians and practitioners managing ESRD patients who perform home-based dialysis are paid a single monthly rate based on the ESRD beneficiary's age. A physician or practitioner is required to have at least one face-to-face visit with a home dialysis patient each month. As part of the Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123 ), Congress expanded the use of telehealth services for ESRD patients undergoing home dialysis. Starting in 2019, ESRD beneficiaries who use home dialysis have been allowed to receive monthly face-to-face clinical assessments via telehealth services, so long as the beneficiaries receive a face-to-face assessment without the use of telehealth (1) at least monthly for the initial three months of home dialysis, and (2) after the initial three months, at least once every three consecutive months. Provision Section 3705 amends SSA Section 1881(b)(3)(B) to allow the Secretary to waive the requirement that to receive telehealth services, a Medicare ESRD beneficiary undergoing home dialysis receive a face-to-face clinical assessment from a practitioner monthly during the initial three months of home dialysis and once every three months thereafter. The requirement may be waived for the period that the COVID-19 emergency is in effect. Section 3706. Use of Telehealth to Conduct Face-To-Face Encounter Prior to Recertification of Eligibility for Hospice Care During Emergency Period Background The Medicare hospice benefit provides coverage for certain services provided to Medicare beneficiaries with a life expectancy of six months or less. Such services must be rendered by Medicare-certified hospices, which are either public agencies or private organizations primarily engaged in providing hospice services. Although beneficiaries who elect hospice care may disenroll from the hospice benefit at any time, the benefit is administratively structured by "periods": specifically, two 90-day periods and an unlimited number of subsequent 60-day periods. For hospice care to be covered under Medicare, an initial certification of a terminal illness must be obtained by the hospice at the beginning of the first 90-day period of care. The initial certification requires signed declarative statements attesting to the presence of a terminal illness by the hospice physician and the beneficiary's attending physician, if the individual has designated one. For each subsequent period of hospice care, recertification of the beneficiary's terminal illness is required only by the hospice physician. Since the beginning of 2011, part of the recertification process to determine continued eligibility has included a mandatory face-to-face encounter with the beneficiary by the hospice physician or nurse practitioner. Provision Section 3706 amends SSA Section 1814(a)(7)(D)(i) to provide that, as determined appropriate by the Secretary, a hospice physician or nurse practitioner may conduct a face-to-face encounter for continued eligibility purposes via telehealth during a period that the COVID-19 emergency is in effect. Section 3707. Encouraging Use of Telecommunications Systems for Home Health Services Furnished During Emergency Period Background Medicare covers visits by participating home health agencies for beneficiaries who (1) are confined to home and (2) need either skilled nursing care on an intermittent basis, physical therapy, or speech language therapy. As required by SSA Section 1895, home health agencies are paid for services under a home health PPS based on 30-day episodes of care. Generally, the home health PPS consists of a nationwide payment amount that is subject to adjustments for the expected care needs of a beneficiary (i.e., case-mix) and differences in local wages. Further payment adjustments are made in certain situations, including a low-utilization payment adjustment (LUPA) for episodes of care with few home visits. Under SSA Section 1895, home health agencies are not precluded from adopting telemedicine or other technologies, but such services are not permitted to serve as a substitute for visits paid under the home health PPS. Accordingly, federal regulations define a home health visit as an episode of personal contact. As such, telemedicine services are not accounted for in the home health PPS, nor do providers receive direct payment for telemedicine services generally. Although there is no direct payment for home health services provided through remote technologies, regulations in 42 C.F.R. Part 409.46 designate remote patient monitoring as a service with costs that may be reported as administrative if remote patient monitoring is used to augment the care planning process. Remote patient monitoring is defined in regulations as the collection of patient health information that is digitally stored or transmitted by the patient and/or caregiver to the home health agency. CMS allows home health agencies to include the costs of remote patient monitoring as an allowable administrative cost. Provision Section 3707 requires the Secretary to consider how HHS can encourage the use of telemedicine by home health agencies with respect to home health services provided to Medicare beneficiaries during the period that the COVID-19 emergency is in effect. Specifically, the Secretary is required to consider ways to encourage the use of telecommunications systems, including for remote patient monitoring, and other communications or monitoring services. Use of new technologies must be consistent with the plan of care for beneficiaries. As part of this consideration, the Secretary may clarify guidance and conduct outreach, as appropriate. Section 3708. Improving Care Planning for Medicare Home Health Services Background Medicare covers certain home health services under both Parts A and B. Special eligibility requirements and benefit limits exist for home health services furnished under Part A to beneficiaries who are enrolled in both Parts A and B. For such beneficiaries, Part A pays for only "postinstitutional" home health services, provided for up to 100 visits during a "spell of illness," which is a period that extends 14 days after a discharge from a skilled nursing facility or a hospital following a minimum stay of three consecutive days. Part B covers any medically necessary home health services that exceed the 100-visit limit, as well as medically necessary home health services that do not qualify as "postinstitutional." For beneficiaries enrolled in only Part A or Part B, the requirements described above do not apply. Part A or Part B, as applicable, covers all medically necessary episodes of home health care without a visit limit, regardless of whether the episode of care follows a hospitalization. Whether a beneficiary is enrolled in Part A only, Part B only, or in both, the scope of the Medicare home health benefit is the same. Medicare's payments to home health agencies are calculated using the same methods, and beneficiaries have no cost-sharing. As required under SSA Sections 1814 and 1835 (for Parts A and Part B, respectively), for a beneficiary to receive home health services under Medicare, certain eligibility requirements must be certified by a physician, including a face-to-face encounter performed by a physician or a specified medical professional working in collaboration with, or under the supervision of, the physician, as applicable. For a beneficiary to be eligible for coverage, the physician certifies that home health services are required because the beneficiary, under the care of the physician, is (1) confined to the home and (2) in need of either skilled nursing care on an intermittent basis, physical therapy, or speech language therapy. After this eligibility is established, the eligibility period may be continued for homebound beneficiaries with a certified continuing need for occupational therapy services. A physician is prohibited from certifying home health eligibility if he or she has a significant ownership interest in, or a significant financial or contractual relationship with, the home health agency in which the services are to be provided. These conditions are delineated in federal regulations and include an authorized exception for instances in which there is a solitary community home health agency. BBA 2018, Section 51002, amended SSA Sections 1814 and 1835 to expand the scope of supporting documentation the Secretary may use to document Medicare eligibility for home health services. Under the BBA changes, in addition to using a physician's medical record or a record compiled by an acute/post-acute facility, the Secretary may also use a home health agency's medical record as appropriate to the case involved. Provision Section 3708 amends SSA Section 1814(a)(2)(C) and Section 1835(a)(2)(A) to allow, no later than six months after enactment, a nurse practitioner, clinical nurse specialist, or physician assistant to certify the eligibility requirements for Medicare home health services under Parts A and B, respectively. Section 3708 further allows a nurse practitioner, clinical nurse specialist, or physician assistant to conduct the required face-to-face encounter that is part of the certification process. Section 3708 also amends SSA Sections 1814 and 1835 to prohibit such professionals with a significant financial stake in a home health agency from certifying beneficiary eligibility when that agency is the entity providing the necessary services. However, the same exemption exists as the one pertaining to certifying physicians: the prohibition is waived if the servicing entity is the sole community home health agency. Further, Section 3708 conforms to language in the BBA 2018 to allow the Secretary to use a home health agency's medical record, in addition to a medical record compiled by medical professionals with certification authority, to document eligibility as appropriate to a specific case. Section 3708 also amends SSA Sections 1861 and 1895 to ensure that the general definitions of home health services, coverage, and payment system encompass and conform with current statutory language referencing the medical professionals to whom certification authority is extended. In addition, amendments made under Section 3708 are applied under SSA Title XIX (Medicaid) in the same manner and to the same extent such requirements apply to Medicare under SSA Title XVIII or regulations promulgated thereunder. No later than six months after enactment, the Secretary is required to implement regulations relevant to application of the amendments. If necessary, the Secretary must produce an interim final rule to comply with the required six-month effective date. Section 3709. Adjustment of Sequestration Background The Budget Control Act of 2011 (BCA; P.L. 112-25 ) provided for increases in the debt limit and established procedures designed to reduce the federal budget deficit, including the creation of the Joint Select Committee on Deficit Reduction. The failure of the Joint Committee to propose deficit reduction legislation that was subsequently enacted into law by its mandated deadline triggered automatic spending reductions, including the "sequestration" (i.e., across-the-board reductions) of mandatory spending in FY2013 through FY2021. Subsequent legislation extended the sequestration of mandatory spending through FY2029. Medicare benefits are funded through mandatory spending and are subject to reductions under such sequestration. Section 256(d) of the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA; P.L. 99-177 ) contains special rules for the Medicare program in the event of a sequestration. Among other things, it specifies that for Medicare, sequestration is to begin the month after the annual sequestration order has been issued and to continue for one calendar year. Subsequent sequestration orders begin the first month after the previous order ends. Therefore, as the initial sequestration order was issued March 1, 2013, Medicare sequestration began April 1, 2013, and was (most recently) scheduled to continue through March 31, 2030. Under a BCA mandatory sequestration order, Medicare benefit payments cannot be reduced by more than 2%. Since April 1, 2013, Medicare benefit-related payments, which include payments to health care providers, Medicare Advantage (MA), and Part D plans, have been subject to 2% reductions. Provision This provision waives the application of sequestration to the Medicare program for the period May 1, 2020, through December 31, 2020. This provision also extends the sequestration of mandatory spending for an additional year, through FY2030. (For Medicare, this means that sequestration will continue through March 31, 2031.) Section 3710. Medicare Hospital Inpatient Prospective Payment System Add-On Payment for COVID-19 Patients During Emergency Period Background Medicare pays most acute care hospitals under the inpatient prospective payment system (IPPS). The IPPS payment is a predetermined, fixed amount for most services provided to a Medicare beneficiary during an inpatient hospital stay. The bundled, fixed, per-discharge portion of the IPPS is referred to as the IPPS base amount. The total IPPS payment is the base amount, adjusted by a number of factors. These adjustments generally include such things as the geographic location of the hospital, the complexity of the patient's condition, and a hospital's teaching status, among others. One of the adjustments is a payment weight associated with the Medicare severity-diagnosis related group (MS-DRG) to which a patient is assigned. This weight reflects the average cost of patients in a specific MS-DRG relative to the average cost across all MS-DRGs due to differences in the severity of patients' conditions. In FY2020, there are 759 MS-DRGs (i.e., codes). The MS-DRG weights are recalibrated annually, generally effective October 1 of each year. The recalibrations are done in a budget-neutral manner. Provision Section 3710 amends SSA Section 1886(d)(4)(C) to require the Secretary to increase the MS-DRG weight that would otherwise apply for a COVID-19-related Medicare discharge by 20% during the COVID-19 emergency period. IPPS payment increases associated with this provision are not to be included in applying budget neutrality. The Secretary is not required to use notice and comment to implement this provision; it may be done through program instruction or otherwise. A state that has a Section 1115A waiver of all or part of SSA Section 1886 to test alternative payment and delivery models through the Center for Medicare & Medicaid Innovation is not precluded from implementing a similar payment adjustment. Section 3711. Increasing Access to Post-Acute Care During Emergency Period Background Medicare pays for intensive inpatient rehabilitation services—physical, occupational, or speech therapy that is generally required after illness, injury or surgery—under the Inpatient Rehabilitation Facility (IRF) prospective payment system (IRF PPS). The IRF PPS payment is a predetermined, fixed amount per discharge. To receive the IRF PPS payment, the rehabilitation hospital, or a rehabilitation unit within another provider type, must meet IRF requirements specified in regulation. Medicare covers IRF services for patients who, among other requirements, can reasonably be expected to actively participate in, and benefit from, intensive rehabilitation therapy. Intensive rehabilitation therapy is specified in regulation as occurring either 3 hours a day at least five days per week, or 15 hours within a consecutive seven-day period. Medicare also pays for extended periods of inpatient hospital care for chronic critical illness under the long-term care hospital inpatient prospective payment system (LTCH PPS). The LTCH PPS payment is a predetermined, fixed amount per discharge, and it is generally greater than the IPPS amount. Specifically, LTCHs are paid under the LTCH PPS if a Medicare beneficiary either (1) had a prior three-day intensive-care-unit stay at a hospital paid under the IPPS immediately preceding the LTCH stay, or (2) is assigned to an LTCH PPS case-mix group that is based on the receipt of ventilator services for at least 96 hours, and had a prior hospital stay at a hospital paid under the IPPS immediately preceding the LTCH stay. LTCH discharges occurring in FY2020, and subsequent fiscal years that do not meet the aforementioned criteria are paid a site-neutral payment rate similar to the IPPS amount. Also, an LTCH must have no more than 50% of its Medicare discharges paid at the site-neutral rate to continue to receive the LTCH PPS payment amount for LTCH-eligible cases. Provision Section 3711(a) waives the Medicare IRF rule that patients must reasonably be expected to participate in, and benefit from, at least 15 hours of therapy per week, during the COVID-19 emergency period. Section 3711(b) waives the site-neutral payment requirement for COVID-19-related LTCH discharges so that all these discharges will be paid under the LTCH PPS, and it waives the 50% requirement during the during the COVID-19 emergency period. Section 3712. Revising Payment Rates for Durable Medical Equipment Under the Medicare Program Through Duration of Emergency Period Background Medicare Part B covers a wide variety of medical equipment and devices under the heading of durable medical equipment (DME), or prosthetics and orthotics (PO) if the products are medically necessary and prescribed by a physician. Examples of DME include hospital beds, blood glucose monitors, and ventilators. Prosthetics and orthotics include artificial limbs and back and knee braces. The DMEPOS benefit also includes related supplies (S), such as drugs and biologics that are necessary for the effective use of a product. Except in competitive bidding areas, Medicare pays for most DMEPOS based on fee schedules, which are statutory formulas for determining prices of items. Medicare pays 80% of the lower of a supplier's charge for an item or a fee schedule amount. A beneficiary is responsible for the remaining 20%. In general, fee schedule amounts are updated each year, by inflation and a measure of economy-wide productivity. In addition, since 2016, Medicare fee schedule rates that apply outside of competitive bidding areas for certain DMEPOS have been reduced based on price information collected from the competitive bidding program. (Prices for DMEPOS under competitive bidding are generally lower than the fee schedule rates.) The fee schedule reductions were phased in during 2016, meaning that during that year, 50% of the Medicare payment rate was based on the unadjusted (higher) fee schedule amount, and 50% was based on the (lower) rate fully adjusted with information from competitive bidding. The phase-in was complete by January 2017, at which time fee schedules were based entirely on the adjustment with information from competitive bidding. In response to concerns that the adjusted rates were too low, the Secretary, in June 2018, again applied a phase-in methodology for rural and noncontiguous areas , meaning that in these areas the fee schedule was no longer fully adjusted by competitive bidding data, but instead went back to a 50/50 blend of rates based on both (higher) unadjusted fee schedule rates and (lower) rates fully adjusted by competitive bidding information. As such, two different fee schedules apply to DMEPOS products outside of competitive bidding areas, depending on an area's rural/urban designation and whether an area is part of the contiguous United States. First, in rural or noncontiguous areas, the fee schedule is a 50/50 blend: 50% from the unadjusted fee schedule and 50% from the fee schedule adjusted to account for lower price information from competitive bidding (i.e., the phase-in methodology). Second, in areas that are not rural or noncontiguous (i.e., nonrural and contiguous), the fee schedules are fully adjusted by information from the competitive bidding program. In both cases, CMS regulations specify that this methodology applies from June 1, 2018, through December 31, 2020. Provision Section 3712 of the CARES Act extends the 50/50 blended DMEPOS payment rate provided in rural or noncontiguous areas through the duration of the COVID-19 emergency period, if the emergency period lasts longer than December 31, 2020. Section 3712 also increases the DMEPOS payment rate for items provided in areas other than rural areas and noncontiguous areas for the duration of the COVID-19 emergency period. Items and services furnished in these areas on or after the date that is 30 days after the enactment of the CARES Act (i.e., April 26, 2020) would be reimbursed under a fee schedule that is equal to a 75/25 blend, where 75% of the fee schedule is fully adjusted by competitive bidding rates, and 25% is based on unadjusted (higher) fee schedule amounts. Section 3713. Coverage of the COVID-19 Vaccine Under Part B of the Medicare Program Without Any Cost-Sharing Background Medicare Part B specifically covers the following vaccines: influenza virus (flu), pneumococcal pneumonia (pneumonia), hepatitis B virus (HBV) for beneficiaries at high or intermediate risk, and other vaccines directly related to treatment of an injury or direct exposure to a disease or condition. Otherwise, Medicare Part B does not cover preventive vaccines. If a vaccine is provided by a Medicare-participating practitioner, there is no cost-sharing for Medicare beneficiaries for the flu, HBV, or pneumonia vaccine ingredient or the vaccine administration. However, Medicare Part B cost-sharing applies (20% of the Medicare approved amount plus an annual deductible) for vaccines administered to treat an injury or direct exposure to a disease or condition. Medicare Part C (MA) plans generally are required to cover the same services as original Medicare, Parts A and B. As a result, MA plans are required to cover, without beneficiary cost-sharing, the flu, HBV, and pneumonia vaccines. MA plans may cover without beneficiary cost-sharing vaccines directly related to treatment of an injury or direct exposure to a disease or condition and other vaccines. MA enrollee cost-sharing for vaccines not covered by Medicare Part B may vary depending on the plan and the vaccine, because they may be covered as supplemental benefits. Provision Section 3713 amended SSA Section 1861(s)(10)(A) and SSA Section 1852(a)(1)(B) to require Medicare Part B and MA plans to cover a COVID-19 vaccine and its administration without beneficiary cost-sharing, including waiving applicable annual deductibles. This section was effective upon enactment (i.e., March 27, 2020) and is applicable to a COVID-19 vaccine on the date it is licensed by FDA. The Secretary is authorized to implement Section 3713 through program instructions or otherwise. Section 3714. Requiring Medicare Prescription Drug Plans and MA-PD Plans to Allow During the COVID-19 Emergency Period for Fills and Refills of Covered Part D Drugs for Up to a 3-Month Supply Background Medicare Part D is a voluntary outpatient prescription drug benefit. Enrollees purchase Part D prescription drug plans from private insurers, known as plan sponsors. To participate in the Part D program, plan sponsors must meet a series of requirements, including (1) providing an adequate formulary, or list of covered drugs, and (2) providing a sufficient network of contracted pharmacies that dispense prescriptions for set reimbursement. Federal law also requires that Part D sponsors provide enrollees with "adequate emergency access" to needed drugs. Under longstanding CMS guidance, plan sponsors have some latitude in deciding how to comply with the emergency access provisions. In general, however, CMS expects plan sponsors to limit pharmacy edits (i.e., dispensing restrictions) that prevent enrollees from seeking early prescription refills in the case of a federally declared disaster or a public health emergency that is reasonably expected to disrupt access. In a March 10, 2020, memo to Part D sponsors, CMS reiterated its emergency access guidelines and outlined options for responding to the COVID-19 emergency. In the memo, CMS specified actions that Part D sponsors may or must take: Sponsors may relax "refill-too-soon" edits on prescriptions if circumstances are reasonably expected to result in a disruption in access. Sponsors have discretion regarding how to relax the edits, so long as enrollees have access to Part D drugs at the point-of-sale (i.e., a retail pharmacy). Sponsors may allow an enrollee to obtain the maximum extended-day supply available under his or her plan, if the prescription is requested and available. Sponsors must ensure that an enrollee has adequate access to covered drugs at a pharmacy located out of the enrollee's regular pharmacy network. The requirement would apply in cases where an enrollee could not reasonably be expected to obtain the drugs at a network pharmacy. Enrollees would still be responsible for required cost-sharing and possible additional charges (i.e., the out-of-network pharmacy's usual and customary charge for the drugs). Sponsors may relax plan-imposed policies that could discourage certain types of prescription delivery, such as mail or home delivery, if a disaster or emergency makes it difficult for enrollees to get to a retail pharmacy, or when enrollees are prohibited from going to a retail pharmacy (such as in a quarantine situation). Sponsors may waive requirements that enrollees receive prior authorization before filling a prescription for drugs used to treat or prevent COVID-19, if or when such drugs are identified. Any plan waivers would be provided to enrollees uniformly. Part D plan sponsors also operate drug management programs for beneficiaries deemed to be at risk of misusing or abusing frequently abused drugs. Sponsors may place additional controls on pharmacy dispensing to such individuals, including placing limits on the number of providers allowed to write prescriptions for at-risk enrollees and limiting the number of pharmacies allowed to dispense drugs to such enrollees. Under CMS regulations, at-risk enrollees must have reasonable access to prescriptions in case of natural disasters or similar situations. Provision Section 3714 amends SSA 1860D–4(b) to require Part D sponsors to provide extended dispensing to enrollees during the COVID-19 emergency period. Under the provision, Part D sponsors must allow an enrollee to have access to up to a 90-day fill or refill of a prescription. Plan sponsors cannot deny such prescriptions based on existing plan cost and utilization management requirements that limit dispensing of particular drugs, except for restrictions based on drug safety. The Secretary may implement the provision by program instruction or otherwise. Section 3715. Providing Home and Community-Based Services in Acute Care Hospitals Background Medicaid home and community-based services (HCBS) include coverage of specific benefits such as case management, personal care, homemaker, respite care, and adult day health care, among other services. Medicaid HCBS are authorized under the Medicaid state plan, which is the contract a state makes with the federal government to administer its Medicaid program, subject to CMS approval. These HCBS state plan authorities include optional services that states may choose to provide under the SSA Section 1915(i) HCBS State Plan Option, the SSA Section 1915(k) Community First Choice State Plan Option, and SSA Section 1915(j) Self-Directed Personal Care Assistance Services. Medicaid HCBS are also authorized through waiver programs that permit states to disregard certain Medicaid requirements under the state plan in the provision of waiver services, also subject to CMS approval. Medicaid HCBS waiver authorities include SSA Section 1915(c) HCBS waivers, SSA Section 1915(d) HCBS waivers for the elderly, and SSA Section 1115 research and demonstration waivers. SSA Section 1902(h) states that nothing in Title XIX (Medicaid) should be construed as authorizing the Secretary to limit the amount of payment that may be made under a Medicaid state plan for home and community care. Provision Section 3715 amends SSA Section 1902(h) by adding a new paragraph (1) to specify that the limit on the amount of payment under a Medicaid state plan for home and community care applies to certain statutory authorities for providing Medicaid HCBS under state plan services authorized under SSA Section 1915(i), Section 1915(j), and Section 1915(k), as well as waiver authorities under Section 1915(c), Section 1915(d), and Section 1115. The provision adds a new paragraph (2), which states that nothing in SSA Titles XI (General Provisions), XVIII (Medicare), or XIX (Medicaid) shall be construed as prohibiting receipt of any care or services specified in paragraph (1) in an acute care hospital that are identified in an individual's person-centered service plan (or comparable plan of care); provided to meet needs of the individual that are not met through the provision of hospital services; not a substitute for services that the hospital is obligated to provide through its conditions of participation or under federal or state law, or under another applicable requirement; and designed to ensure smooth transitions between acute care settings and home and community-based settings, and to preserve the individual's functional abilities. Section 3716. Clarification Regarding Uninsured Individuals Background FFCRA Section 6004 permits state Medicaid programs to extend time-limited COVID-19 testing (as specified under that law's new Medicaid mandatory service category) without cost-sharing to uninsured individuals. For the purposes of this provision, FFCRA Section 6004 defines uninsured individuals as those who are not Medicaid eligible under one of Medicaid's mandatory eligibility pathways (e.g., the poverty-related pregnant women and child pathways, or the ACA Medicaid expansion pathway), and are not enrolled in (1) a federal health program (e.g., Medicare, Medicaid, CHIP, or TRICARE); (2) a specified type of private health insurance plan (e.g., individual health insurance coverage, group health insurance coverage, or a group health plan); or (3) an FEHBP. FFCRA provides a 100% federal medical assistance percentage (FMAP or federal matching rate) for medical assistance and administrative costs associated with uninsured individuals who are eligible for Medicaid under this provision. Provision Section 3716 of the CARES Act amends the definition of uninsured individuals under FFCRA Section 6004 for the purposes of determining Medicaid eligibility for the state plan option to allow for time-limited COVID-19 testing (as specified under the new Medicaid mandatory service category) without cost-sharing. Under the CARES Act, uninsured individuals will also include those (1) who would be eligible for Medicaid via the ACA Medicaid expansion pathway in states that have not adopted this eligibility pathway (i.e., non-ACA Medicaid expansion states), and (2) certain specified Medicaid enrollees who, by virtue of their Medicaid eligibility pathway, are entitled to limited Medicaid benefits, including low-income tuberculosis-infected individuals who are entitled to services related to the tuberculosis infection, women needing treatment for breast or cervical cancer, individuals eligible only for family planning services and supplies, individuals eligible through the Medically Needy pathway whose coverage does not meet minimum essential health coverage, and certain low-income pregnant woman who are entitled to limited pregnancy-related services. Section 3717. Clarification Regarding Coverage of COVID-19 Testing Products Background FFCRA Section 6004 added FDA-approved tests and testing-related state plan services for the COVID-19 virus without cost-sharing, as defined in Section 6004 to the list of Medicaid mandatory services under traditional Medicaid benefits. States and territories are required to offer services under this new mandatory benefit for the period beginning March 18, 2020, through the duration of the public health emergency, as declared by the Secretary pursuant to PHSA Section 319. During the specified public health emergency period, Section 6004 of FFCRA also permits state Medicaid programs to extend FDA-approved COVID-19 testing (and testing-related state plan services) to uninsured individuals without cost-sharing, as defined in Section 6004 and requires CHIP programs to cover FDA-approved COVID-19 testing and the administration of such testing without cost-sharing for CHIP enrollees. Section 6004 also amended SSA Section 1905(a)(3) to define applicable tests to include IVDs, as defined in FDA regulation, that detect SARS-CoV-2 or diagnose COVID-19 and that had received either 510(k) clearance, premarket approval, authorization pursuant to de novo classification, or emergency use authorization (EUA) for marketing. Provision The CARES Act modifies the definition of COVID-19 tests covered under Medicaid and CHIP for the specified public health emergency period. Specifically, Section 3717 amends SSA Section 1905(a)(3)(B), as added by FFCRA Section 6004, to remove language requiring FDA approval, clearance, or authorization for covered tests. Under this modified definition, tests are defined simply as IVDs, as defined in FDA regulation, that detect SARS-CoV-2 or diagnose COVID-19. IVDs are defined in FDA regulation as a specific subset of devices that include "reagents, instruments, and systems intended for use in the diagnosis of disease or other conditions ... in order to cure, mitigate, treat, or prevent disease ... [s]uch products are intended for use in the collection, preparation, and examination of specimens taken from the human body." Section 3718. Amendments Relating to Reporting Requirements With Respect to Clinical Diagnostic Laboratory Tests Background Outpatient clinical laboratory services are paid under the Medicare Clinical Laboratory Fee Schedule (CLFS). Previously, CLFS payment rates were based on historical laboratory charges. The Protecting Access to Medicare Act (PAMA, P.L. 113-93 ) established a new method for determining clinical laboratory payments beginning in 2018, with Medicare CLFS payment rates based on reported private insurance payment amounts. Per PAMA, CMS was to collect data from clinical laboratories (aside from advanced diagnostic laboratory tests, for which PAMA also altered payment, coding, and coverage) about private payer payment rates beginning in 2016. The new payment system was to be phased in from 2017 through 2022; during the phase-in period, payment could not be reduced, compared with the amount of the payment in the preceding year, by more than a statutorily specified limit. For each year 2017-2019, the CLFS payment reduction limit was to be 10%, and for each year 2020-2022, the payment reduction limit was to be 15%. Beginning in 2018, CMS set CLFS rates based on the weighted median of private payer rates for each laboratory service, collected from applicable laboratories. These CLFS payment rates are national and do not vary based on geography. Section 105 of the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ) modified the schedule for implementing the new CLFS payment system and reporting requirements. A period during which there would be no reporting required from diagnostic laboratories was established, from January 1, 2020, through December 31, 2020. The first required reporting period would begin January 1, 2021, and end March 31, 2021, with subsequent reporting periods required every three years thereafter. The phase-in schedule was modified so that the payment reduction limit was to be 10% for each year from 2017 through 2020, with the limit to be 15% from 2021 through 2023. Provision Section 3718 further delays the reporting requirements under the new CLFS payment methodology and makes additional revisions to the payment reduction limits during the phase-in schedule. The provision would extend the initial period during which no reporting is required from the period beginning January 1, 2021, through December 31, 2021, with the first required reporting period to begin on January 1, 2022, and end March 31, 2022. Subsequent required reporting periods would occur every three years thereafter. For 2021, there would be no payment reduction (i.e., 0% limit) during the phase-in of the private payer rate implementation schedule; the payment reduction limit would be 15% for 2022 through 2024, when the private payer rate is to be fully implemented. Section 3719. Expansion of the Medicare Hospital Accelerated Payment Program During the COVID-19 Public Health Emergency Background SSA Section 1815 permits the Secretary to make accelerated payments to an IPPS hospital and to a Puerto Rico IPPS hospital that experiences significant cash flow problems. Cash flow problems must arise out of one or more of the following: (1) a delay in Medicare payments, (2) exceptional situations beyond a hospital's control that result in delayed billing, or (3) highly exceptional situations where the Secretary deems an accelerated payment is appropriate. The amount of the accelerated payment may not exceed 70% of the estimated unbilled charges or unpaid bills (less deductibles and coinsurance). An accelerated payment must be paid-in-full within 90 days after such payment is made. If an accelerated payment is not paid in full within 90 days, CMS is authorized to withhold Medicare payments until the accelerated payment is repaid. Accelerated payments must be requested by a hospital, and those requests are reviewed and approved by the appropriate CMS regional office. Provision Section 3719 amends SSA Section 1815 to expand eligibility for accelerated payments to Critical Access Hospitals (CAHs), pediatric hospitals, and IPPS-exempt cancer hospitals located in one of the 50 states or the District of Columbia, during the COVID-19 emergency period. The expansion of accelerated payments made under this provision is subject to appropriate safeguards against fraud, waste, and abuse. In addition, upon the request of a hospital that is eligible for accelerated payment under this provision, the Secretary may implement the following amendments during the designated public health emergency period: make accelerated payments on a periodic or lump sum basis; increase payments by an amount up to 100% of the estimated unbilled charges or unpaid bills or 125% for CAHs; and specify that the accelerated payments can cover up to a six-month period of unbilled charges or unpaid bills. The Secretary is required to extend the recoupment period up to 120 days upon request of the hospital. Also upon request, a hospital is allowed no less than 12 months from the date of the first accelerated payment to pay in full any outstanding balance. The Secretary may implement this provision through program instruction or otherwise. Section 3720. Delaying Requirements for Enhanced FMAP to Enable State Legislation Necessary for Compliance Background Medicaid is jointly financed by the federal government and the states. The federal government's share of a state's expenditures for most Medicaid services is called the FMAP rate, which varies by state and is designed so that the federal government pays a larger portion of Medicaid costs in states with lower per capita incomes relative to the national average (and vice versa for states with higher per capita incomes). Exceptions to the regular FMAP rate have been made for certain states, situations, populations, providers, and services. In the past, two temporary FMAP exceptions were available to provide states with fiscal relief due to recessions. They were provided through the Jobs and Growth Tax Relief Reconciliation Act of 2003 ( P.L. 108-27 ) and the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ). To be eligible for both of these temporary FMAP increases, states had to abide by some requirements. These requirements varied in the two FMAP increases, but for both increases, states were required to maintain Medicaid "eligibility standards, methodologies, and procedures" and to ensure that local governments did not pay a larger percentage of the state's nonfederal Medicaid expenditures than would have been required otherwise. Section 6008 of FFCRA provides an increase to the FMAP rate for all states, the District of Columbia, and the territories of 6.2 percentage points for each calendar quarter occurring during the period beginning on the first day of the public health emergency period (i.e., January 1, 2020) and ending on the last day of the calendar quarter in which the last day of the public health emergency period ends. States, the District of Columbia, and the territories will not receive this FMAP rate increase if (1) the Medicaid "eligibility standards, methodologies, or procedures" are more restrictive than what was in effect on January 1, 2020; (2) the amount of premiums imposed by the state exceeds the amount as of January 1, 2020; (3) eligibility is not maintained for individuals enrolled in Medicaid on the date of FFCRA enactment (i.e., March 18, 2020) or for individuals who enroll during the public health emergency period through the end of the month in which the public health emergency period ends (unless the individual requests a voluntary termination of eligibility or the individual ceases to be a resident of the state); or (4) the state does not provide coverage (without the imposition of cost-sharing) for any testing services and treatments for COVID-19 (including vaccines, specialized equipment, and therapies). Section 6008 of FFCRA also modifies SSA Section 1905(cc) to add another condition for the FMAP rate increase. Specifically, states, the District of Columbia, and the territories cannot require local governments to fund a larger percentage of the state's nonfederal Medicaid expenditures for the Medicaid state plan or Medicaid disproportionate share hospital payments than what was required on March 11, 2020. Provision Section 3720 of the CARES Act amends Section 6008 of FFCRA to delay the application of the requirement that a state cannot receive the increased FMAP rate if the amount of premiums imposed by the state is higher than the amount imposed as of January 1, 2020. Specifically, the application of the premium requirement is delayed for 30 days after March 18, 2020 (i.e., the date of enactment for FFCRA). Effectively, a state will be eligible for the FFCRA FMAP increase through April 17, 2020, if the amount of premiums imposed by the state exceeds the amount imposed as of January 1, 2020, as long as the premiums were in effect on the date of enactment for FFCRA. In order to receive the FMAP increase, a state still needs to be in compliance with all of the other requirements listed in FFCRA. Subtitle F—Over-the-Counter Drugs Part I—OTC Drug Review Background FDA regulates the safety and effectiveness of nonprescription or OTC drugs sold in the United States. Examples of OTC drugs include hand sanitizer, sunscreen, and certain analgesics. To market an OTC drug, a company may follow one of two pathways. First, a company may submit an NDA to FDA for approval. Second, a company may use the OTC drug monograph process. A monograph establishes conditions—active ingredient(s) and related conditions (e.g., dosage level, combination of active ingredients, labeled indications, warnings and adequate directions for use)—under which an OTC drug in a given therapeutic category (e.g., sunscreen, antacid) is considered generally recognized as safe and effective (GRASE) for use. If an OTC drug product complies with a monograph, it does not need FDA approval of its NDA prior to marketing. Prior to enactment of the CARES Act, monographs were established and amended through rulemaking. FDA assesses monograph compliance as part of its inspection process. The OTC drug monograph program—established in 1972—was intended to provide an efficient mechanism through which OTC drugs could be marketed without individual FDA evaluation and approval. However, the program has been met with several challenges. For example, some monographs remain unfinalized, so there are OTC drugs on the market without final safety and effectiveness determinations. There are also perceived limitations to the industry's ability to propose innovations to currently marketed OTC drugs without submitting an NDA, and FDA has stated that it has limited resources to support OTC monograph activities. Section 3851. Regulation of Certain Nonprescription Drugs that Are Marketed Without an Approved Drug Application Provision Section 3851 establishes a new FFDCA Section 505G, which replaces the current OTC drug monograph rulemaking process with the administrative order process—a less burdensome alternative. This new process allows FDA, on its own initiative or upon request, to issue an administrative order (rather than a rule) determining that a drug, or class or combination of drugs, is GRASE or not GRASE. Certain monograph changes (e.g., new active ingredient, new indication) that are industry-requested and subject to a final administrative order are eligible for 18 months of marketing exclusivity. New FFDCA Section 505G, among other things, also (1) requires that certain OTC drugs be marketed only pursuant to FDA approval via an NDA; (2) creates an expedited process for the issuance of administrative orders in certain circumstances (i.e., public health hazard, safety labeling changes); (3) provides for circumstances under which minor changes in dosage form can be made without a new administrative order; (4) requires FDA to publish on its website information related to final interim and administrative orders, develop guidance, and establish meeting procedures; and (5) requires GAO to conduct a study on the impact of the 18-month marketing exclusivity period for certain eligible OTC drugs. Section 3852. Misbranding Section 3852 amends FFDCA Section 502 to deem a drug misbranded if it is an OTC monograph drug that is subject to new FFDCA Section 505G, is not the subject of an approved NDA or ANDA, and does not comply with the requirements in FFDCA Section 505G. This provision also deems a drug misbranded if it is "manufactured, prepared, propagated, compounded, or processed" in a facility for which OTC monograph user fees have not been paid. Section 3853. Drugs Excluded from the Over-The-Counter Drug Review Section 3853 states that nothing in this act (or the amendments made by it) applies to any OTC drug excluded by FDA from the OTC Drug Review in accordance with the statement set out at 37 FR 9466 published on May 11, 1972. Section 3854. Treatment of Sunscreen Innovation Act Background Some industry stakeholders and members of Congress perceived FDA to be delaying consumer access to new sunscreens that were not originally included in the OTC Drug Review, and in November 2014, the Sunscreen Innovation Act (SIA; P.L. 113-195 ) was enacted. The SIA—codified in FFDCA Chapter V Subchapter I—created a new pathway for establishing whether certain OTC sunscreen active ingredients (i.e., those marketed in the United States after 1972 or those without any U.S. marketing experience) are GRASE. The SIA requires FDA to make GRASE determinations in the form of administrative orders (first proposed orders and then final orders) rather than through rulemaking, among other things. FDA has not yet approved any submissions for new sunscreen through the SIA process, requesting that sponsors submit additional safety and effectiveness data. Provision Section 3854 allows the sponsor of an OTC sunscreen active ingredient that is subject to a proposed sunscreen order under the SIA to elect to transition into the review process under new FFDCA Section 505G. The sponsor must notify FDA of such decision within 180 days of enactment, as specified. Otherwise, the order must continue to be reviewed under the SIA. Final sunscreen orders issued under the SIA are deemed final administrative orders under FFDCA Section 505G. Certain final sunscreen orders issued under new FFDCA Section 505G are eligible for 18 months of marketing exclusivity. Section 3854(b)(4) adds new FFDCA Section 586H, which sunsets FFDCA Chapter V Subchapter I (added by the SIA) at the end of FY2022. Section 3855. Annual Update to Congress on Appropriate Pediatric Indication for Certain OTC Cough and Cold Drugs Background Between 2004 and 2005, more than 1,500 children under two years of age were treated in U.S. emergency departments for adverse events associated with cough and cold medications. Concerns also arose regarding the use of these products in children under six years of age. In October 2007, FDA convened the Joint Meeting of the Nonprescription Drugs Advisory Committee and the Pediatric Advisory Committee "to discuss the safety and efficacy of [OTC] cough and cold products marketed for pediatric use." The committees determined that the available published studies did not demonstrate that OTC monograph cough and cold products marketed for pediatric use were effective in children and recommended additional studies and labeling changes. To date, FDA has not amended the monograph for these products in 21 C.F.R. Part 341 to reflect the committee recommendations. Absent rulemaking, FDA has issued several consumer updates warning of potential harms associated with the use of certain cough and cold drug products in children. Manufacturers voluntarily removed OTC infant cough and cold products intended for children under two years of age and voluntarily updated product labeling to include the warning "do not use in children under 4 years of age." However, such labeling changes are not required by FDA under the cough and cold monograph, and in order for FDA to require such labeling for these products, the agency would have to amend the monograph. Provision Section 3855 requires that, not later than one year after enactment and annually thereafter until FDA completes its evaluation, the Secretary submits to the Senate HELP and House Energy and Commerce committees a letter describing FDA's progress in (1) evaluating the cough and cold monograph under 21 C.F.R. Part 341 with respect to children under age six and (2) as appropriate, revising the monograph to address children under age six, through the administrative order process under new FFDCA Section 505G(b). Part II—User Fees Section 3862. Fees Relating to Over-The-Counter Drugs Background Historically, OTC drug monograph activities have been funded solely by discretionary appropriations from the General Fund of the Treasury. This funding method is in contrast to FDA's prescription drug activities, which are funded by a combination of discretionary appropriations and industry-paid user fees. This is because in 1992, the Prescription Drug User Fee Act (PDUFA) gave FDA the authority to collect fees from the pharmaceutical industry and use the revenue to support "the process for the review of human drug applications." PDUFA connected the user fees to performance goals that were negotiated between FDA and industry. The five-year PDUFA authority has been renewed on five subsequent occasions, and user fee authorities have been added for medical devices, animal drugs, tobacco products, and other FDA-regulated products and activities. These fee authorities—codified in FFDCA Chapter VII, Subchapter C—allow the Secretary, acting through the FDA Commissioner, to assess, collect, and spend user fees paid from regulated entities for specified FDA activities. Provision Section 3862 creates in FFDCA Chapter VII, a new Part 10—"Fees Relating to Over-The-Counter Drugs"—and the following new FFDCA sections: Section 744L ("Definitions"), Section 744M ("Authority to Assess and Use OTC Monograph Fees"), and Section 744N ("Reauthorization; Reporting Requirements"). New FFDCA Section 744M establishes a legal framework for the Secretary, beginning with FY2021, to assess and collect facility fees and monograph order request fees to support FDA's OTC monograph drug activities (e.g., review of order requests, inspections). Fees may be collected and spent only to the extent and in the amount provided in advance in appropriations acts (with an exception for the first year of the program), may remain available until expended, and may be transferred as specified for monograph drug activities only. This user fee program is authorized through FY2025. New FFDCA Section 744N requires the Secretary to submit annual performance and fiscal reports on user fee collection and spending to the Senate HELP and House Energy and Commerce committees. The performance and fiscal reports must be made publicly available on FDA's website. New FFDCA Section 744N also specifies the process for reauthorization of the user fee program, requiring the Secretary to consult with stakeholders on recommendations for future monograph activities and to transmit the recommendations to Congress no later than January 15, 2025. Appendix. Health Provisions in Title III of the CARES Act: Implementation Dates, Reporting Requirements, and Deadlines The table below includes relevant provisions (listed in order number) that include an effective date, a required report, or an explicit sunset date. The table does not include every provision described in this report, nor does it include required internal reports (i.e., reports required by grantees); it includes only reports that must be made public or be delivered to Congress. This CRS report reflects the CARES Act at enactment and will not be track actions pursuant to these deadlines, nor will this report be updated.

The global pandemic of Coronavirus Disease 2019 (COVID-19) is affecting communities around the world and throughout the United States, with the number of confirmed cases and fatalities growing daily. Containment and mitigation efforts by U.S. federal, state, and local governments have been undertaken to "flatten the curve"—that is, to slow the widespread transmission that could overwhelm the nation's health care system. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P.L. 116-136 ) was enacted on March 27, 2020. It is the third comprehensive law enacted in 2020 to address the pandemic. In addition to a number of broad health care provisions, the CARES Act provides additional supplemental appropriations to support federal response efforts and authorizes a number of economic stimulus measures, among other things. This report describes the majority of health-related sections in Division A, Title III, of the CARES Act, "Supporting America's Health Care System in the Fight Against the Coronavirus." Relevant background is provided for context. Specifically, this report describes provisions regarding, among other things, the following: The availability of medical countermeasures (MCMs)—drugs, tests, treatments, medical devices, and supplies such as personal protective equipment (PPE)—including research and development; product regulation by the Food and Drug Administration (FDA); the Strategic National Stockpile (SNS); and other supply chain matters. The health workforce, including telehealth programs, the rural health care system, and the Commissioned Corps of the U.S. Public Health Service (USPHS). Additional workforce provisions described in this report include reauthorization and extension of appropriations for existing HHS health workforce programs, and liability limitation. Provisions addressed at the Medicare and Medicaid programs and on private health insurance plans that temporarily require, or increase payment for, telehealth services and specified services related to COVID-19 testing, diagnosis, or treatment. A newly established FDA authority for over-the-counter (OTC) drug review. This report does not address education or labor provisions in Subtitle B or C in Part IV of Title III, or provisions in Subtitle E of Part IV of Title III, "Health and Human Services Extenders," which are described in other CRS reports. The report also does not include Division B of the act, which provides emergency supplemental appropriations for the COVID-19 response. The Appendix catalogues deadlines, effective dates, and reporting requirements for provisions described in the report. This report is intended to reflect the CARES Act at enactment (i.e., March 27, 2020). It does not track the law's implementation or funding and will not be updated.

GAO_GAO-19-526

Background Disaster Response Roles and Responsibilities Disaster response can involve many federal, state, territorial, tribal, private sector, and voluntary organizations. The National Response Framework describes how the federal government, states and localities, and other public and private sector institutions should respond to disasters and emergencies. For example, state, local, tribal, and territorial governments are to play the lead roles in disaster response and recovery. Local emergency agencies—police, firefighters, and medical teams—are to be the first responders. In serving individuals who have disabilities and others who have access or functional needs, disaster responders at all levels are responsible for ensuring compliance with any applicable requirements for equal opportunity and non-discrimination. Federal agencies become involved in responding to a disaster when effective response and recovery are beyond the capabilities of the state and local governments. The Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) authorizes federal funding and support to assist states and localities in responding to a disaster. This federal support is available under the Stafford Act when the President declares a major disaster or emergency in response to a request by the governor or by the chief executive of a tribal government. Under the National Response Framework, DHS is the federal agency with primary responsibility for coordinating disaster response, and within DHS, FEMA has lead responsibility. In addition to DHS, at least 29 other federal agencies carry out disaster assistance programs and activities. The National Response Framework identifies 15 emergency support functions (ESFs)—such as communication, transportation, and energy— and designates a federal department or agency as the coordinating agency for each function. Under the National Response Framework, FEMA is designated as the coordinating agency for ESF-6, which includes mass care, emergency assistance, temporary housing, and human services. The National Response Framework also designates primary and support agencies for each ESF. Both FEMA and the Red Cross are the primary agencies for ESF-6. As co-primary agencies, FEMA and the Red Cross are responsible for working closely to coordinate mass care and related services across sectors, including identifying resource needs, organizations with mass care capacity to address those needs, and establishing strategies to address resource gaps (see fig. 1). According to ESF-6, Red Cross also provides technical assistance to FEMA and serves as its principal mass care subject matter expert. The Red Cross works with FEMA to provide such assistance to state and local partners, according to FEMA. In addition, the Red Cross and FEMA facilitate the mobilization of resources and coordination within the whole community for the provision of mass care services. The Red Cross role in ESF-6 has shifted over time. At the time of Hurricane Katrina, Red Cross was a primary agency, but in the 2008 update to ESF-6 it became a support agency. However, in a 2013 update, Red Cross was shifted back to the primary agency role and given new responsibilities such as working with FEMA to identify available mass care capacity, anticipate mass care requirements, and establish strategies to address gaps in coordination. These responsibilities, among others, remain in effect under the current ESF structure. FEMA and Red Cross coordinate mass care with the support of other federal agencies such as USDA, the Department of Health and Human Services, and the Department of Defense (DOD), as well as voluntary organizations and partners at the state and local levels. There are also over a dozen federal agencies named as having supporting roles in ESF- 6 (see app. I for a list of ESF-6 support agencies). For example, DOD and its Army Corps of Engineers provides construction and engineering support for temporary housing and sheltering, including inspecting shelter facilities to ensure accessibility and suitability. In addition, ESF-6 names over 50 members of the National Voluntary Organizations Active in Disaster (NVOAD) that provide a wide range of services in support of mass care and other ESF-6 activities, including the Salvation Army, Southern Baptist Convention Disaster Relief, and Feeding America. State and local governments are vital to mass care provision and assessing their own communities’ response capabilities. According to ESF-6, local government agencies coordinate with voluntary organizations and the private sector to coordinate activities that meet immediate needs of disaster survivors. When those needs exceed local resources, the state may provide additional support. When these resources are insufficient, federal assistance may be requested through the FEMA regional office. Complex and Concurrent 2017 Hurricanes We found in 2018 that FEMA faced a number of challenges that slowed and complicated its response efforts to the 2017 hurricanes, especially Hurricane Maria in Puerto Rico. The sequential and overlapping timing of the three hurricanes strained staffing resources and created logistical challenges in deploying additional assistance (see fig. 2). In particular, FEMA had already deployed staff and resources to support the response efforts for Hurricane Harvey in Texas when the other major hurricanes made landfall shortly thereafter. Moreover, FEMA’s response efforts in Puerto Rico and the U.S. Virgin Islands were complicated by a number of factors, including their distance from the continental United States and limited local preparedness for a major hurricane. We have previously reported that there is increasing reliance on the federal government for disaster assistance as the number of natural disasters increases and that costs will likely continue to rise as the climate changes. FEMA identified key findings related to mass care in its After-Action Report for the 2017 hurricanes, noting differences in shelter populations across the states, as well as the duration of shelter stays (see fig. 3). FEMA also reported facing challenges transitioning survivors out of group shelters in a timely fashion. Capabilities Assessment In order to qualify for federal emergency preparedness funding, states and eligible urban areas (grantees) are required to regularly submit information to FEMA on their ability to respond to a disaster. Specifically, grantees first identify their own capability targets—such as for sheltering disaster victims—through the Threat and Hazard Identification and Risk Assessment, and then assess their progress toward these targets annually in the Stakeholder Preparedness Review (capabilities assessments). In fiscal year 2018, FEMA awarded $402 million to states and territories through the State Homeland Security Program, and $580 million to urban areas through the Urban Area Security Initiative, both of which require grantee capability assessments. FEMA provides guidance and technical assistance to state and local partners in their self-assessment efforts. According to officials, FEMA does not conduct its own evaluations of state, local, and voluntary organizations’ capabilities. FEMA and Red Cross Coordinated Mass Care for 2017 Hurricanes but Some Needs Went Unfulfilled Co-location Helped FEMA and Red Cross Facilitate Mass Care Coordination after Disasters FEMA and Red Cross established joint operation centers where they co- located with key partners such as the Salvation Army and NVOAD for each of the 2017 hurricanes, which facilitated coordination of shelter, feeding, and supply distribution. In addition to co-locating at FEMA’s National Response Coordination Center in Washington, D.C., FEMA, the Red Cross, and key mass care partners also co-located in state and local emergency operations centers (see fig. 4). Our prior work has found co-location of staff enhances interagency collaboration. Co-location contributed to relationship-building that facilitated communication and coordination of mass care services, according to FEMA, Red Cross, and emergency management officials in all four states we visited. See figure 5 for examples of how various agencies and sectors prepared food and supplies for mass care operations. Co-location meant workers could communicate face-to-face, as key partners needed to collaborate and communicate resource requests to FEMA and other agencies. In the U.S. Virgin Islands, DOD provided airplanes that enabled workers to fly between the islands to attend face- to-face meetings, according to FEMA regional officials. According to officials in two states we visited, this type of face-to-face communication facilitated building relationships. Moreover, officials in one state told us that co-location enabled them to communicate survivor needs directly to FEMA, which could then provide assistance. This was especially critical when power and cell phone service were out, particularly in Puerto Rico and the U.S. Virgin Islands, which experienced prolonged power outages and disabled electronic communications. Officials from federal agencies and the Red Cross described some additional benefits of co-location: USDA Food and Nutrition Service (FNS) officials said co-located ESF- 11 (Agriculture and Natural Resources) staff in the National Response Coordination Center provided food inventories to staff at the ESF-6 desk. Red Cross officials said they were able to quickly obtain supply trucks after Hurricane Harvey in Texas because the Red Cross had representatives at FEMA’s National Response Coordination Center. As we previously reported, DOD provided high-water vehicles, amphibious vehicles, and boats to transport supplies for the Red Cross and support FEMA logistics efforts. Officials in one state noted that in-person communication was especially useful for coordinating mass care when FEMA’s on-line system for submitting resource requests could not be used (see text box). Web Emergency Operations Center Resource requests can be communicated through the Federal Emergency Management Agency’s (FEMA) Web Emergency Operations Center (WebEOC), an electronic system that processes and tracks resource requests from state or local governments. WebEOC supports emergency management processes and functions by providing a real-time operating picture for FEMA headquarters, regions, and federal, state, local, and tribal strategic partners. In 2015, the Department of Homeland Security’s Office of Inspector General (OIG) found that WebEOC was not sufficiently integrated with key agency systems and could cause delays in providing disaster assistance. In 2017, WebEOC was used in two of our four selected states, and a predecessor system to WebEOC was used by one of FEMA’s regional offices, according to officials in these areas. WebEOC was useful in tracking resource requests, but in-person communication was more helpful for coordinating mass care, according to FEMA regional officials. In cases where staff could not access WebEOC, requests to FEMA were presented on paper, according to state officials. In 2018, FEMA reported that it had provided every state with FEMA WebEOC accounts so state users could submit resource requests directly to FEMA. WebEOC also allows FEMA to share aggregated data, such as shelter counts and feeding information, according to FEMA officials. FEMA, Red Cross, and Other Agencies Faced Mass Care Challenges, and Some Needs Were Unmet Federal officials and partners in Texas, Florida, Puerto Rico, and the U.S. Virgin Islands described many challenges they encountered in coordinating mass care. While the concurrence and intensity of the 2017 hurricanes presented many unforeseen challenges, several state and local governments and voluntary organizations told us about issues related to mass care coordination and planning. As a result, some supply distribution, sheltering, and feeding needs went unmet. Miscommunication: Miscommunication among disaster workers affected supply distribution. For example, FNS officials reported challenges with delivering baby formula for about 28,000 infants in Puerto Rico through FEMA. One shipment of baby formula was lost and discovered frozen and unusable in Puerto Rico because FEMA officials were not aware that the products had been delivered, according to FNS’ 2018 After-Action Report. The report also stated that some perishable infant formula and food remained at a port in Florida several weeks after delivery. FEMA officials told us they shipped nearly 400 containers of infant formula and food in the first 3 months after Hurricane Maria, but that competition for port clearances made it challenging to coordinate, prioritize, and track supplies. As a result, some who needed these supplies may not have received them. FEMA officials also noted that they believe survivor needs were met by a combination of disaster relief supplies and the restoration of capacity at grocery stores. According to FNS’2018 After- Action Report, their officials met with FEMA and completed training on FEMA’s logistics system in 2018 to be able to better track future shipments of these products. Insufficient shelter staff: In Texas and Florida, emergency managers we spoke with described having unprecedented numbers of residents needing shelters but not enough staff initially to operate them. To address this gap, they said they relied on members of the state National Guard or local government and community organizations to staff shelters, but in some instances, shelters continued to have insufficient numbers of workers. To improve shelter staffing for future disasters, emergency managers in Florida told us they are working on training additional county employees to serve as shelter staff. Serving individuals who have disabilities: Public shelters faced challenges in some cases serving individuals who have disabilities, as we previously reported. For example, we reported in 2019 that some individuals who have disabilities faced challenges accessing services from local shelters, including restrooms. In another example, the lack of a quiet space in public shelters for individuals with autism negatively impacted their mental health, according to officials from an advocacy group. Extensive damage to hurricane shelters: In Texas, Puerto Rico, and the U.S. Virgin Islands, Hurricanes Harvey, Maria, and Irma damaged many buildings planned for use as hurricane shelters, according to emergency management and local government officials in these areas. As a result, some remaining shelters were at maximum capacity. In some cases, survivors and staff had to relocate to alternate sites during the hurricanes. For example, an arena in Humacao, Puerto Rico, and a Department of Human Services building in the U.S. Virgin Islands served as shelters when intended shelter buildings were destroyed by Hurricanes Maria and Irma, respectively (see fig. 6). Damaged roads and communications infrastructure: Damaged and flooded roads and the affected terrain in all four states contributed to challenges in distributing supplies, especially in Puerto Rico and the U.S. Virgin Islands. In Puerto Rico, FEMA received complaints from municipalities that food was not reaching neighborhoods in need. Impassable roads and no ability to communicate challenged FEMA’s plans, which had designated certain partners to distribute meals. Several weeks after Hurricane Maria hit, FEMA redesigned its distribution strategy, which included identifying the most vulnerable municipalities and having liaisons from the Puerto Rico Emergency Management Agency and the municipalities help coordinate the distribution. This enabled food to reach neighborhoods in need. Insufficient supplies: According to Puerto Rico Department of Education officials, FEMA was initially reluctant to provide water to schools serving as shelters because the schools were supposed to have their own water supply from the Puerto Rico Department of Education’s warehouses. However, Puerto Rico Department of Education officials said they only had enough water for shelter residents for 30 days. The agency requested help to meet additional needs, but FEMA did not have enough water or food boxes to help supplement the schools’ supply. There were several thousand people sheltered in the schools, but according to these officials, the Puerto Rico Department of Education was responsible for providing food and water to survivors whether or not they were shelter residents. Once the Puerto Rico Department of Education officials met with FEMA and demonstrated their need for water, they were able to secure supplies from FEMA. Early relocation of survivors to hotels: In Texas, the early relocation of survivors from shelters to eligible hotels under FEMA’s Transitional Sheltering Assistance program challenged mass feeding operations, according to two Texas emergency management officials and representatives of two voluntary organizations. As a result, some survivors did not receive food assistance, as described below. FEMA’s Transitional Sheltering Assistance program and the Department of Agriculture’s Disaster Supplemental Nutrition Assistance Program (D- SNAP), while not considered to be a central part of mass care under the National Response Framework, provide assistance to survivors after disasters and provide services that may intersect with mass care activities. According to officials in Texas and Florida, some aspects of how these programs were implemented contributed to unmet needs. Transitional Sheltering Assistance program: After the initial response effort ends and mass shelters close, FEMA’s Transitional Sheltering Assistance program is intended to provide short-term sheltering assistance to survivors who are still unable to return home. States request FEMA approval for Transitional Sheltering Assistance when they determine there is a need for short-term assistance. According to officials in Texas, the Transitional Sheltering Assistance program was activated earlier than they expected before mass shelters closed, resulting in survivors leaving early to stay in program-eligible hotels. According to these officials, the early activation resulted in the inability to track where survivors were located and where survivors needed assistance. According to an official at a voluntary organization, survivors in program-eligible hotels were going without food and some were eating coffee grounds in their hotel rooms because they had no food and no money to purchase food. Officials from state agencies and voluntary organizations that could provide assistance told us they could not get information from the hotels about how many survivors were guests at specific hotels, due to the hotels’ reluctance to provide guests’ information. When voluntary organizations tried to set up feeding operations at hotels, some hotels did not want the organizations to set up feeding operations on hotel premises, according to organizational representatives. One state official also said some hotels did not allow food distribution because of concerns about food sitting in rooms or the hotels’ preference that their guests use their restaurant facilities. D-SNAP: D-SNAP provides temporary food assistance for households affected by a natural disaster. D-SNAP usually begins after grocery stores have re-opened and families are able to purchase and prepare food at home. USDA’s FNS offers guidance to states that choose to operate a D-SNAP program on where and how to operate D-SNAP registration sites, including guidance on serving individuals who have disabilities and the elderly. For example, FNS guidance states that D- SNAP registration sites should offer extra cooling measures in a special waiting area for individuals who have disabilities and the elderly, and move these individuals to the front of regular registration lines. FNS’ After-Action Report identified, and state and county officials in Texas and Florida said they observed, D-SNAP registration sites that did not appropriately serve elderly individuals or those who have disabilities, such that some elderly survivors fainted while waiting in the heat. In one state we visited, officials from a local voluntary organization said the state government did not work with community-based groups to identify local D-SNAP registration sites. As a result, D-SNAP registration sites did not align with where survivors needed assistance, and according to these officials approximately 50,000 applicants came to one site and were turned away after waiting for hours in the heat. To help address these challenges, some elderly individuals and individuals with disabilities in Florida were allowed to register for D-SNAP over the phone in December 2017 and in May 2018, according to a state official. Coordination Efforts Do Not Include Specific Agreements and Regular Evaluation While the National Response Framework indicates that many agencies participating in disaster response formalize their responsibilities in written agreements, we found that key mass care partners did not have such agreements or that they did not clearly outline responsibilities at the time of the 2017 hurricanes. Although Red Cross has written agreements with some state and local partners, counties we visited in Florida, Texas, and the U.S. Virgin Islands—states where Red Cross shelters disaster victims—did not have written agreements that clearly specified what mass care services would be provided by the Red Cross. In Florida, several counties we visited did not have formal agreements with the Red Cross during the 2017 hurricane season. In lieu of a formal agreement, one of the counties had an email from the Red Cross stating that the Red Cross could support one of 15 shelters, according to officials and documents we reviewed. In some cases, even when written agreements were established, there were still unclear roles and expectations. For example, another Florida county did have an agreement in place, but county officials said they found out after the 2017 hurricane season started and shortly before Hurricane Irma that the Red Cross could support only eight shelters—a substantial decrease from previous years. Further, when counties did have written agreements with the Red Cross, the agreements did not always clearly define responsibilities. The agreements also did not specify how and at what point sheltering and feeding needs and capabilities should be communicated by the Red Cross to counties, which exacerbated challenges in providing these services after the hurricanes. After the 2017 hurricane season, officials in three states we visited said they have been working toward clarifying responsibilities in written agreements. Red Cross officials also said they have been developing letters of intent with local government partners since 2017, which describe what services can be provided by the Red Cross in these localities. However, our review of some of these new finalized agreements found they lack consistency and detail in what each of the parties can deliver regarding sheltering, feeding, and supply distribution. For example, Red Cross’ agreement with one Florida county specifies it can operate two shelters for about 1,000 residents, while its agreement with another county states it will “support shelters as resources allow.” Red Cross officials said written agreements may be difficult to change as needs and capabilities change over the course of the response to a disaster. Outside of written agreements, Red Cross officials said they collaborate with government agencies in other ways, such as participating in mass care exercises to create a shared understanding of mass care roles and work on jointly-developed response plans. Red Cross officials also told us that they need to be clearer with local jurisdictions about what they can and cannot provide, and that they need to reach mutual understanding with local governments about shared planning assumptions, such as the peak shelter population and what the Red Cross could provide within specified timeframes. According to Red Cross officials, neither they nor local governments established clear expectations in the past. In August 2017, the Red Cross launched a nationwide readiness initiative focusing on mass care planning discussions with local governments. This initiative also includes clarifying planning assumptions with local governments on a recurring basis. FEMA provides some guidance to states and localities about how to effectively coordinate with mass care partners, as well as a training course that encourages establishing written agreements. FEMA’s training materials for the mass care planning and operations course describe the differences in types of agreements that states and localities might establish with mass care partners, and specifically suggest defining the roles and responsibilities of each party. In addition, FEMA has helped developed tools for stakeholders to use when specifically coordinating mass care operations, such as the Multi-Agency Feeding Support Plan Template. This tool guides states, voluntary organizations, and other partners to clearly establish roles and responsibilities related to specific aspects of feeding, including the delivery of supplies and networking with other organizations to identify unmet needs. FEMA officials noted that all of their mass care templates encourage this type of planning for roles and responsibilities. However, FEMA guidance and training materials do not suggest detailing the specific responsibilities of each entity for mass care services in the written agreements. For example, the guidance does not explicitly prompt states and localities to use their written agreements to specifically establish how much shelter and feeding assistance an agency, government, or organization can provide. Our prior work has found that clarifying responsibilities through written agreements is critical to effective interagency collaboration. When an agency, government, or organization does not specifically indicate how much shelter and feeding assistance it can provide in a disaster, its partners may have unfounded expectations. For example, in Texas, officials in one city said when one large mass shelter first opened, there were only a small number of Red Cross volunteers, which was insufficient to operate and manage a shelter with tens of thousands of survivors; this was short of city officials’ understanding that Red Cross would fully staff the location from the beginning. Without further guidance from FEMA on how to establish effective written agreements, unmet expectations between state and local partners and voluntary organizations may persist and place disaster survivors at risk. Our prior work has also found that federal agencies engaged in collaborative efforts need to create the means to evaluate their activities in order to identify areas for improvement. In addition, federal internal control standards state that management should establish an organizational structure, assign responsibility, and delegate authority to key roles in order to achieve objectives. Moreover, the organizational structure should be evaluated periodically in order to meet the objectives and adapt to new situations. FEMA is responsible for coordinating and supporting the federal response to major disasters and relies significantly on the Red Cross as its co-primary agency under ESF-6. While FEMA and the Red Cross conduct after-action reviews following certain major disasters, including for the 2017 hurricane season, these reviews are focused on response and recovery efforts and do not include a broader review of roles and responsibilities of the co-primary agencies. Based on its findings on the 2017 hurricane season, FEMA called for some revisions to the National Response Framework and ESF annexes related to coordination across sectors. Accordingly, FEMA is currently revising the framework, which is considered a living document to be regularly reviewed to reflect experience gained from its use. However, FEMA has not proposed revisions to ESF-6 as part of its current review of the National Response Framework and ESF annexes. Specifically, FEMA has not reviewed whether the current structure of ESF-6 leadership roles and responsibilities is best suited for coordinating mass care, or whether there are responsibilities that should be shifted. ESF-6 is unique among ESFs in that it has a voluntary organization serving as a co-primary agency. Further, the Red Cross’ role under ESF-6 has changed multiple times since Hurricane Katrina. According to FEMA officials, FEMA is not required to review ESF-6 leadership roles and responsibilities, and instead focuses on the overall improvement of mass care delivery, including mass care activities and services. However, FEMA’s ESF Leadership Group noted that it was not always clear which agency that is part of an ESF is best suited to carry out a task. Evaluating collaborative efforts can help key decision makers within the agencies obtain feedback for improving both policy and operational effectiveness. Moreover, the National Response Framework is considered a living document, and DHS plans regular reviews to evaluate consistency with existing and new policies, evolving conditions, and the experience gained from its use. As we have previously reported, in disasters in which the federal government is involved, the extent and effectiveness of the Red Cross’s activities could have a direct impact on the nature and scope of the federal government’s activities. Given the challenges experienced with mass care during the response to the 2017 hurricanes, FEMA is missing an opportunity to identify areas for improvement and strengthen interagency coordination by not reviewing ESF-6 leadership roles and responsibilities. Pre-existing Relationships Facilitated Mass Care Coordination, but Some Community Groups Were Not Integrated with Response Efforts Many FEMA, Red Cross, local government officials, and representatives from local voluntary organizations we interviewed emphasized the importance of pre-existing relationships among established partners in coordinating mass care during the 2017 hurricanes. Relationships between these established mass care partners were often formed during non-disaster periods through regular conference calls and mass care training exercises. For example, officials in all four state emergency management departments we visited described positive relationships developed with FEMA staff through regular joint training exercises. FEMA’s Voluntary Agency Liaisons (VALs) help facilitate relationships between FEMA and established mass care partners. For example, VALs serve as contacts for non-governmental organizations active in disasters on a routine basis and during disaster response. In one FEMA regional office, officials said VALs serve as mass care specialists and regularly participate in calls with mass care partners. While such pre-existing relationships among established mass care partners facilitated mass care coordination, officials from voluntary organizations that did not have pre-existing relationships—unaffiliated organizations—reported challenges connecting with established mass care organizations, such as FEMA and the Red Cross, to share knowledge that could have informed response efforts. During the 2017 hurricane response, officials from unaffiliated organizations such as local advocacy groups and faith-based organizations told us they experienced challenges sharing critical information regarding needs, resources, and capabilities with established mass care organizations. These coordination challenges affected their ability to provide mass care services to certain populations. For example: A group of community organizations in Florida representing low- income and migrant populations had information on the location of people needing assistance, but reported difficulties in locating FEMA and Red Cross officials with whom to share that information. Representatives of a community group that assists victims of domestic violence in the U.S. Virgin Islands said there was no centralized way to share critical information and no plan for how to best address the issues facing these survivors. For example, they said the Red Cross had mapped damaged areas but was not sharing that information with community groups that could have provided assistance. This group said these maps could have been used to help locate people who were at particular risk. Red Cross officials stated that they experienced challenges in sharing damage assessment information in the U.S. Virgin Islands due to technology issues, which prevented them from being able to share these data securely with other organizations. Representatives from several faith-based organizations in multiple states told us they had food, water, and supplies, as well as local knowledge of need. Two of these representatives said FEMA and the Red Cross did not share information with them as to where they had already distributed supplies. This information was important so as to not duplicate efforts and to ensure those who still needed supplies were not overlooked, according to these representatives. Some migrant populations in all four areas we visited were hesitant to seek or receive assistance from federal, state, and local government agencies due to their undocumented immigration status, according to emergency management officials and community group representatives. Officials from multiple local voluntary organizations said they knew where migrant populations were located and what types of assistance they needed; they were trusted by these populations, but had difficulty finding FEMA or Red Cross representatives for sharing this information. Established mass care partners, including FEMA and the Red Cross, may not share information with unaffiliated organizations due to concerns about privacy, according to officials. Local governments also may not receive such information, because FEMA shares it with the states and the states are responsible for determining when to share it with local governments, according to FEMA officials. Local governments and unaffiliated organizations told us, however, that they do not need personally identifiable information, and that aggregated information about overall resource needs in certain locations would be sufficient for their purposes. For example, county officials in two states told us it was difficult to get FEMA data that would have helped them target areas for assistance, including those that other agencies might not have been able to reach. Similarly, the leader of a group that coordinates local voluntary organizations said they only needed aggregate-level data to identify needs in different counties. In addition, the Red Cross told us that mass care partners could access certain information from their RC View portal, which provides situational awareness information that supports resource requests and needs assessments. However, the Red Cross did not share such information with all its partners during the 2017 hurricanes because the technology was not yet ready. As of May 2019, Red Cross officials told us they are working on providing access to their RC View portal for several key partners, and that they intend to expand access to RC View to additional organizations in the future. ESF-6 states that Red Cross, in conjunction with FEMA, will facilitate the mobilization of private sector partners for the provision of mass care services. FEMA’s most recent strategic plan emphasizes the importance of a whole community approach to disaster response because individuals and local communities are the true first responders in a disaster. FEMA guidance states that the integration of non-traditional responders (which may include unaffiliated organizations) providing mass care services may be necessary during severe disasters. Federal internal control standards also emphasize the importance of communicating externally to key stakeholders. By not engaging in information sharing with unaffiliated organizations, FEMA and the Red Cross may miss opportunities to more accurately and efficiently coordinate mass care. As a result, those in need may not receive critical assistance in a timely way. Red Cross’ Training for Staff Deployed to Disaster Areas Red Cross provides training for its staff and volunteers deployed to disaster areas. This training includes information on the area of deployment, the nature of the disaster, and any cultural sensitivities they need to be aware of, according to Red Cross officials. However, unfamiliarity with local traditions and norms challenged Red Cross personnel when they arrived at disaster sites in 2017, and some local governments and community groups said this affected mass care coordination. Red Cross officials said they initially did not have enough Spanish speakers in Puerto Rico during the response to Hurricane Maria, for example. To address this need, they used Spanish-speaking workers from the International Red Cross community in Mexico and South America to assist with mass care coordination, according to Red Cross officials. As a result of challenges encountered during the 2017 hurricane season, Red Cross officials said that they have made changes to their approach intended to increase their engagement with the Latino community. This effort includes having materials translated into Spanish. To counter concerns among some disaster survivors about providing immigration status information, Red Cross officials said they have taken steps to clarify that the Red Cross does not collect this information. FEMA Did Not Collect Key Information on Capabilities of Mass Care Partners Prior to the 2017 Hurricanes and its Updated Approach Has Limitations Mass Care Capabilities Data Collected by FEMA Were Not Useful for the 2017 Hurricane Response, but FEMA is Making Changes Information on the mass care capabilities of state and local jurisdictions that FEMA collected in 2016 and 2017 was not specific enough to aid the agency in its response to the 2017 hurricanes, according to FEMA’s After- Action Report and agency officials. The reporting process at the time of the 2017 hurricanes did not require grantees to report specific estimates of their current capabilities for providing mass care, which resulted in an incomplete picture of capabilities. With regard to mass care capabilities, FEMA did not ask grantees to report the number of people they could shelter, or how long they could maintain sheltering operations. For example, one state affected by the 2017 hurricanes identified gaps in the state’s capability to provide cots, blankets, laundry facilities, kitchens, and shelter facilities, but did not quantify the shortfall in its assessment submitted in December 2016. In addition, it was optional for grantees to describe deficiencies in their mass care capabilities at the time of the 2017 hurricanes, according to FEMA officials. One grantee affected by the 2017 hurricanes had indicated in its assessment from December 2016 that there were gaps in several mass care capabilities, such as shelter equipment and training for family reunification. However, this grantee chose not to include an additional description of what those gaps were. As a result of these limitations, FEMA and its grantees did not have specific information on state, territorial, and urban mass care capabilities or gaps at the time of the 2017 hurricanes. Officials from several states told us they were not aware of capabilities assessments being used during the response to the 2017 hurricanes, but some said this information could have been useful. For example, an official in one state said the information could be used for resource targeting. In submissions from the year following the 2017 hurricanes, 35 state and territorial grantees did not provide gap descriptions for mass care, which were optional at the time. According to FEMA, the agency recognized the limitations of the capabilities assessment data it had been collecting and began revising its methodology prior to 2017. FEMA’s After-Action Report for the 2017 hurricanes stated that one reason the agency began revising its capabilities assessment methodology was to provide more actionable information to use during response. Revisions were implemented for the 2018 reporting period that could result in FEMA collecting more specific and descriptive data on mass care capabilities, such as the number of people for whom the grantee can provide shelter, food, water, and relocation assistance as part of mass care (see table 1). FEMA’s 2018 guidance encouraged grantees to use a standardized format developed by FEMA, which allows grantees to insert community- specific numbers into a template when they report capability targets and estimates. The new standardized format also generates a quantitative statement of a grantee’s capability gaps (see table 2). Other new changes in FEMA’s revised approach will also allow the agency to collect more specific information on mass care capabilities. For example, starting in 2018, grantees were required to: Report the extent to which capabilities have been lost, built, or sustained over the previous year. Describe intended approaches for addressing capability gaps and sustaining capabilities built, including investments in resources. Describe the extent to which funding sources contributed to building or sustaining capabilities and improving disaster outcomes. Rate their level of confidence (1-5 scale) in the accuracy of their capability assessment for each target. These data elements have the potential to inform both disaster planning and response operations. FEMA’s Updated Approach to Collecting Mass Care Capabilities Data Does Not Require Input from Key Mass Care Providers FEMA revised its methodology for collecting capabilities assessment data in 2018, but it does not collect key information that could better inform its mass care planning. FEMA does not specifically require grantees to solicit the input of key partners in assessing mass care capabilities, according to officials, even though mass care generally depends on the work of such organizations. For example, the Salvation Army and the Southern Baptist Convention Disaster Relief often play key roles in mass care feeding, and the Red Cross manages sheltering in many locations, but they are not always included in mass care capabilities assessments submitted by grantees. FEMA officials told us that the new methodology should naturally foster engagement between grantees and their stakeholders, which should provide a better understanding of local capabilities for sheltering and feeding. According to these officials, under the new framework, FEMA requires grantees to report the number and type of government agencies and nongovernment organizations that participated in estimating capabilities (see fig. 7). However, by not requiring that grantees solicit input from organizations that provide mass care, or that grantees name specific organizations in their submissions, FEMA may rely on capabilities assessments developed without consultation with voluntary organizations providing key mass care services. We found that two of the six grantees included in our review did not report participating with the Red Cross, faith-based organizations, or other VOAD groups, in their 2018 assessments. An official from one of these jurisdictions confirmed that they had never reached out to voluntary organizations to take part in the assessment process, due to staff turnover and lack of time, despite relying on these organizations for providing mass care. An official from another jurisdiction said it is detrimental not to have voluntary partners’ input when preparing capabilities assessments because these partners are critical to providing mass care and play vital roles in disaster response. According to FEMA’s guidance, all organizations—not just government agencies—should be involved in preparedness efforts, and grantees should involve stakeholders throughout the process. FEMA’s guidance encourages a whole-community approach in which grantees include community stakeholders and subject-matter experts in estimating capabilities. Further, federal internal control standards emphasize the importance of designing systems for obtaining information that help an agency achieve its objectives. Without including key mass care providers when estimating capabilities and naming them in their capabilities assessments, grantees and FEMA may not collect reliable mass care capability estimates, or know who to contact in response to a disaster. States and localities may not be able to efficiently allocate their own resources to areas of unmet need and may be more reliant on outside resources during disaster response, which could have implications for the allocation of federal resources. FEMA Does Not Have a Systematic Process to Provide Feedback to Grantees on their Mass Care Capabilities Assessments FEMA reviews grantees’ capabilities assessments using standard checklists, but does not have a systematic process for providing feedback to grantees on their submissions in order to improve the usefulness of the information in them. FEMA officials use the checklists to assess the completeness and reasonableness of the submissions. Specifically, FEMA regional officials use the checklists to look for outliers, inconsistencies, invalid information, and inputs that to do not align with FEMA guidance or information that does not pass a “common sense” check. For example, one 2018 checklist we reviewed included comments from FEMA that the grantee’s capabilities assessment was only partially “complete and reasonable” because it showed no gaps for most capabilities, which might suggest that the targets it set are too low. FEMA officials told us that if the checklist identifies shortcomings in a grantee’s assessment, the regional office will send the assessment back to the grantee and communicate what needs to be changed. However, regional offices vary in their approaches to following up with grantees to obtain more information when potential issues are identified, and FEMA has not provided them with written guidance to standardize this feedback process. FEMA officials from two regional offices told us that the headquarters and regional preparedness divisions discussed follow-up protocols by phone, but they did not provide documentation that identified conditions or considerations for when to follow up with grantees or provide feedback. As a result, grantees may not receive consistent feedback from FEMA on their assessment of mass care capabilities and the information provided may remain incomplete. Rather than systematically providing feedback on the content of capabilities assessments, FEMA officials told us that they focus on identifying areas in which they can provide support to grantees. Their view is that communities know more about their own capabilities than the federal government does, and that it would not be appropriate to suggest major changes to the submitted assessments. Officials from one FEMA region said they view these submissions as self-assessments that are used for maintaining relationships with states and to help states better understand their capabilities and gaps. Officials also said that the FEMA regional office or the national preparedness office, or both, examine grantees’ disaster scenarios described in the assessments, the grantees’ self-assessed scores, and areas of grantee strengths and weaknesses to determine how FEMA can better support them. FEMA officials said they also phone grantees after each submission cycle to discuss challenges, including how to improve FEMA’s technical assistance and support, and how to make the process more useful for grantees. State officials we spoke to said that especially since the 2017 hurricanes, they have received more upfront guidance from FEMA than previously. Generally, FEMA’s support to grantees includes published guidance, annotated examples, technical assistance webinars, and a help desk for phone and email assistance. In 2018, FEMA also began piloting readiness visits where FEMA regional officials met with state and local grantees to discuss capability gaps identified in their assessments, according to officials. However, officials from three of the six grantees included in our review said that they did not receive key feedback from FEMA about their mass care capabilities assessments that would have been useful. An official in one state said it did not receive helpful feedback from FEMA prior to the 2017 hurricane season and, in particular, the official would have liked FEMA to confirm whether the state had completed its assessment correctly and completely, or if other information was needed. Officials from another state said that they did not receive any substantive feedback on their 2017 assessment. Officials from one urban area grantee said they did not receive technical feedback on areas of least readiness, and noted it would be helpful if FEMA could provide insight on the information provided in cases where the grantee had assigned a low confidence level in its capability assessment. Officials from four of the six grantees we spoke with said they would like additional clarity about the process from FEMA. For example, one state official said that understanding how FEMA uses capabilities information would have helped the grantee know how to improve its responses; get other agencies to participate more in the process; and solicit better, more tailored information from partners. This official noted that FEMA addressed this issue in 2019 by sharing more information about how it uses capabilities information. An official from another state said the state preparedness office would like input about how to obtain information from other agencies and how to assess capabilities at the local level. FEMA has an opportunity to use its review of capability assessments to improve its ability to assist with future disasters. After reviewing the 2018 submissions that used the new methodology, FEMA officials told us they are planning to develop criteria for evaluating future submissions and establish a regular process for providing feedback. By not systematically following up with grantees thus far, FEMA limits the extent to which it can build and supplement the emergency preparedness capabilities of these grantees. According to FEMA, it routinely analyzes capabilities assessment information for this purpose. FEMA has a strategic goal that involves supporting emergency managers in building the capacity to self- evaluate, monitoring the completion of improvement actions, and sharing insights. Providing feedback to grantees, including on the effective use of capability assessments as well as potential pitfalls, may help grantees develop their capability assessments and inform plans for how FEMA and the grantee will respond to disasters. Without clear protocols for providing feedback, grantees and FEMA may not possess complete, accurate, and reliable information on communities’ mass care capabilities, which will limit the effectiveness of the capability assessment process in contributing to the goal of national preparedness. Conclusions The 2017 hurricane season presented unprecedented challenges for mass care service providers, and for survivors in Florida, Puerto Rico, Texas, and the U.S. Virgin Islands. While many partners coordinated extensively on the mass care response to 2017 hurricanes, unmet needs in sheltering, feeding, and supply distribution should spur FEMA and the Red Cross to consider the sufficiency of current agreements, especially with state and local governments. In particular, the 2017 hurricanes highlighted the importance of state and local governments understanding the services that mass care providers can deliver, particularly when disasters are severe or overlapping. Without FEMA providing more targeted guidance to help states and localities develop specific written agreements with voluntary organizations providing mass care services, expectations for what these organizations can provide may be unclear, putting disaster victims at risk. Moreover, without proactively considering the roles and responsibilities that the federal disaster framework establishes for agencies and organizations coordinating mass care, DHS lacks assurance that responsibilities are assigned to the entities best suited to carry them out. In addition, mass care coordination efforts during the 2017 hurricane season illustrated the importance of appropriately sharing information about capabilities and resources as part of advance preparation. During a disaster, local community groups are often the most informed about where needs exist, but also may not be connected with established mass care partners. Further leveraging community groups could prove vital for meeting mass care needs in a large-scale disaster, especially for the most vulnerable populations. FEMA does not explicitly require grantees to involve key mass care providers in their capabilities assessments. This may make it difficult for grantees to be well informed as to what they are actually capable of delivering locally. Further, FEMA has not documented a consistent, systematic approach to following up with partner governments on their reporting of mass care capabilities, while some grantees have said that additional feedback would be useful for preparedness and response efforts. As a result, some grantees may be ill-prepared to meet the mass care needs of the public during future disasters. Recommendations for Executive Action We are making a total of six recommendations, including the following recommendation to the Secretary of Homeland Security: To strengthen the mass care response to future disasters, the Secretary of Homeland Security should direct FEMA to periodically review the current structure of ESF-6 leadership roles and responsibilities for coordinating mass care. (Recommendation 1) In addition, we are making the following four recommendations to the FEMA Administrator: To better clarify what mass care services voluntary organizations can provide, especially for severe or overlapping hurricanes, FEMA should strengthen its guidance to state and local governments to emphasize the importance of clearly defining roles and responsibilities related to mass care when state and local governments develop written agreements with partner organizations. This could include creating a guidance document or memo that calls attention to the issue and brings together existing resources, such as the Multi-Agency Feeding Plan Template and training materials, in a comprehensive and accessible manner. (Recommendation 2) To ensure assistance reaches all survivors, FEMA should develop mechanisms for the agency and its partners to leverage local community groups, such as conducting regular outreach to communicate and share aggregate information with these groups. (Recommendation 3) To ensure more accurate mass care capability assessments, FEMA should require grantees to solicit capabilities information from key mass care service-delivery providers in making capability estimates and identify these providers in their submissions. (Recommendation 4) To build the emergency preparedness capabilities of grantees, FEMA should develop systematic, documented protocols to determine the conditions under which it will follow up and provide feedback to grantees about mass care capability assessments. (Recommendation 5) We are also making the following recommendation to the American Red Cross: To ensure assistance reaches all survivors, Red Cross should develop mechanisms for it and its partners to leverage local community groups, such as conducting regular outreach to communicate and regularly share aggregate information with these groups. (Recommendation 6) Agency Comments, Third-Party Views, and Our Evaluation We provided a draft of this report to DHS and the American Red Cross (Red Cross) for review and comment. DHS and American Red Cross provided written comments, which are reproduced in appendices II and III, and described below. In addition to its formal letter, DHS provided technical comments, which we incorporated as appropriate. We also provided relevant excerpts of the draft report to third parties, such as state and local government agencies and voluntary organizations we interviewed. These third parties provided technical comments, which we incorporated as appropriate. In its formal letter, DHS concurred with four of our recommendations and did not concur with one recommendation. Specifically, DHS and FEMA did not concur with our recommendation that FEMA should require grantees to include key mass care service-delivery providers in making capability estimates and identify these providers in their submissions. The letter noted the importance of involving stakeholders and subject matter experts at multiple levels of government and across sectors in order to develop complete and accurate assessments. However, DHS and FEMA said that requiring communities to include the key mass care providers in capabilities assessments is not the most effective approach for achieving this outcome. Because grantees cannot control which partners participate, DHS and FEMA said implementing this recommendation would increase the burden on grantees and could put certain communities at a disadvantage. In addition, DHS and FEMA said that because capabilities assessments are not limited to mass care, such a requirement may have unintended consequences for other partners. Instead, the letter stated that FEMA plans to continue working with the mass care community to identify the best solution, including encouraging collaboration at all levels of government. We modified our recommendation to address their concern. Specifically, we clarified that FEMA should require grantees to solicit information from key mass care partners and to identify these partners in their submission. This change acknowledges that grantees cannot compel partners to participate, but they can, at a minimum, invite such partners to participate in the process. We continue to believe that grantees should be required to make an effort to include mass care providers in developing their mass care capability assessments, as this is vital for developing high quality assessments. FEMA has emphasized the importance of having an active relationship and ongoing communication with key partners before disasters strike. In its Strategic Plan, FEMA states that pre-disaster coordination and communication among partners is critical to improve response and recovery outcomes. Thus, we do not believe it would be an undue burden to reach out to such partners as part of the capability assessment process. With regard to the remaining recommendations, DHS and FEMA described steps they have taken or plan to take to address the issues raised. While DHS concurred with recommendation 1 to direct FEMA to periodically review the ESF-6 leadership roles and responsibilities, the department considers this issue to be resolved because FEMA routinely conducts after-action reports and recently established a working group focused on performance metrics and corrective actions. We agree that these actions are important parts of effectively overseeing and evaluating ESF activities and results. While these efforts may address the responsibilities of ESF agencies, they may overlook the overall leadership roles of ESF agencies. In order to fully implement the recommendation, DHS and FEMA would also need to establish a process for reviewing the structure of ESF leadership roles on a regular basis. In concurring with recommendation 3, DHS and FEMA detailed several approaches they use to connect with local resources, including collaborating with VOAD groups at national, state, and local levels, and indicated that they consider this recommendation already implemented. Given the information gathered from several unaffiliated organizations in areas affected by the 2017 disasters, it is clear there is more work to be done in terms of sharing critical information about mass care needs and resources. Therefore, we continue to encourage FEMA to develop additional mechanisms to enhance outreach to organizations that may not be aware of existing approaches such as collaboration with the VOAD groups. Red Cross agreed with our recommendation to leverage local community groups through outreach and information-sharing. Red Cross noted several ongoing activities to engage such community groups and said the organization intends to continue expanding outreach, data-sharing, and engagement initiatives. We are sending copies of this report to the appropriate congressional committees, the Secretary of Homeland Security, American Red Cross, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512- 7215 or larink@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: National Response Framework Emergency Support Function #6 (June 2016 version) Agencies and Responsibilities Department of Homeland Security - Federal Emergency Management Department of Homeland Security - Federal Emergency Management Support Agencies with Roles Directly Related to Mass Care (Feeding, Sheltering, Supply Distribution, and Family Reunification): Corporation for National and Community Service Department of Defense/ U.S. Army Corps of Engineers Department of Health and Human Services Department of Homeland Security Department of Veterans Affairs National Center for Missing & Exploited Children National Voluntary Organizations Active in Disaster (National VOAD) Appendix II: Comments from the Department of Homeland Security Appendix III: Comments from the American Red Cross Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgements In addition to the contact named above, Scott Spicer (Assistant Director), Amy Moran Lowe (Analyst-in-Charge), Grace Cho, and Michael Walton made key contributions to this report. Also contributing to this report were Joel Aldape, Aditi Archer, Susan Aschoff, James E. Bennett, Deirdre Gleeson Brown, Alicia Cackley, Sarah Cornetto, Elizabeth Curda, Chris Currie, Kelly DeMots, Erin Guinn-Villareal, Camille Henley, Denton Herring, Sara Schibanoff Kelly, James Lawson, Matthew T. Lowney, Sheila R. McCoy, Jean McSween, Amanda R. Parker, Sara Pelton, Brenda Rabinowitz, Michelle Sager, Brian Schwartz, Almeta Spencer, Manuel Valverde, Jr., and Su Jin Yon.

Three catastrophic hurricanes affected more than 28 million people living in Texas, Florida, Puerto Rico, and the U.S. Virgin Islands in 2017. Hurricanes Harvey, Irma, and Maria—which all made landfall within four weeks—caused a combined $265 billion in damage, and led to unprecedented demands for food and shelter, according to FEMA. FEMA and the Red Cross are the primary agencies responsible for coordinating mass care under the federal disaster response framework. GAO was asked to review their efforts. This report examines (1) FEMA's and the Red Cross' coordination of mass care in response to the 2017 hurricanes, and (2) FEMA's support and use of assessments of mass care capabilities for the 2017 hurricanes. GAO reviewed relevant federal laws, federal frameworks, and written agreements between federal, state, or local governments and various voluntary organizations providing mass care services. GAO also interviewed state, territorial, local, and voluntary organization officials in Florida, Puerto Rico, Texas, and the U.S. Virgin Islands; as well as officials from Red Cross, FEMA, other relevant federal agencies, and voluntary organizations. Following the three major U.S. hurricanes in 2017, disaster relief efforts of the Federal Emergency Management Agency (FEMA) and the American Red Cross (Red Cross) benefitted from locating key partners in the same place. In-person coordination was critical to maintaining communication in Puerto Rico and the U.S. Virgin Islands given the prolonged power outages and damage to public structures (see photo). However, some needs related to mass care—such as shelter, food, and supply distribution—were unmet. For example, local officials in Texas said flooded roads prevented trucks from delivering supplies. Providers encountered challenges in part because state and local agreements with voluntary organizations did not always clearly detail what mass care services could be provided. Additionally, FEMA guidance and training materials do not explicitly encourage states and localities to include in their written agreements the specific assistance each agency or organization can provide. This limits the benefits of mass care coordination and may put disaster victims at risk. State, territorial, and local grantees of federal disaster preparedness grants are required to regularly submit information on their capabilities to FEMA, and FEMA has provided related guidance and technical assistance. However, the information some grantees provided to FEMA was not specific enough to aid its response in 2017. Moreover, FEMA does not require grantees to specify the organizations providing mass care services in their capabilities assessments. Also, FEMA does not have systematic protocols for providing feedback to grantees to improve their assessments. These limitations hinder FEMA's efforts to strengthen emergency preparedness.

CRS_R46193

Introduction The federal tax treatment of the family is affected by several major structural elements of the income tax code applicable to all taxpayers: deductions such as the standard deduction, personal exemptions, and itemized deductions; the marginal tax rate structure (which varies by filing status); the earned income credit and the child credit; and the alternative minimum tax. Some of these provisions affect only high-income families and some only low-income families, but they are the tax code's fundamental structural features. They lead to varying tax burdens on families depending on whether the family is headed by a married couple or a single individual, whether children are in the family, and the number of children if so. The 2017 tax revision ( P.L. 115-97 , popularly known as the Tax Cuts and Jobs Act, or TCJA) changed many of these fundamental provisions, although those changes are scheduled to expire after 2025. This report examines these temporary changes and how they affect families. The prior provisions (and ones that will return absent legislative changes) are discussed in a previous CRS report, which also includes the historical development of family-related provisions and some of the justifications for differentiating across families, especially with respect to the number of children. This report does not consider other, more narrowly focused tax code provisions, such as those that apply only to certain types of income (e.g., special treatment for certain types of capital income or self-employment income) or particular additional benefits (e.g., benefits for the blind and elderly or for child care expenses). The first section discusses the structural changes made in the TCJA, and the following sections discuss equity issues and the marriage penalty. Structural Changes Made in the TCJA Taxes are determined by first subtracting deductions (either the standard deduction or the sum of itemized deductions) and personal exemptions (for the taxpayer, their spouse [if married filing jointly], and any dependents) from income to arrive at taxable income. Then the marginal rate structure is applied to this measure of taxable income. Finally, tax credits are subtracted from this amount to determine tax liability. Two of the major credits claimed by families are the earned income tax credit (EITC) and the child tax credit. The new law expanded the child credit for many taxpayers, although it did not change the earned income tax credit. In addition to these provisions, the law changed the exemption levels for the alternative minimum tax (a tax aimed at broadening the overall tax base and applying flat rates with a large fixed exemption), which is imposed if it is larger than the regular tax. All amounts in this discussion are for 2018, the year the tax changes were first implemented. Some amounts will change in the future as they are indexed for inflation. The revision also changed the measure used to index for inflation to the chained consumer price index (CPI) rather than the basic CPI. The chained CPI takes into account changes in the mix of spending, and because spending tends to increase for goods with smaller price increases, the chained CPI is smaller than the basic CPI. For 2018, it only affected the EITC (in a minor way), as the other provisions (such as standard deductions and the rate structure) were stated explicitly in the tax revision. Standard Deduction, Itemized Deductions, and Personal Exemption and Child Credits In calculating their taxable income, taxpayers may subtract either the standard deduction or the sum of their itemized deductions. The standard deduction varies by the taxpayer's filing status: single (an unmarried individual with no dependents), joint (a married couple), and head of household (a single parent). The standard deduction is beneficial—that is, it results in a lower tax liability—when itemized deductions (such as for state and local taxes, mortgage interest, and charitable contributions) are smaller than the standard deduction amount. The standard deduction is annually adjusted for inflation. Under prior law, taxpayers could claim a personal exemption for themselves and each family member. In addition, a child credit was allowed for children under the age of 17. The child credit was (and still is) partially refundable, so that taxpayers with no tax liability can receive some or all of the child credit as a refund greater than taxes owed. The refundable portion of the credit was limited to 15% of earned income in excess of $3,000. (The refundable portion of the child credit is sometimes referred to as the additional child tax credit or ACTC. The lowest-income taxpayers generally receive all of the child credit in the form of the ACTC.) Personal exemptions and child credits were phased out under prior law. Personal exemptions were indexed for inflation, but the child credit was not. As shown in Table 1 , the 2017 tax revision substantially increased the standard deduction and the maximum amount of the child credit while eliminating the personal exemption. It also increased the refundable portion of the child credit, both by increasing the maximum amount of the ACTC and by reducing the earned income amount used to calculate the ACTC. It also substantially increased the level at which the child credit is phased out. For many taxpayers, the amount of income exempt from tax (i.e., the amount subtracted before applying tax rates) has increased under the 2017 tax revision. For example, prior to P.L. 115-97 , a married couple with no children that claimed the standard deduction would have $21,300 in tax-exempt income (the combination of a standard deduction of $13,000 and two personal exemptions for the taxpayers of $4,150). Under current law, their first $24,000 would not be subject to tax. In general, the loss of personal exemptions for children was more than offset by increases in the maximum child credit from $1,000 per child to $2,000 per child. The act also provided a $500 credit for dependents that did not qualify for the child credit. Higher-income families with children also benefited from the increase in the new child credit's phaseout level, which was higher than the previous personal exemption and significantly higher than the prior-law child credit's phaseout range (see Table 1 ). As under prior law, the standard deduction will be annually adjusted for inflation and the child credit (or family credit) will not be adjusted for inflation (with the exception of the $1,400 limit on refundability, which is indexed). The prior-law personal exemption was indexed annually for inflation. Were these provisions to be continued over a long period, the child credit would continually decline in real value, whereas the prior-law personal exemption would not. Moreover, the new inflation index is less generous than the prior one. The tax change also restricted itemized deductions. Although it retained the major itemized deductions for mortgage interest, state and local taxes, and charitable contributions, it limited the deduction for state and local taxes to $10,000, reduced the cap on mortgages with interest eligible for the deduction from $1 million to $750,000, and eliminated a number of other minor itemized deductions. These amounts are not indexed for inflation. As a result of increases in the standard deduction and restrictions on itemized deductions, about 13% of taxpayers are expected to itemize deductions, compared to 30% under prior law. Analysis suggests most of those who continue to itemize are higher income. Earned Income Tax Credit The other major tax credit for families under current law is the earned income tax credit (EITC). This credit is aimed at helping lower-income workers and is fully refundable, meaning that those with little to no income tax liability can receive the credit's full amount. While the credit is generally available to all low-income workers, the credit formula is much more generous for families with children, and the majority of benefits go to families with children. The EITC varies based on a recipient's earnings: the credit equals a fixed percentage (the credit rate ) of earned income until it reaches its maximum level. The EITC then remains at its maximum level over a subsequent range of earned income, between the earned income amount and the phaseout amount threshold . Finally, the credit gradually phases out to zero at a fixed rate (the phaseout rate ) for each additional dollar of adjusted gross income (AGI) (or earned income, whichever is greater) above the phaseout amount threshold. The credit rate, earned income amount, maximum credit, and phaseout amount threshold all vary by number of children, and are more generous for families with more children, as illustrated in Figure 1 . In 2018, the maximum credit amounts were $519, $3,461, $5,716, and $6,431 for families with zero, one, two, or three or more children, respectively. In addition, the phaseout amount threshold is higher for married couples than for unmarried recipients. Hence, the income level at which the credit begins to phase out is slightly more than $5,000 greater for married joint filers than it is for unmarried filers (heads of households and singles). The 2017 revision made no explicit changes to the EITC, but the change in the inflation indexing formula slightly lowered the credit's value. For example, the credit's maximum value for a family with three or more children under prior law would have been $6,444, rather than $6,431 for a family with three or more children under the revision. A taxpayer with no qualifying children must be between 25 and 64 years of age to be eligible for the EITC. Rate Structure and Alternative Minimum Tax The 2017 tax revision also altered the statutory marginal tax rates that apply to taxable income. There are currently seven marginal tax rates, and the income ranges over which they apply ( tax brackets ) differ based on the taxpayer's filing status, with brackets at the lower rates half the width for singles as those of married couples (who file jointly) and heads of household in between. The width of the bracket determines how much income is taxed at a given rate and the wider the brackets the more income is taxed at lower rates. That means singles (and to a lesser extent heads of households) are subject to higher tax rates at lower levels of income than married couples. Under prior law, most taxpayers were subject to tax rates of 10% and 15%. The 10% rate applied for the first $19,050 of taxable income for joint returns, the first $13,600 for head of household returns, and the first $9,525 for single returns. The 15% bracket ended at $77,400 of taxable income for joint returns, $51,850 for heads of households, and $38,700 for singles. The tax revision retained the 10% rate, but reduced the 15% rate to 12%. Above those income levels, rates of 25%, 28%, 33%, 35%, and 39.6% applied, and single bracket widths were less than half as wide as the equivalent married brackets. The 2017 revisions reduced those rates by amounts ranging from 3 to 9 percentage points, with new rates of 22%, 24%, 32%, 35%, and 37%. Under prior law, the top rate of 39.6% applied to taxable income over $480,050 for joint returns. The new law reduced the top rate to 37% and applied it to taxable income over $600,000; the remaining taxable income that had been subject to a 39.6% rate is taxed at 35%. Under prior law, the 39.6% top rate was reached at $426,700 for singles; under the revision, the new top rate of 37% applies to taxable income over $500,000 for singles. The law also revised the alternative minimum tax. Under prior law, the alternative minimum tax imposed a 26% tax rate on alternative minimum taxable income above $86,000 for married couples and $55,400 for unmarried tax filers. The exemption began to phase out at $164,100 for married couples and $123,100 for singles. A higher rate of 28% applied to AMT taxable income above $191,500 for joint returns and $95,750 for single returns. AMT income begins with ordinary taxable income and adds back the standard deduction, personal exemptions, and state and local tax deductions for itemizers, as well as some other tax preferences (such as tax-exempt interest from private activity bonds and accelerated depreciation). The tax revision left the AMT's basic structure unchanged, but increased the exemption amounts to $109,400 for married couples and $70,300 for single returns. It also increased the phaseout point for the exemption to $1,000,000 for joint returns and $500,000 for singles. Other elements of the 2017 tax revision affected whether a taxpayer would be subject to the AMT. Whether the AMT applies depends on deductions from the regular tax compared to the AMT exemption, as well as the tax rates. Lower regular tax rates and a higher standard deduction increase the chance a taxpayer is subject to the AMT, whereas higher AMT exemptions, elimination of personal exemptions, and the limit on the deduction for state and local taxes decrease the chance a taxpayer is subject to the AMT. The rate brackets and AMT amounts are indexed annually for inflation. At higher income levels (up to slightly over $300,000 of taxable income for joint returns and about half that amount for other returns), several factors contribute to lower tax liabilities under the 2017 tax revision, primarily the relatively large reduction in marginal tax rates, as shown in the tax rates in Table 2 , Table 3 , and Table 4 . As indicated in those tables, as a result of P.L. 115-97 , marginal rates increase somewhat over narrow bands of higher income levels, particularly for heads of households and to a lesser extent single returns, before declining again. The changes in tax rates are only one factor determining tax liabilities, as other tax code features—including broadly applicable features discussed in this report and others that apply to a narrower range of taxpayers—can affect tax liability. Treatment of Families with Different Incomes: Equity Issues The new income tax code (as well as the income tax under prior law) is progressive: as income increases and taxpayers have an increased ability to pay, tax rates rise. Studies generally suggest, however, that after taking all of the 2017 tax revision's provisions into account, higher-income groups tend to have the largest percentage increase in after-tax income. Hence, while still progressive, the new income tax is less progressive in comparison to the prior-law income tax. In addition, as time goes on, the relative tax burden on low-income families is expected to increase. This increase at the lower end of the income distribution is partially due to the new inflation indexing provision, which will reduce the earned income credit's value for low-income working families. The increased tax burden also reflects the loss of health care subsidies due to the elimination of the penalty for not purchasing health insurance. The decreased tax burdens (relative to prior law) for high-income individuals also reflect, in this distributional estimate, lower taxes' effects on capital income (including lower corporate tax rates and the pass-through deduction for business income), which affect higher-income individuals, who own most of the capital. Effects on Burdens at the Lower End of the Income Distribution The tax change had no effect on after-tax income in 2018 for low-income families that already had effectively no or negative tax liability and did not have enough income to be eligible for the maximum child credit. In future years, the inflation indexing could eventually reduce the earned income credit's value. As incomes rise, families with children will tend to benefit more than families without children, primarily due to the expanded child credit. These effects can be illustrated by comparing the prior- and current-law breakeven levels. The breakeven level is the amount of income at which a taxpayer begins to owe income taxes (i.e., the level at which tax liability turns from negative or zero to positive). Table 5 shows these levels for married and single-headed families with zero to three children. The smallest increase in the income level at which taxes begin to be owed is for singles with no children. These taxpayers began to owe taxes when income was $12,669 under prior law, but begin to owe at $13,419 under current law, an increase of $750. Under prior law, this income level was in part a result of the standard deduction and personal exemption (a combined $10,650 that was exempt from tax) and in part a result of a reduced EITC (the taxpayer's income resulted in a partially phased out credit). Under current law, a greater amount of income is exempt from tax—$12,000 compared to $10,650—and the EITC is slightly reduced as a result of the new inflation adjustment. A married couple without children begins to pay taxes when their income is $24,000 under current law, compared with $21,300 under prior law, a $2,700 increase entirely driven by the changes in the personal exemptions and the standard deduction. For these taxpayers, under prior law their first $21,300 was exempt from tax as a result of the standard deduction and personal exemptions, and they were ineligible for the EITC at this income level because the credit was entirely phased out. Under current law, their first $24,000 is exempt from tax as a result of the increased standard deduction (and they remain ineligible for the EITC). The breakeven point for families with children is greater than the standard deduction (or under prior law, the standard deduction and personal exemptions) as a result of the EITC (although it is phased out from its maximum level) and the child credit. Although the increased standard deduction increases exempt levels and the additional $1,000 of the child credit is the equivalent of a $8,333 deduction for each child at the new tax bracket these income levels fall into ($1,000/.12), these income levels are mostly still in the earned income credit's phaseout range. Thus, although taxpayers gain from the increased deductions and child credits as income rises, they lose earned income tax credits, making the increase in the exemption level smaller. The benefit increases when the increased income levels tend to be largely out of the EITC's phaseout range (which is largely the case for families with three children). Lower-income families either receive a negligible benefit (for those without children) or a significant benefit (for those with children) because the new child credit is more generous than the prior personal exemption in terms of tax savings. As income rises, the child credit continues to contribute to lower taxes. It is not until marginal tax rates reach 24% (which occurs at $165,000 of taxable income for a joint return) that the increased child credit has the same value as the prior personal exemption in terms of tax savings. The moderate income levels also benefit from lower tax rates, as the 15% rate that applies to taxable income from $19,050 to $77,000 is reduced to 12%. Effects on Burdens at the Higher End of the Income Distribution At higher income levels, lower tax rates (which are quite large for taxable incomes of slightly more than $300,000 for joint returns and about half that amount for other returns) account for lower taxes, as shown in the tax rates in Table 2 , Table 3 , and Table 4 . As indicated in those tables, rates increase at somewhat higher levels—particularly for head of household and, to a lesser extent, single returns—before declining again. For joint returns, the larger rate reductions occur between $156,150 and $316,000 of taxable income, as well at incomes of $480,050 to $600,000, while these reductions appear at lower income levels for head of household and single returns. Taxpayers are also less likely to pay the alternative minimum tax. Although regular tax rates are lowered, two factors reduce the AMT's scope. One is the significant increase in the AMT exemption. In addition, taxpayers at the upper end of the distribution have smaller itemized deductions for state and local taxes, which are a preference item for the AMT. Larger families also have a reduction in the difference between the regular and AMT base, as personal exemptions and standard deductions were part of that base under prior law, but child credits were not. Replacing personal exemptions for children with the child credit reduces the difference between the AMT and the regular base. At higher income levels, losing the full state and local tax deduction can increase tax burdens. The average state and local tax deduction is about 5% of income; evaluated at a 35% or 37% tax rate, the loss is equivalent to a two percentage point change in marginal tax rates. For high-income families with children, the increase in the phaseout levels lowers burdens, particularly as compared to the phaseout for the preexisting tax credit, although the benefit relative to income diminishes as income rises because of the fixed dollar amount. Overall data on distributional effects show significantly larger effects at high income levels, but some of the estimated relatively larger benefit to high-income taxpayers is due to reductions in the tax burden on capital income, including the pass-through deduction (which allows a 20% reduction in capital income for some earnings from unincorporated business) and the lower corporate tax rate, which benefits higher-income individuals, who receive most of the capital income. The effect of structural features at high income levels is ambiguous because the tax change raised tax rates for certain portions of taxable income and lowered them for others, and also capped the state and local tax deduction. Treatment of Families with Different Incomes This section examines the patterns of both vertical equity (how tax rates change as incomes rise) and horizontal equity (how tax rates change across different types of families with the same ability to pay using effective tax rate calculations [taxes as a percentage of income]). These rates can also be compared to those calculated for prior law in a previous CRS report. With respect to horizontal equity, this report uses an equivalency scale similar to the one used to calculate variations in poverty lines by family size. An equivalency scale estimates how much income families of different sizes and compositions need to achieve the same standard of living. In defining families that have the same ability to pay, CRS used an adjustment based on a research study that reviewed a broad range of equivalency studies and is similar to that used for adjusting official poverty levels for different family sizes. The scale has a smaller adjustment for children than for adults. The equivalency scale also accounts for the common use of resources (such as a kitchen or bathroom) in a family, which means increases in required income are not proportional to family size. Under this standard, a single person requires about 62% of the income of a married couple; a couple with four children requires about three times the income. Thus, compared to a married couple with no children with $20,000 of income, an equivalent single person would need slightly over $12,000, and a married couple with four children would need $60,000 to have the same standard of living. Provisions included in the calculations are the rate structure, the larger of the standard deduction or itemized deductions (the latter are assumed to be 12.7% of income, with 5.3% of income reflecting the state and local tax deduction included in the alternative minimum tax base, based on the latest tax data), personal exemptions, the earned income credit, the child credit, and the alternative minimum tax. Table 6 reports the 2018 effective tax rates for low- and middle-income taxpayers at different levels of income, for family sizes of up to seven individuals, and for the three basic types of returns—single, joint, and head of household. Table 7 reports the tax rates for higher-income families. The column heading indicates the income level for married couples. Effective tax rates in each column reflect the effective tax rates of families with the same standard of living. The rates for different families should be compared by looking down the columns. For example, in Table 6 , a married couple with no children (the reference family) and $25,000 in income pays 0.4% of their income in taxes, but a married couple with one child with the same ability to pay (i.e., same standard of living at about $30,844 of income) receives a subsidy (i.e., on net they get a refund greater than taxes owed) of 12.1% of their income, whereas a single with an equivalent before-tax standard of living pays 2.2% of income in taxes. Overall, these effective tax rates indicate that low-income families with children receive significant benefits from the income tax, compared to those with similar abilities to pay but without children. These numbers assume that taxpayers (and their children) are eligible for both the child credit and the EITC. These are illustrative calculations that do not account for any other tax preferences and are designed to show how the tax law's basic structural, family-related features affect burdens. Across each family type, effective tax rates are progressive, increasing as income increases. Compared to prior law, tax rates change relatively little at the lowest income level due to the lack of change in the earned income credit and because the child credit increases by a limited amount (about $75) for many of the poorest families. As incomes rise into the lower-middle, middle-, and upper-middle-income levels, rates fall slightly for families without children, whereas families with children have significant reductions in effective tax rates due to the increase in the maximum child credit and the increases in the child credit phaseout levels. At the highest income levels, effects range from small rate cuts to small rate increases, which reflect the trade-off between the changes in rates and the reductions in itemized deductions. In contrast with prior law, none of the examples in these tables are subject to the AMT. These tables suggest that the pattern of tax burden by family size varies across the income scale, and reflects the interactions of the earned income credit, the child credit, and graduated rates, including phaseout effects. Moreover, the variation across families that have the same ability to pay is substantial. At low incomes, families with children, whether headed by a married couple or a single parent, are favored (i.e., receive significant subsidies from the tax code) because of the EITC and the child credit. The largest negative tax rates tend to accrue to returns with around two or three children, because the largest EITCs are available for three or more children and the child credits increase with the number of children. The rate increases (or rather, negative rates decline in absolute value) because larger families need more income, which may begin to phase them out of the EITC. As incomes rise, families with children are still favored, but the largest families have the largest subsidies or the smallest tax rates, because the child credit lowers taxes more for these families. Eventually, large families begin to be penalized because the value of the child credit and personal exemptions relative to income declines and larger families that require more income are pushed up through the rate brackets. As incomes reach very high levels, however, the rates converge as the tax approaches a flat tax. Note that itemized deductions are assumed to be a constant fraction of income, and thus a proportional exclusion, except when the $10,000 limit on state and local tax deductions is binding. Compared to prior law, the new system retains and expands the favorable treatment of families with children through most of the income spectrum. This effect occurs partly because the EITC rate is much lower for single taxpayers or two-member joint returns with no qualifying children than it is for families with children. Also, if one accepts the ability-to-pay standard, the EITC has an inappropriate adjustment for family size. To achieve equal tax rates based on the ability-to-pay standard, the amount on which the EITC applies and the income at which the phaseout begins should be tied to family size but the EITC credit rate should be the same for all families. Changing the rate, as was done in 1990 and retained when the EITC was expanded in 1993, does not accomplish equal treatment across families of different sizes, providing too much adjustment for some families and not enough for others. The child credit also contributes to the favorable treatment of families with children, including in the middle- and upper-middle-income levels, where it is not phased out. The greater refundability level, the increased size of the credit beyond that needed to replace the personal exemption at most income levels, and the significantly increased phaseout levels all make the child credit a significant factor in increasing the favorable treatment for families with children. Tax rates also differ for families without children (singles and married couples). At most income levels, childless singles have higher effective tax rates than childless married couples. This effect reflects efforts to eliminate marriage penalties, which in turn result in a tax penalty for single individuals. Other aspects of the tax system should also be considered, such as the child care credit and the treatment of married couples where only one individual works outside the home. These families are better off because the spouse not employed outside the home can perform services at home that result in cost savings, perform household tasks that increase leisure time for the rest of the family, or enjoy leisure. The value of this time, which is not counted in the measured transactions of the economy, is referred to as imputed income . This imputed income is not taxed, and it would probably be impractical to tax it. Nevertheless, the tax burden as a percentage of cash plus imputed income is lower for such a family. Marriage Penalties and Bonuses Because of the progressive rate structure, taxes can be affected by marriage, introducing either a penalty or a bonus when two individuals get married. Concerns about the marriage penalty reflect a reluctance to penalize marriage in a society that upholds such traditions. As the tax law shifted in the past to reduce the marriage penalty, it also expanded marriage bonuses. Studies of this issue indicate that the tax system favors marriage, conferring significant bonuses on married couples (or penalties on singles). The new law retains many of the elements that affect marriage penalties and bonuses, including wider tax brackets for joint returns (which eliminate marriage penalties and produce bonuses for those without children in the middle-income brackets), the more generous rate structure for head of household (which affects penalties and bonuses for families with children), and marriage penalties embedded in the alternative minimum tax. Under the new rate structure, the income levels at which marriage penalties are precluded because of the doubling of the brackets are higher. At the same time, the law also introduces a new potential source of a marriage penalty at high income levels by retaining the same dollar cap on state and local tax deductions for both joint and single returns. These choices have consequences not only for incentives but for equitable treatment of singles and married couples. As shown above in Table 6 and Table 7 , in the middle-income brackets, where the marriage penalty was largely eliminated, singles with the same ability to pay are subject to higher taxes than married couples. Singles benefit at lower income levels because their lower required incomes do not phase them out of the earned income credit. In contrast, lower-income married taxpayers are more likely to be subject to marriage penalties because of the EITC's structure. Under prior law, at very high incomes, married couples may have paid a larger share of their income because of marriage penalties that remained in the AMT and the upper brackets of the rate structure, but these effects do not appear in any of the current-law examples, in part because the AMT does not apply. This section explores the treatment of married couples and singles in an additional dimension by assuming that singles live together and share the same economies of scale that married couples do. These individuals could be roommates, but they could also be partners who differ from married couples only in that they are not legally married. Single individuals who live together in the same fashion as married couples have the same ability to pay with the same income. However, remaining single can alter their tax liability, causing it to either rise or fall, depending on the split of income between the two individuals. If one individual earns most of the income, tax burdens will be higher for two individuals who are not married than for a married couple with the same total income, because the standard deductions are smaller and the rate brackets narrower (up to the 35% tax rate, tax brackets for singles are half those of joint returns). If income is evenly split between the two individuals, there can be a benefit from remaining single. Married individuals have to combine their income, and the rate brackets for joint returns in the higher-income brackets, although wider than those for single individuals, are not twice as wide. At all levels they are not twice as wide as for heads of household. In addition, the earned income credit contains marriage penalties and bonuses. The marriage penalty or bonus might, in the context of the measures of household ability to pay, also be described as a singles bonus or penalty. In any case, in considering this issue's incentive and equity dimensions, these families' tax rates should be compared across family marital status at each income level. Table 8 and Table 9 show the average effective tax rates for married couples and for unmarried couples with the same combined income, both where income is evenly split and where all income is received by one person. In one case there is no child and in the other one child. These income splits represent the extremes of the marriage penalty and the marriage bonus. The same reference income classes and equivalency scales as in Table 6 and Table 7 are used. Note that uneven income splits in the case of a family with a child can yield different results depending on whether the individual with the income can claim the child and therefore receive the benefits of the head-of-household rate structure, the higher earned income credit, the dependency exemption, and the child credit. If not, that individual files as a single. The tables indicate that both marriage penalties and bonuses persist. In the case of families without children, however, penalties do not exist in the middle-income ranges, only bonuses. In this case, singles who live together and have uneven incomes would see their tax rates fall if they got married. Both bonuses and penalties exist at the lower income levels because of the earned income tax credit. If income is evenly split, the phaseout ranges are not reached as quickly for singles because each of the partners has only half the income. If all of the income is earned by one of the singles in the single partnership, phaseout of the credit still occurs and the individual also has a smaller standard deduction, and thus pays a higher tax. The smaller deductions and narrower rate brackets also cause the higher tax rates through the middle-income brackets. At very high income levels, marriage penalties can also occur. The penalty is due to not doubling the rate brackets after the 12% bracket. In addition, the dollar limit on the deduction of state and local taxes is the same for married couples and individual taxpayers, so that if two singles with high incomes and high state and local taxes marry, they can lose $10,000 in deductions. At the same time, taxpayers tend not to be subject to the AMT, which retains marriage penalties (by having an exemption for joint returns that is less than twice that for single returns). As compared to prior law, marriage penalties at higher income levels are mixed. In some cases penalties are lower, presumably due to the extension of the reach of the double width of rate brackets for singles versus joint returns, as well as lower tax rates in general and the AMT's more limited reach. In some cases penalties are higher due to the state and local tax deduction limit. Matters are more complex for families with children. Table 8 and Table 9 illustrate this effect for a family with one child. At the lowest income level, and a 50/50 split, one of the singles files a single return with a very small negative rate because of the small earned income credit for those without children, whereas the other claims a child and has a much higher negative tax rate than a married couple because there is no phaseout of benefits. The combination also involves a smaller child credit because it is not completely refundable. The combined result is a lower benefit than that of a married couple, and thus there is a marriage bonus. This income split eventually leads to a marriage penalty because of the favorable head-of-household standard deduction and rate structure, as well as the state and local tax deduction cap. With one of the pair earning all of the income, the results depend on whether the partner with the income can claim the child. If that person cannot, the tax burden is higher throughout the income scale, reflecting the loss of benefits from the child via credits and the rate structure. If the person with the income can claim the child (thus using the more favorable head-of-household schedule and receiving a child credit), joint returns are still favored (except at the lowest income levels), but not by nearly as much. Which of these last two assumptions seems more likely depends on the circumstances. When couples divorce, they typically move to different residences, and the most usual outcome is that the mother, who typically has lower earnings, has the child. According to the Census Bureau, 83% of children who live with one parent live with their mother. In that case, there would likely be a marriage bonus. If the couple divorce but live together, presumably the higher-income spouse would claim the child. However, if a couple never married and the child is only related to one parent, that person, more likely the mother and more likely to have low income, would claim the child. If such a couple married and had low incomes, they could obtain the earned income credit, and a study of low-income families indicates that this latter effect, the bonus, is the EITC's most common effect. Which circumstances are more characteristic of the economy? Note first that, although people refer to the marriage penalty for a particular family situation or the aggregate size of the marriage penalty, it is really not possible, in many cases, to determine the size of the penalty or bonus. The effect of the assignment of a child is demonstrated in Table 8 and Table 9 , but other features matter. Only when a married couple has only earned income, no dependent children, and no itemized deductions or other special characteristics, and only if it is assumed that their behavior would not have been different if their marital status had been different, can one actually measure the size of the marriage penalty or bonus. There is no way to know which of the partners would have custody of the children and therefore be eligible for head-of-household status and the accompanying personal exemptions and child credits. If the marriage bonus is viewed instead as a singles penalty on cohabitating partners, the share of the population affected is limited to less than 10% of households. About a third of those have children. Cohabitating partners are more likely than roommates to fully enjoy the consumption of joint goods that would equate them to married couples. Conclusion The 2017 tax revision continued, and in some cases expanded, the favorable treatment of families with children in the lower and middle income levels on an ability-to-pay basis. At the lowest incomes, this treatment was maintained largely due to the EITC's preexisting effects, although increasing the refundable child tax credit added to this favorable treatment. More favorable treatment was increased and extended up through the income classes because of the increase in the child tax credit amount and the increase in the income level at which the credit is phased out. At the highest income levels, rate changes tended to favor joint returns over singles and heads of household, largely due to the rate structure. As was the case with prior law, marriage bonuses occur through most income brackets, but penalties can exist at the lower end of the income distribution, particularly for families with children in which the lower income earner has custody of children, due to the earned income credit and the child credit. The rate structure continues to lead to a potential marriage penalty at high income levels. The 2017 revisions also introduced a new provision that could contribute to the marriage penalty at high incomes: the $10,000 limit on itemized deductions for state and local taxes, which is the same amount for married and single individuals.

The federal income tax treatment of the family is affected by several major structural elements applicable to all taxpayers: amounts deductible from taxable income through standard deductions, personal exemptions, and itemized deductions; the rate structure (which varies across taxpayer types); the earned income credit and the child credit; and the alternative minimum tax. Some of these provisions only affect high-income families and some only low-income families, but they are the tax code's fundamental structural features. They lead to varying tax burdens on families depending on whether the family is headed by a married couple or a single individual, whether children are in the family, and the number of children if so. These provisions also affect the degree to which taxes change when a couple marries or divorces. The 2017 tax revision ( P.L. 115-97 , popularly known as the Tax Cuts and Jobs Act) changed many of these fundamental provisions, although those changes are scheduled to expire after 2025. This report examines these temporary changes and how they affect families. The prior provisions (which will return absent legislative changes) are discussed in CRS Report RL33755, Feder a l Income Tax Treatment of the Family , by Jane G. Gravelle, which also includes the historical development of family-related provisions and some of the justifications for differentiating across families, especially with respect to the number of children. The 2017 tax revision effectively eliminated personal exemptions claimed for the taxpayer, their spouse (if married), and any dependent (often referred to as the dependent exemption ). However, the increased standard deduction more than offset these losses for taxpayers (and their spouses, if married). In addition, for many taxpayers, the increased child credit more than offset the losses from the eliminated dependent exemption. The tax revision also lowered rates for all three types of tax returns (joint, single, and head of household), although the effects were more pronounced for joint returns. In general, the changes retain significant aspects of prior law. The income tax code after the 2017 tax revision remains progressive across income levels for any given type of family, although effective tax rates are slightly lower. Among families with the same ability to pay (using a measure that estimates how much additional income families need to attain the same standard of living as their size increases), families with children are still favored at the lower end of the income scale, whereas families with children are still penalized at the higher end of the scale. This favorable treatment toward families with children is extended further up into the middle-income level under the 2017 revisions due to the changes in the child credit. The tax system is largely characterized by marriage bonuses (lower taxes when a couple marries than their combined tax bill as singles) through most of the income distribution, although marriage penalties still exist at the bottom (due to the earned income credit) and top (due to the rate structure) of the income distribution. The penalties at the top appear to be somewhat smaller in the new law due to changes in the rate structure and lower tax rates.

CRS_R45968

Background The Department of Defense (DOD) operates a Military Health System (MHS) that delivers certain health entitlements under Chapter 55 of Title 10, U.S. Code. The Defense Health Agency (DHA)—a component of the MHS—administers the TRICARE program, which offers health care services to approximately 9.5 million beneficiaries, composed of military personnel, retirees, and their families. Beneficiaries may receive health care services in DOD-operated hospitals and clinics—known as military treatment facilities (MTFs)—or through participating civilian health care providers. DOD operates 723 MTFs in the United States and in overseas locations. Each MTF provides a range of clinical services depending on its size, mission, and level of capabilities. Only active duty servicemembers are entitled to care in any MTF. Dependents and retirees may receive care on a space-available basis that takes into account patient capacity, beneficiary category (e.g., servicemember, family member, retiree), and enrollment status. When care is not available at an MTF, beneficiaries may receive care from a civilian health care provider who participates in TRICARE. The three main health plan options offered to eligible beneficiaries include TRICARE Prime, TRICARE Select, and TRICARE for Life. TRICARE also offers premium-based health plan options for certain beneficiaries, such as qualified members of the Selected Reserve, retired reservists, young adults, and transitioning servicemembers. Other TRICARE benefits include a pharmacy program, optional dental plans, and a vision plan for certain beneficiaries. This report answers frequently asked questions about TRICARE health plan options tailored for certain reservists, retired reservists, and their families (i.e., TRICARE Reserve Select and TRICARE Retired Reserve) and certain statutory prohibitions that limit their participation in the plans. Questions and Answers 1. What is TRICARE Reserve Select and TRICARE Retired Reserve? TRICARE Reserve Select (TRS) is a premium-based health plan available worldwide for some members of the Selected Reserve and their families. TRS was established by Section 701 of the Ronald W. Reagan National Defense Authorization Act (NDAA) of Fiscal Year 2005 ( P.L. 108-375 ). TRICARE Retired Reserve (TRR) is a premium-based health plan available worldwide for qualified retired members of the reserve components. TRR was established by Section 705 of the NDAA for FY2010 ( P.L. 111-84 ) as a TRICARE coverage option for so-called gray area reservists, defined as those who have retired but are too young to draw retired pay. The plans are similar to TRICARE Select (i.e., preferred provider option), which feature monthly premiums, annual deductibles, and fixed co-pays when receiving care from a network provider or paying a percentage of the allowable charge when receiving care from a TRICARE-authorized, nonnetwork provider. Eligible beneficiaries residing outside of the United States are also eligible for TRS and TRR; however, the availability of network providers may be limited based on geographic location. By law, the Department of Defense (DOD) is required to subsidize the cost of TRS. Servicemembers pay 28% of the cost of the program in the form of premiums. For TRR, enrollees pay the full cost of the calculated premium as determined by the Secretary of Defense. DOD does not subsidize the program costs for TRR. DOD annually updates the premiums for each program on an "appropriate actuarial basis." Monthly TRS and TRR premiums for calendar years 2019 and 2020 are listed in Table 1 . DOD reports that at the end of FY2018, 383,683 beneficiaries were covered by TRS and 9,019 beneficiaries were covered by TRR. 2. Who qualifies for TRS, and what are the statutory prohibitions on TRICARE Reserve Select eligibility for certain members of the reserve components? Members of the Selected Reserve (i.e., drilling reservists) and their families qualify for TRS if the following criteria are met: the reservist is not on active duty orders; the reservist or their family members are not covered under the Transitional Assistance Management Program; and the reservist or their family members are not eligible for the Federal Employee Health Benefits (FEHB) program. Prior to 2006, TRS availability was limited to members of the Selected Reserve (including family members) after serving on continuous active duty in support of a contingency operation for 90 or more days and signing an agreement to continue serving in the Selected Reserve for one or more years. TRS coverage was also limited to the lesser of: one year (in cases where an activated reservist does not continuously serve on active duty for at least 90 days due to an "injury, illness, or disease incurred or aggravated while deployed"); one year for each consecutive period of 90 days of continuous active duty service; or the number of years agreed upon in the military service obligation agreement. Section 706 of the John Warner NDAA for FY2007 ( P.L. 109-364 ) amended 10 U.S.C. §1076d to expand TRS eligibility, including removal of the military service obligation agreement, active duty service length, and period of coverage requirements. In revising TRS, the law also added a prohibition on members of the Selected Reserve and their family members from being eligible for TRS if they are also eligible for, or enrolled in, "a health benefits plan under Chapter 89 of Title 5," U.S. Code. This health benefit plan is known as the FEHB program. 3. Who is eligible for TRR, and what are the statutory prohibitions on TRICARE Retired Reserve eligibility for qualified retired reservists? Retired members of the reserve components and their family members qualify for TRR if the following criteria are met: the retiree is qualified for non-regular retirement under chapter 1223 of Title 10, U.S. Code; the retiree is under age 60; and the retiree or their family members are not eligible for the FEHB program. P.L. 111-84 , which established TRR, incorporated a similar prohibition on qualified retired members of the reserve components and their family members from being eligible for TRR if they are eligible for the FEHB program. For example, a reservist or qualified retired reservist who is also a civil service or U.S. Postal Service (USPS) employee, annuitant, or family member that is eligible for the FEHB program is barred from enrolling in TRS or TRR. This restriction does not apply to other TRICARE programs for which reservists or retired reservists may also be eligible under other criteria (e.g., TRICARE Prime, TRICARE Select, TRICARE for Life, TRICARE Dental Program, or the Transition Assistance Management Program). 4. How many beneficiaries do the TRS eligibility restrictions affect? In 2019, the Congressional Budget Office (CBO) estimated approximately 110,000 members of the Selected Reserve are prohibited from enrolling in TRS because they are eligible for FEHB. This represents approximately 13.7% of the total Selected Reserve force. CBO also estimated that about "one third would enroll in TRS if given the opportunity." Neither DOD nor CBO has published any similar estimates for TRR. 5. Why did Congress enact these statutory prohibitions? The congressional record, the committee and conference reports accompanying the enacting and amending legislation for TRS and TRR, do not articulate why the prohibitions are in place. Nevertheless, observers have speculated that the prohibition may be related to potential increases in mandatory or discretionary costs associated with certain risk-pool adjustments to FEHB and expansion of the TRICARE program. As the House of Representatives considered the FY2007 NDAA, as reported by the House Armed Services Committee, the Office of Management and Budget issued a Statement of Administration Policy (SAP) that expressed cost concerns with the proposal to expand to TRS. The SAP noted: … the Administration strongly opposes Section 709, which expands TRICARE eligibility to all Selected Reserve members and their families and dramatically worsens the fiscal situation by increasing the government subsidy for non-mobilized reservists and their families at an estimated cost of $400 million in FY 2007 and $3.6 billion from FY 2007 through FY 2011. By FY 2011, it is estimated that the annual cost for this expanded benefit will reach $1.2 billion. It is critical for Congress to eliminate these unfunded expansions and work with the Administration to place the system on a sound fiscal foundation. 6. What health insurance options are available to those prohibited from enrolling in TRS or TRR? Reservists, qualified retired reservists, or their family members subject to the statutory prohibitions may obtain health insurance coverage, if eligible, through any of the following health insurance options: FEHB; Medicaid; private individual health insurance; or employer-sponsored insurance (e.g., personally or as offered through a spouse's employer). Reservists serving in a federal active duty status for greater than 30 days are eligible to participate in TRICARE programs for active duty servicemembers, including TRICARE Prime. 7. What are the premium rates for the FEHB program? The FEHB program establishes several premium rates based on geographic location, coverage option, and federal employee category. The monthly average premium rates (non-USPS employee and annuitant) for calendar year 2019 are listed in Table 2 . 8. What are the potential implications of extending TRS or TRR eligibility to all members of the Selected Reserve and qualified retired reservists? Parity in TRS or TRR Eligibility for Reservists Reservists who are eligible for FEHB, for any reason, are disqualified from participation in TRS or TRR. Reservists not employed by the federal government (and not eligible for FEHB) may participate in TRS or TRR. Certain military service organizations (MSOs) perceive and advocate that the removal of the statutory prohibition for TRS or TRR would create equality among all members of the Selected Reserves or qualified retired reservists. These advocacy groups also note that in doing so, all members of the Selected Reserves would be able to access TRS as a "more affordable option" than FEHB, which has higher premiums and cost shares. In a 2018 report to Congress on reserve component health care, DOD states that reservists have "expressed strong feelings of discontent with the law that disqualifies Selected Reserve members from purchasing TRICARE Reserve Select (TRS) for themselves or for family members if they are eligible for, or enrolled in, the FEHB program." DOD also noted in its report that reservists "would like Congress to repeal the FEHB exclusion and DOD fully supports its repeal;" however, DOD made no recommendation concerning this issue at the time it produced the report nor has it any time since. Cost Implications While expanding TRS or TRR eligibility would have certain cost implications for DOD, there are also cost considerations for other federal agencies that fund FEHB benefits for their respective federal employees. In June 2019, CBO published a cost estimate of a proposal to remove the TRS prohibition starting in 2030—Section 703 of the FY2020 NDAA ( H.R. 2500 ; as reported by the House Armed Services Committee). Overall, there would be an estimated savings to the federal government. However, given certain statutory or House pay-as-you-go (PAYGO) rules, increases in mandatory spending must be offset by "direct spending cuts, revenue increases, or a combination of the two," rather than by savings in discretionary spending. CBO estimates that expanding TRS eligibility would produce an increase in mandatory costs, noting that: Because members of the Selected Reserve are younger and healthier than the average federal employee, reservists and their family members who discontinue FEHB coverage would cause an increase in premiums for all remaining FEHB beneficiaries, including federal retirees and active postal employees, whose premiums are paid from mandatory accounts. When implemented, CBO estimates this section would increase direct spending by about $40 million each year beginning in 2030. Concurrently, CBO also estimates there would also be savings in discretionary spending, greater than the increase in mandatory costs: On net, CBO estimates section 703 would eventually reduce discretionary costs to the government by about $250 million per year beginning in 2030 because the cost of TRS is less than the government's share of the premium for FEHB. Section 703 would also affect spending for other FEHB beneficiaries. Beneficiary Satisfaction DOD asserts that reservists and their spouses "show satisfaction with the TRICARE program in general, and TRS in particular." Beneficiaries enrolled in TRS are reportedly satisfied with their TRICARE plan and the quality of health care provided. For example, DOD observed in the 2014 Survey of Reserve Component Spouse s that 48% found "no difference" between TRS and civilian health insurance plans. DOD also observed that 32% of survey participants believed that TRS provides "better" or "much better" health care than civilian health plans. Similar results can be found in certain MSO-conducted surveys of beneficiaries. While many TRS enrollees express a general satisfaction with their TRICARE plan, some beneficiaries have described certain challenges, such as: difficulty in finding health care providers and facilities that accept TRICARE; maintaining continuity of care for a family member when a reservist is activated and ordered to active duty; and having to reenroll in TRS after a reservist transitions from active duty to the Selected Reserve. 9. Has Congress previously considered extending TRS or TRR eligibility? Since the creation of TRS and TRR, Congress has considered a number of proposals to eliminate the statutory prohibitions described above (see Table 3 ). To date, none of the proposals have been enacted.

Between 2001 and 2007, more than 575,000 members of the reserve components were ordered to active duty in support of ongoing military operations, including major combat operations in Afghanistan (Operation Enduring Freedom), Iraq (Operation Iraqi Freedom). While on active duty, reservists and their family members have access to a wide range of health care services administered by the Department of Defense's (DOD) Military Health System (MHS). However, prior to 2005, chapter 55 of Title 10, U.S. Code, authorized little to no DOD health care services to nonactivated reservists or their family members. In 2005, Congress began examining initial impacts of frequent mobilizations on reservists, their families, and their employers. Soon after, Congress enacted a series of new or expanded health care, transitional, and other personnel benefits to mitigate certain effects associated with reserve mobilizations. Two health care programs tailored for reservists were established: TRICARE Reserve Select (TRS)—a premium-based health plan option available to qualified members of the Selected Reserve and their family members; and TRICARE Retired Reserve (TRR)—a premium-based health plan option available to so-called gray area reservists—those who have retired but are too young to draw retired pay—and their family members. Section 701 of the Ronald W. Reagan National Defense Authorization (NDAA) Act of Fiscal Year 2005 ( P.L. 108-375 ) established TRS. Initially, TRS eligibility was limited to certain reservists who had served on continuous active duty in support of a contingency operation and signed a military service obligation agreement. Section 706 of the John Warner NDAA for FY2007 ( P.L. 109-364 ) revised TRS by removing certain restrictions and expanding eligibility. The law also added a prohibition on members of the Selected Reserve and their family members from being eligible for TRS if they are also eligible for the Federal Employee Health Benefits (FEHB) program. Section 705 of the NDAA for FY2010 ( P.L. 111-84 ) established TRR, which also prohibits retired reservists and their families from participating, if they are also eligible for the FEHB program. Both reserve plans mirror the benefits and cost sharing requirements established for TRICARE Select, a health plan option available to family members of active duty servicemembers and certain military retirees. Congress has not explicitly addressed why the prohibition on TRS or TRR for FEHB-eligible reservists and their family members was established. Nevertheless, observers have noted several considerations in removing the statutory prohibition, including: potential impacts to the FEHB health insurance risk-pools; potential cost implications to federal mandatory and discretionary spending; and continuity of care for reservists transitioning between active and reserve status. While Congress has considered various proposals to remove the statutory prohibitions on TRS or TRR eligibility, none have been enacted.

GAO_GAO-20-282

Background The Bureau is charged with counting every person in the decennial census once, only once, and in the right place. To ensure fairness and consistency in where people are counted, for the first decennial in 1790, Congress established the concept of counting people where they usually reside. The Bureau has relied on that concept ever since. Building on the concept of usual residence, the Bureau subsequently established criteria, which it refers to as residence criteria, to determine where people should be counted during each decennial (see text box). Residence criteria 1. Count people at their usual residence, which is the place where they live and sleep most of the time. 2. People in certain types of group facilities on Census Day are counted at the group facility. 3. People who do not have a usual residence, or who cannot determine a usual residence, are counted where they are on Census Day. For most people, applying the concept of usual residence and the Bureau’s associated residence criteria is straightforward. For others who may be more mobile, like members of the military, college students, migrant farm workers, and people living in group quarters, determining where to count them can be more complicated. Therefore, for each decennial the Bureau issues guidance describing how the criteria should be applied to certain complex living situations for which people commonly request clarification. The guidance is intended to inform the public about how to respond and to assist enumerators and other Bureau staff in administering a proper count. In addition to counting the nation’s population accurately, the Bureau must complete the count and tabulate it against a backdrop of immutable deadlines. The Bureau is required by law to count the population as of April 1, 2020 (Census Day); deliver state apportionment counts to the President by December 31, 2020; and provide redistricting data to the states by April 1, 2021. To meet these deadlines and ensure an accurate count, the Bureau carries out thousands of interrelated activities before, during, and after data collection (see figure 1 for a timeline of selected key activities). The Bureau Has Refined its Residence Guidance to Help Ensure More People Are Counted in the Right Place The Bureau Has Updated Its Guidance on Where to Count People in Six Complex Living Situations The Bureau plans to use its concept of usual residence and its associated residence criteria to determine where to count people in the 2020 Census generally as it did in 2010, but in 2018 the Bureau updated its guidance on how to apply that concept to count people in six complex living situations (see figure 2 for an overview of these changes). In developing the guidance for 2020, the Bureau sought input from external stakeholders on needed changes and solicited public comments on the draft guidance through the Federal Register. In response, the Bureau received input and comments from a variety of entities including federal, state, local, and tribal governments, as well as civil rights and other advocacy organizations. Military and civilian employees of the United States deployed overseas. In 2010, overseas military and civilian employees of the United States who were U.S. citizens were counted at their home state of record for apportionment purposes only. For 2020, the Bureau decided to count these personnel differently depending on whether their permanent duty station was in the United States. Personnel assigned or stationed overseas will continue to be counted as they were in 2010. Personnel stationed in the United States while deployed overseas, however, will instead be counted at their usual home address in the United States for both apportionment and redistricting purposes. According to Bureau documentation, this change resulted from Bureau analysis of data from the Department of Defense which found that personnel deployed overseas were there for shorter periods and were likely to return to their prior usual place of residence, whereas personnel assigned or stationed overseas generally remained overseas for greater periods and often did not return to their prior stateside location. Military and civilian employees of the United States deployed, stationed, or assigned overseas who are legal U.S. residents but not citizens. For 2020, the Bureau plans to count this population the same way it counts U.S. citizens working for the federal government overseas, as described above. According to a Bureau assessment of how it counted personnel overseas in 2010, its guidance for federal agencies that provide the Bureau with data on overseas personnel was unclear on the treatment of non-citizens. According to Bureau officials, it is therefore likely that other federal agencies following that guidance generally excluded non-citizens from the 2010 count. Based on the Bureau’s assessment, the Bureau plans to make clear in its 2020 guidance that U.S.-resident non-citizens working for the federal government overseas are to be counted the same way as U.S. citizens. Bureau officials stated that this change should ensure that U.S.-resident non-citizens are counted more consistently with other U.S. residents. Crews of U.S. maritime and merchant vessels sailing between a U.S. and a foreign port. In 2010, if a U.S. maritime or merchant vessel was sailing between a U.S. and a foreign port on Census Day, then the crewmembers were not counted. For 2020, the Bureau plans to count these crewmembers at their onshore usual residence in the United States or, if they have none, then at the vessel’s U.S. port of departure or arrival. This matches how the Bureau counts crewmembers if their vessel is at a U.S. port or sailing between two U.S. ports. According to Bureau documentation, this change resulted from Bureau analysis and consultation with stakeholders (including the Maritime Administration) which found that crewmembers in each of these situations usually retain an onshore residence in the United States where they live and sleep most of the time so they should be counted in the same way. Juveniles in non-correctional residential treatment centers. For 2020, the Bureau plans to count this population at the U.S. residence where they live and sleep most of the time or, if they have no usual home address, then at the facility. In 2010, they were counted at the facility. The Bureau made this change after concluding that these juveniles typically only stay at residential treatment center facilities temporarily and generally have a usual home elsewhere to which they return after treatment is completed. Religious group quarters residents. For the 2020 Census, the Bureau will count this population at the religious group quarters facility. In 2010, this population was counted at their usual home address or, if they had no usual home address, then at the facility. The Bureau made this change after concluding that this population typically does not have a place of usual residence elsewhere. According to Bureau officials, the Bureau expects the updated guidance will provide greater clarity and result in more informed responses and, thus, higher quality data. Among other things, Bureau officials stated that the data will more accurately reflect the composition of local communities. The Bureau Will Continue to Count People in Other Living Situations as It Did in 2010 For the 2020 Census, the Bureau did not change its guidance regarding where to count people in other complex living situations. For example, the Bureau did not make changes to where it will count college students, who will continue to be counted at their parents’ or guardians’ home if they live and sleep there most of the time or, if they live away from their parents’ or guardians’ home, then at their on- or off-campus residence. See table 1 for an overview of where the Bureau will count people in complex living situations the same as it did in 2010. In addition, the Bureau’s guidance includes examples of situations in which people should not be counted in the census, such as the following: people living outside the United States on Census Day who are not military or civilian employees of the U.S. government and are not dependents living with military or civilian employees of the U.S. government; babies born after Census Day or people who die before Census Day; college students living at and attending college outside the United States; and citizens of foreign countries visiting the United States, such as on vacation or a business trip. To help census respondents understand who and where to count household members and others, the Bureau is translating key terms from its census form for 2020 into 59 languages and making it available to community partners and others who may be in a position to help linguistically isolated groups provide accurate responses. It is translating scripted responses to questions about complex living situations into 12 foreign languages to be used by staff who will help answer questions about and take responses over the telephone. The Bureau Will Continue to Count Prisoners at the Correctional Facility but Plans to Offer States Supplemental Tools for Redistricting with Prisoners’ Pre- Incarceration Addresses The Bureau reports that stakeholder feedback on where to count prisoners largely urged the Bureau to count them at their pre- incarceration addresses to avoid shifting political power to the prison locations at the expense of the prisoners’ home communities. However, the Bureau concluded that counting prisoners anywhere other than the correctional facility would be less consistent with the concept of usual residence, since the majority of people in prisons live and sleep there most of the time. Therefore, for 2020, the Bureau decided that it will continue to count prisoners at the correctional facility as it did in 2010. However, the Bureau will make available to states two tools to allow them to “move” their prisoner population to the prisoners’ pre-incarceration addresses for redistricting purposes. The tools are intended to support such movement within but not across state boundaries. The Bureau is providing states with an online tool that will identify the census geographical block that the population would be tabulated in for any state-provided addresses. If a state wants to “move” the tabulation of specific prisoners within its boundaries, this information will let state officials know which block tabulations to adjust. On November 4, 2019, the Bureau launched the web page that will support states in using this tool. The Bureau plans to update it with 2020 Census geographic data in February 2021, before the Bureau is required to provide redistricting data to the states. The Bureau also plans to provide states with data on group quarters, which will contain a separate count of their prisoner populations, as part of each state’s redistricting file. By including group quarters data in the redistricting file, the Bureau plans to provide these group quarters data to users 1 to 2 months earlier than it did in 2010 when it provided group quarters data separately from the redistricting file. According to the Bureau, this earlier release will benefit many users, including state officials who must consider whether to include or exclude certain populations when redrawing boundaries as a result of state legislation. The Bureau Is Planning Additional Changes to Improve Count Accuracy, Completeness, and Consistency Following Data Collection Once the Bureau has completed its decennial data collection efforts, it generally finds that a small proportion of responses have data quality issues that were not resolved during preceding operations. In these cases, (1) some addresses have multiple responses, (2) some households are missing responses altogether, or (3) some responses include answers that are incomplete or conflict with one another. The Bureau has a variety of plans to resolve these issues (see figure 3). Determining Whom to Count at Addresses with Multiple Responses The Bureau may receive multiple census responses from a household for various reasons. For example, different members of the same household could each respond by mail or over the internet, or one member could mail a response and another answer a census worker’s questions in person during the Bureau’s non-response follow-up operation. The Bureau assessed its response processing in 2010, and identified about 14 million responses for households that already had another response (roughly 10 percent of the total number of households included in the final 2010 count). The widespread option to respond over the internet is new for 2020, and while having included it in multiple census tests, Bureau officials have not set expectations on the extent to which it may increase the number of addresses at which it gets multiple responses. To guard against overcounting, as it has in prior decennials, for 2020 the Bureau plans to use an automated routine—referred to as the Primary Selection Algorithm—to determine whom to count at addresses for which it has received multiple responses once data collection is complete. According to Bureau officials, in making this determination, the algorithm takes into account a wide range of information, including results from its fraud detection efforts. We did not examine the algorithm for this review. In addition, to help ensure the integrity of these determinations, the Bureau does not disclose the details of the algorithm publicly and permits only Bureau officials with an operational need to know to access the algorithm. According to Bureau documentation, the Bureau has updated the algorithm for 2020 based on its review of various response scenarios and data from past censuses and census tests. Filling in Missing Household Responses When the Bureau, after its data collection efforts are completed, has been unable to reach anyone able and willing to respond at a particular address or to obtain information about the address and its potential occupants in other ways—such as through neighbors or a building manager—it may be left not knowing whether a housing unit even exists at the address or whether it is occupied, and, if so, by how many people. As it did in 2010, for 2020 the Bureau plans to use a statistical technique it refers to as count imputation to fill in missing data about the existence and number of people living at an address in question. Count imputation has three types. Residence status. This is used when the Bureau does not know whether an address is a real and livable residence. In contrast, it could be a business or in such disrepair that no one could live there. Occupancy status. This is used when the Bureau knows that an address is a real housing unit, but not whether it is vacant or occupied. Household size. This is used when the Bureau knows an address is a real, occupied home, but not how many people live there. To carry out each of these types of count imputation, the Bureau uses a technique referred to as hot-deck imputation which employs continually updated census data from similar nearby households as the basis for filling in the missing statuses and household size. The Bureau has been using some form of hot-deck imputation since at least the 1960 Census. According to Bureau reporting, in 2010, about 500,000 of 137 million addresses counted in the decennial (0.4 percent) were missing an entire response and the Bureau therefore used count imputation to determine a combination of their residence and occupancy status and household size. The Bureau’s count imputation in 2010 added about 1.2 million people to the final census count. For 2020, however, some of the missing responses which otherwise would have required count imputation will instead be resolved through the use of administrative records in conjunction with the Bureau’s door-to-door non-response follow-up effort. Specifically, the Bureau plans to draw on relevant data from records of sufficient quality thereby reducing the amount of follow-up field work needed and the number of households in need of count imputation. According to Bureau officials, they plan to finalize a decision memorandum in December 2019 specifying the Bureau’s thresholds for determining whether administrative records are of sufficient quality for such uses. According to Bureau officials, tests and evaluations performed during the preceding decade demonstrate that these uses of administrative records will provide more accurate results than traditional methods of seeking information about the address from neighbors and others or from count imputation alone. Bureau testing and evaluation also identified improvements to its count imputation technique for 2020, including enhanced use of administrative records in its hot-deck imputation, which it expects will generate results better aligned with actual data for those addresses where it had been missing. Resolving Incomplete and Conflicting Answers within a Household Response Once the Bureau has determined the total number of households and people as of Census Day for apportionment purposes, it resolves incomplete and conflicting information within individual household responses for redistricting and final tabulation purposes. Specifically, for 2020, the Bureau plans to ensure that each household response includes complete and consistent information regarding, for occupied housing units, the age, date of birth, sex, race, and ethnicity (Hispanic or non- Hispanic origin) of each household resident; their relationship to the householder; whether the housing unit is rented or owned by a member of the household; for group quarters, the type of such quarters, such as federal detention center or in-patient hospice facility; and, if the unit is vacant, why (see figure 4). These characteristics (which the Bureau refers to as person and housing characteristics) may be incomplete or conflicting for various reasons, including intentional or accidental omissions or errors by the person filling out the form. According to Bureau data, in 2010, responses for 13 percent of the people counted in the decennial (about 40 million of the about 300 million counted) contained incomplete or conflicting person characteristics that the Bureau had to resolve. For 2020, as it did for 2010, the Bureau plans to use a technique it refers to as edit and characteristic imputation to fill in incomplete and reconcile conflicting information in individual household responses. As summarized in table 2 and described below, it does so using one of three methods, depending on which characteristics are incomplete or conflicting and on what other information the Bureau has about those characteristics. The Bureau has been using some form of characteristic imputation since at least the 1940 Census. Use existing information about same person or household. This method is used when some, but not all, person and household characteristics are incomplete or conflicting and those characteristics can be filled in or reconciled using other information about the same person or household reported within the 2020 response or in prior census or other administrative records. For example, if a person’s date of birth is reported but not his or her age, the Bureau will fill in the age based on the date of birth. If neither age nor date of birth is reported, the Bureau will look to the 2010 Census to fill in both characteristics, adjusting for the intervening years. Use existing information about other people or households. As with the prior method, this method is used when some, but not all, person and household characteristics are incomplete or conflicting. However, unlike the prior method, the incomplete or conflicting characteristics cannot be filled in or reconciled using other information about the same person or household reported within the 2020 response or in prior census or other administrative records. Therefore, the Bureau will look instead to information about other people included in the same 2020 response or to nearby people or households from other 2020 responses. For example, if race is reported for a parent but not a child, the Bureau will fill in the child’s race using the race provided for the parent. If there is no information within the household response that can be used to fill in the child’s race, the Bureau will use a hot-deck imputation method. As discussed earlier, this method employs continually updated census data from similar nearby households as the basis for filling in the needed information. Use existing information about same or other households. This method is used when all person characteristics are incomplete. In this instance, the Bureau will first look to prior census and other administrative records. If the household size reflected in those records matches the household size reflected in the 2020 response, the Bureau will use those records to fill in all person characteristics available in previous census and administrative records. Remaining characteristics not filled in by previous census and other administrative records will be filled in using the methods discussed above. If the household size totals do not match, the Bureau will use a hot-deck imputation method, drawing the missing information from continually updated census data from similar nearby households. As with other areas of the 2020 Census, the key change in the Bureau’s plan for resolving incomplete and conflicting information is the enhanced use of prior census and other administrative records. Specifically, in 2010 the Bureau relied on such records to fill in only race and ethnicity. In contrast, as discussed above, for 2020 the Bureau plans to use prior census and other administrative records as an integral part of its edit and characteristic imputation methods. The Bureau believes this will result in improved data quality and more accurate results. Agency Comments We provided a copy of this draft report to the Department of Commerce. The Census Bureau provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the Secretary of Commerce, the Director of the U.S. Census Bureau, and the appropriate congressional committees. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report please contact me at (202) 512-2757 or goldenkoff@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 I. Appendix I: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Ty Mitchell (Assistant Director), Karen Cassidy and Emmy Rhine Paule (Analysts-in-Charge), Mark Abraham, Joy Booth, Ann Czapiewski, Brenda S. Farrell, Robert Gebhart, Gretta Goodwin, Amalia Konstas, Lisa Pearson, Cynthia Saunders, Andrea Starosciak, Jon Ticehurst, and Peter Verchinski made significant contributions to this report. GAO’s Mission The Government Accountability Office, the audit, evaluation, and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. Obtaining Copies of GAO Reports and Testimony Order by Phone The fastest and easiest way to obtain copies of GAO documents at no cost is through our website. Each weekday afternoon, GAO posts on its website newly released reports, testimony, and correspondence. You can also subscribe to GAO’s email updates to receive notification of newly posted products. The price of each GAO publication reflects GAO’s actual cost of production and distribution and depends on the number of pages in the publication and whether the publication is printed in color or black and white. Pricing and ordering information is posted on GAO’s website, https://www.gao.gov/ordering.htm. 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The decennial census produces data vital to the nation. The data are used for congressional apportionment and redistricting; to allocate billions each year in federal funds; and to provide a social, demographic, and economic profile of the nation to guide policy decisions at all levels of government. Given census data's importance, it is incumbent upon the Bureau to ensure their quality. If people are counted in the wrong place, some states and localities may unduly lose or gain political power through apportionment and redistricting disproportionate to their actual population. Poor outcomes can also result if some households are over counted due to multiple responses, not counted due to missing responses, or miscounted due to incomplete or conflicting responses. GAO was asked to describe the Bureau's plans for the 2020 Census to resolve multiple, missing, incomplete, and conflicting responses. This report describes how, for 2020, the Bureau plans to (1) determine where to count people, including those in complex living situations, and how this differs from 2010; and (2) resolve multiple, missing, incomplete, and conflicting responses after data collection, and how this differs from 2010. GAO reviewed relevant Bureau documents and interviewed officials responsible for the 2020 Census. GAO provided a draft of this report to the Bureau. The Bureau provided technical comments, which were incorporated as appropriate. To determine where people should be counted during each decennial census, the Census Bureau (Bureau) has established residence criteria (see figure). For most people, applying these criteria is straightforward. For others who may be more mobile, like members of the military, college students, migrant farm workers, and people living in group quarters such as federal detention centers or in-patient hospice facilities, it can be more complicated. Therefore, for each decennial the Bureau issues guidance describing how the criteria should be applied to certain complex living situations. For the 2020 Census, the Bureau has updated its guidance on where to count people in six complex living situations, such as U.S. employees deployed overseas. The Bureau plans to count people in other living situations in the same manner as it did in 2010. As in 2010, the Bureau will count prisoners at the correctional facility where they are housed, but also plans to make other resources available to states that want to use prisoners' in-state, pre-incarceration addresses for redistricting purposes instead of their prison addresses. To resolve multiple responses for a single address, for 2020 the Bureau plans to use a longstanding automated routine—its Primary Selection Algorithm—to determine who to count at the address. For 2020, Bureau documents indicate it updated the algorithm after reviewing various response scenarios and data from past censuses and tests. To resolve missing household responses following data collection, as it did in 2010, the Bureau plans to use for 2020 a technique it refers to as count imputation, which draws data from similar nearby households to determine whether a housing unit exists, whether it is occupied, and, if so, by how many people. However, for 2020, the Bureau will also try to reduce the number of households which otherwise would have required count imputation and help reduce follow-up field work by drawing on relevant data from administrative records of sufficient quality in conjunction with its non-response follow-up field work. To resolve incomplete and conflicting information within a household response, the Bureau plans to use a technique it refers to as edit and characteristic imputation. This technique involves drawing data from the same household response, prior census and other administrative records or similar nearby households, which the Bureau believes will improve data quality and produce more accurate results.

GAO_GAO-20-178

Background Role of Industry for National Defense A series of laws and policy directives dating back to 1904 require DOD to rely in large part on U.S.-flag commercial ships over government-owned or foreign-flag ships for its sealift needs. More recently, a 1989 National Security Directive reaffirmed the policy of relying on U.S.-flag commercial ships to provide sealift in times of peace, crisis, and war. These requirements and policies align with the following principles from the Merchant Marine Act of 1936, as amended: A fleet of commercial ships with military utility that are owned and operated by U.S. citizens and are able to provide reliable support during difficult wartime missions is necessary for national defense. According to testimony by the Commander of U.S. Transportation Command (USTRANSCOM), during Operation Desert Shield, 7 percent of foreign-flag ships refused to go into war zones, whereas U.S.-flag ships continued to deliver cargo as promised. DOD officials we interviewed also noted that U.S. mariners have a history of providing outstanding support to the nation, but cited several situations in which civilian mariners refused to complete a government mission due to security concerns. A pool of trained U.S. mariners is needed to crew the U.S.-flag fleet. According to USTRANSCOM and MARAD, U.S. mariners are necessary to crew not only the U.S.-flag commercial ships but also the U.S. government-owned reserve cargo ships. When put into full operating status—such as for a surge related to a wartime effort—the government needs additional trained and qualified mariners to operate these U.S. reserve cargo ships. U.S.-flag commercial ships, which are required to be staffed by U.S.-citizen mariners, provide a pool of mariners who can be used for this task. Because mariners work on ships for months at a time, commercial ships typically have at least two full sets of mariners to crew a single ship—one set of which is on the ship while the other is on leave. In times of crisis, one set of mariners could continue to work on the commercial ship, while some of those on leave could be called upon to voluntarily crew ships in the government-owned reserve fleet. A U.S. presence in international trade is needed to carry goods overseas. According to MARAD, a U.S. presence in international trade helps ensure that both commercial shippers and the military can access ships, and associated transportation networks, to carry their goods overseas at all times, both in times of peace and in times of war. Government Support of U.S.-Flag Industry The U.S. government financially supports oceangoing U.S.-flag ships in two key ways: (1) Maritime Security Program (MSP) stipends and (2) cargo preference requirements. Maritime Security Program: Since fiscal year 1996, the MSP has provided an annual stipend set by statute, subject to annual appropriations, to support a specific number of internationally trading U.S.-flag ships. In return for receiving the stipend, the MSP ship operator agrees to keep the ship or an equivalent ship under the U.S. flag for the life of the MARAD-issued operating agreement, and enrolled in a Voluntary Intermodal Sealift Agreement. By statute, the MSP is to enroll no more than 60 ships and provide each with a stipend of $5 million annually in fiscal years 2018-2020, subject to the availability of appropriations. The MSP was designed as a less costly replacement for the Operating Differential Subsidy that, since 1936, had subsidized the higher operating costs of the U.S.-flag fleet compared to foreign-flag ships operating on similar routes and trades. The MSP currently covers approximately 71 percent of the average annual operating cost differential between U.S. and foreign-flag ships, although this share varies across ships in the MSP, according to DOT’s estimates. The other key way that these ships can make up the operating cost differential is by carrying government cargo under cargo preference requirements. Cargo Preference: A series of laws requires federal agencies to transport some portion of their cargo on U.S.-flag ships, to the extent such ships are available at fair and reasonable rates. For example, current law requires that 100 percent of military cargo be transported on U.S.-flag ships, unless the rates are found by the President to be excessive or otherwise unreasonable. According to a 2015 MARAD report, DOD accounts for 59 percent of total government cargoes. For non-military cargo, including food aid, current law requires federal agencies to transport a minimum of 50 percent of their cargo on privately owned U.S.-flag commercial ships. Federal agencies can meet cargo preference requirements by transporting cargo on any privately owned U.S.-flag commercial ships, including those in the MSP. As we reported in 2018, federal stakeholders have differing views on cargo preference requirements. On the one hand, these requirements result in higher shipping costs for food aid agencies, costs that agency officials said negatively affect their missions. On the other hand, these requirements help support the financial viability of U.S.-flag ships by helping to offset the cost differential between U.S.-flag and foreign-flag ships. According to the 2015 MARAD report, the higher freight rates that DOD and other federal agencies pay to transport government cargo on U.S.-flag ships are critical to the financial viability of U.S.-flag ships in international trade, including MSP ships. In addition, the law commonly referred to as the Jones Act generally requires that maritime transport of cargo between points in the United States be carried by ships that are owned by U.S. citizens, registered under the U.S.-flag, and built in the United States. One of the purposes of the Jones Act is to provide the nation with a strong domestic maritime industry that can serve as a naval or military auxiliary in time of war or national emergency. As of August 2019, there were 99 oceangoing ships operating domestically (i.e., in the Jones Act fleet), according to MARAD data. We reported in 2013 that the effect of any potential modifications to the Jones Act on the U.S.-flag maritime industry would be uncertain. While repealing the Jones Act could increase competition with foreign-flag ships and reduce costs for shippers, it could also affect the reliability of the industry and have a negative effect on the U.S.-flag maritime industry and national security. Maritime Roles Split across Multiple Federal Agencies DOT, DOD, and the Department of Homeland Security, among others, play a key role in federal policy related to the U.S.-flag maritime industry. Specifically: DOT, through MARAD, is the primary federal agency responsible for federal policy in support of the industry. DOT administers the MSP in consultation with DOD, provides funding to federal and state maritime academies, provides financial assistance to shipyards, and maintains a fleet of 56 government-owned cargo ships in reserve to provide sealift during war and national emergencies. DOD, through USTRANSCOM, jointly administers the MSP with DOT, and uses the U.S.-flag maritime industry to meet its sealift needs. DOD also maintains a fleet of 15 government-owned ships in reserve to provide sealift during war and national emergencies. We refer to DOT’s and DOD’s fleets together as the government-owned reserve fleet. The Department of Homeland Security, through the U.S. Coast Guard, oversees and regulates the U.S. maritime industry and marine transportation system. This includes overseeing and approving merchant mariner training programs, credentialing U.S. merchant mariners, documenting U.S.-flag ships, and maintaining the U.S, registry, among other functions. The Department of Agriculture and United States Agency for International Development administer multiple international food-aid programs. Under cargo preference requirements, they must use the U.S.-flag maritime industry to transport at least 50 percent of their government cargo when U.S.-flag ships are available at fair and reasonable rates. National Maritime Strategy Since 2014, DOT has been required by law to develop two strategies: one to address industry challenges and the other to ensure the viability of U.S. sealift capability. First, the Howard Coble Coast Guard and Maritime Transportation Act of 2014 mandated that DOT, in consultation with U.S. Coast Guard, submit a national maritime strategy to Congress by February 2015. The law mandated that this strategy: Identify federal regulations and policies that reduce the competitiveness of the U.S.-flag maritime industry. Provide recommendations to make the fleet more competitive in international trade. Enhance U.S. shipbuilding capacity. In January 2018, the John S. McCain National Defense Authorization Act for Fiscal Year 2019 provided a new deadline of February 2020 for this strategy to be submitted. The second strategy, due in April 2014 and mandated by the Consolidated Appropriations Act of 2014, was to develop a national sealift strategy in collaboration with DOD to ensure the long-term viability of the U.S. Merchant Marine. This act additionally required DOT to identify the impact of reduced cargo preference requirements. DOT plans to submit a single maritime strategy to meet both these 2014 mandates. DOT completed a draft national maritime strategy that went through OMB interagency review in 2016. However, DOT did not finalize this strategy and submit it to Congress prior to the change in presidential administration. In August 2018, we recommended that DOT complete the strategy and publish a timeline for finalizing the strategy. DOT agreed to implement our recommendation. Industry Challenges Could Affect National Defense and Federal Actions Are Limited Selected Stakeholders Identified Several Areas in which Maritime Industry Challenges Could Affect National Defense The U.S.-flag maritime industry faces an array of challenges that could negatively affect national defense. Federal assessments, as well as the federal officials we interviewed, underscored that the industry is critical to national defense, and that some potential sealift needs could be difficult for the U.S. industry to meet. All 10 of the industry stakeholders we interviewed identified at least one challenge related to each of the three broad sectors of the industry: (1) ships, (2) shipyards, and (3) mariners. Ships. Seven of the 10 stakeholders we interviewed expressed concern that declines in the size of the U.S.-flag fleet could lead to shortfalls in overall capacity or number of certain types of ships needed to carry defense cargo. Defense officials we interviewed and recent DOD needs assessments indicated that the current internationally trading U.S. fleet was generally sufficient to meet current needs but also raised some concerns about potential future gaps in certain situations. For example, the current U.S.-flag internationally trading fleet has 6 petroleum tankers—down from 36 in 1990—and USTRANSCOM has estimated potential needs for 86 tankers to fulfill DOD sealift requirements under the National Defense Strategy. Currently, according to USTRANSCOM officials we interviewed, U.S.-flag tankers and tankers flagged in other countries currently meet DOD needs, but these officials stated that access to allied foreign-flag petroleum tankers is increasingly uncertain in the current geo-political environment. Likewise, roll on/roll off ships (commonly referred to as Ro-Ros because it is possible to drive vehicles on and off the ships) are essential to move military vehicles, and DOD officials we interviewed stated they currently have assured access to roughly 3.5-million square feet of commercial capacity, which just meets current needs. A recent DOD analysis estimated 3.9 million square feet of Ro-Ro capacity will be needed in 2023. Seven of the stakeholders we interviewed raised concerns about limits in the overall capacity or a mismatch between the types of ships most needed for defense and those needed for commerce. Additionally, three stakeholders added that the Jones Act fleet—which is larger than the U.S.-flag fleet of internationally trading ships and also includes ships with sealift capabilities—would likely not be available in a time of crisis without significant disruption to U.S. domestic trade. Shipyards. Seven of the 10 stakeholders we interviewed expressed concerns about declines in U.S. shipyard capacity. According to MARAD and DOD officials, U.S. shipyards are an important part of ensuring government-owned cargo ships can be fully activated. According to a USTRANSCOM official, a shortage of shipyard capacity has contributed to increasing repair time for the government reserve fleet. In August 2017, we reported that incidents of degraded or out of service equipment in the government reserve fleet had increased over the previous 5 years. According to two stakeholders that operate U.S.-flag ships, U.S.-flag carriers are also experiencing maintenance delays at U.S. shipyards. For example, a representative of one U.S.-flag international carrier stated that it has difficulties scheduling needed work in a timely manner in the United States. In the face of these difficulties, as well as other business considerations, international ocean carriers may turn to foreign shipyards for repair services. Currently, according to MARAD, in April 2019, there were nine active shipyards in the United States with facilities capable of building large commercial ships. MARAD officials noted that while the domestic tug and barge industry is doing well, the side of the industry building large, self-propelled oceangoing ships is struggling due to declines in new orders. One stakeholder observed that U.S. shipyards are building very few new ships and noted that the industry could lose additional capacity in the coming years without a stream of new orders. Three stakeholders also expressed concern that shipyard workers have lost some of the necessary skills to support oceangoing commercial ships. Mariners. Nine of the 10 stakeholders we interviewed identified potential gaps in the skills or availability of U.S. citizen mariners. Likewise, federal officials we interviewed, as well as a recent government study, indicated there could be too few mariners to support sustained military sealift operations. When put into full operating status—such as for a surge related to a wartime effort—the government’s reserve fleet needs additional crew, and DOD counts on mariners working on oceangoing U.S.-flag ships to meet this need. MARAD and DOD have raised concerns about the sufficiency of U.S.- citizen mariners to meet this need. For example, in September 2017, in a statutorily mandated report, MARAD’s Maritime Workforce Working Group estimated a shortage of over 1,800 mariners in the event of a drawn-out military effort, although it also recommended data improvements to increase the accuracy of the count of available mariners. USTRANSCOM officials we interviewed added that they are concerned with not only the total number of mariners but also their specific mix of skills. Similarly, five stakeholders we interviewed identified potential mariner skills gaps because the U.S.-flag commercial fleet has modernized more quickly than the government- owned reserve fleet, so U.S.-citizen mariners in the commercial sector may lack experience with the technologies used on aging government-owned ships. Four stakeholders specifically noted potential shortages in mariners qualified to operate the 26 steam- powered ships that are in the government-owned reserve fleet, noting this older technology is no longer common on commercial ships. Seven stakeholders we spoke with stated that fleet and cargo reductions have led to fewer opportunities to crew ships, limiting career development paths for mariners. Federal Actions to Support Industry Are Largely Limited to the Administration of Established Programs and Policies and Studying Issues Current federal actions to address industry challenges and meet defense needs include administering long-standing policies and programs as well as studying underlying issues, rather than new efforts to confront these challenges. Established federal policies and programs—including the MSP, cargo preference requirements, and the Jones Act, among others— have not markedly changed in recent years. Officials explained that within the existing statutory framework, they have tried to better align the MSP fleet with defense needs. For example, within the last 2 years, they enrolled three roll on/roll off ships that provide a net increase in square- footage compared to the ships they replaced, among other improvements. Cargo preference requirements, also, have largely remained the same since 2012. MARAD has made efforts to better ensure these requirements are understood and followed by federal contracting officers, contractors, and sub-contractors who make shipping decisions and are supposed to abide by these requirements. Specifically, MARAD has developed training on cargo preference and conducted outreach to various agencies and industries. Further, agencies have taken other actions to improve existing programs in ways that could aid defense. These actions include initiatives to make it easier for veterans to earn merchant marine credentials and bureaucratic improvements to speed the process to flag a ship in the United States. Five of the 10 stakeholders we interviewed noted that these established policies and programs, collectively, are vital to the U.S.-flag maritime industry. Four stakeholders emphasized that the internationally trading U.S.-flag industry is supported by three sources of revenue—MSP stipends, government cargo, and commercial cargo—and stated that reductions in any of these three sources would likely cause further declines in the international-trading fleet. Similarly, an industry organization representing Jones Act carriers and a representative of a shipyard that builds ships for the fleet emphasized that the legal requirements for domestic shipping were essential to the viability of the fleet. In recent years, MARAD and other key federal agencies with maritime roles have focused on studying the industry and recent trends. DOT and DOD officials we interviewed identified several recent and ongoing efforts (see table 1). Currently, in response to a recommendation in the previously mentioned Maritime Workforce Working Group report, MARAD has begun a new effort to survey mariners to determine the number who are qualified, available, and willing to serve on short notice on U.S. government-owned sealift ships or commercial ships in times of national emergencies or to meet defense sealift needs. At this early date, DOT does not have specific plans for how to use the information gathered to change programs or practices. Likewise, USTRANSCOM regularly studies DOD’s sealift needs, through formal studies, ongoing cargo forecasts, and drills. For example, the Mobility Capabilities and Requirements Study of 2018 assessed the ability of mobility forces— including sealift capacity—to accomplish wartime missions as delineated in the 2018 National Defense Strategy based on anticipated fiscal year 2023 fleet capabilities and capacities. This study updated a similar study completed in 2010. Federal agencies have taken limited actions to address challenges industry stakeholders have identified, and the effects of those actions are unclear. For example, in addition to procuring or repairing ships as a customer, MARAD administers the small-shipyard grant program to provide cash support to sustain some shipyard capacity. MARAD officials we interviewed explained that while this grant program focuses on shipyards that tend to be too small to serve larger commercial ships needed to support defense sealift, it does help maintain the shipyard workforce. Similarly, the effect on carriers of U.S. food aid shipments is ambiguous in light of recent budget uncertainties. For example, officials we interviewed at the Department of Agriculture did not have estimates of food-aid cargo volumes beyond current appropriations because recent budget proposals from the administration have proposed eliminating much of the funding for these programs. According to 7 of the 10 stakeholders we interviewed, federal actions have not adequately addressed industry challenges, and many expressed concern that defense needs are at risk because of certain weaknesses in the federal approach. For example, four stakeholders noted that MARAD’s strategy to operate its fleet of government-owned reserve cargo ships in reduced operating status limits the opportunities for U.S.- citizen mariners to get experience on these ships, which may require distinct skills to operate (e.g., steam engines). Five stakeholders worried that federal actions were not working toward a common purpose or spurring industry innovation. Seven stakeholders stated that a comprehensive national strategy is needed to ensure, for example, that federal actions are working toward common goals to support the industry and are concerned that DOT had not yet submitted such a strategy, despite working on one since 2014. Following Stalled Development Process, DOT Recently Convened Interagency Group to Finalize Strategy After a stalled strategy development process that did not include key stakeholders, in September 2019 DOT established a new interagency working group to finalize the strategy prior to the February 2020 deadline. Since 2017, the draft national maritime strategy, initially completed in 2016, has gone through three subsequent phases of development—DOT revision, OMB’s interagency review, and a renewed interagency working group. However, key federal agencies were omitted from DOT’s revisions and OMB’s interagency review. In September 2019, DOT formed a new interagency working group through the Committee on the Marine Transportation System (CMTS), an established interagency group for improving federal coordination and policies that affect the marine transportation system, as a way to bring key federal stakeholders together to finalize the strategy. DOT’s strategy revision. In 2017, the new administration instructed DOT to revise the existing draft strategy—which had been completed but not submitted to Congress under the prior administration—to align with its priorities. These priorities included DOD’s revised National Defense Strategy. Whereas DOT had held symposiums of maritime industry stakeholders and a broad array of federal agencies in 2014 when developing the initial draft strategy, DOT’s efforts to revise the strategy in 2017 and 2018 did not include substantive coordination activities with industry or other federal agencies. Subject matter experts within DOD reported to us in June 2019 that they had not seen a draft of the strategy since they provided comments during the OMB interagency review process that occurred in 2016. In addition, these DOD officials were unaware that the strategy was under revision. Similarly, in June and July 2019, officials at the Department of Homeland Security and subject matter experts within the U.S. Coast Guard told us they had not been consulted during the revision of the strategy since 2017. Accordingly, the largest government user of the U.S. flag fleet—DOD—and the agency overseeing credentialing of the U.S. Merchant Marine—the U.S. Coast Guard—were not able to provide input to DOT on revisions to the strategy mandated to ensure the long term viability of the U.S.-flag maritime industry. DOT officials we interviewed cited two main reasons for not engaging in new outreach and coordination specific to the revision of the strategy. First, they stated that the input they received in 2014 remained relevant as the challenges facing the industry have remained consistent. Moreover, DOT officials stated they are in regular contact with other federal agencies about maritime topics in general and, therefore, had a good understanding of these agencies’ positions. As a result, DOT officials told us they did not expect that the input they would receive from renewed outreach would be different from what they received in 2014. While DOT did not engage in substantive coordination during the strategy’s revision, it did provide status updates to some stakeholders on the progress of the strategy. For example, during a June 2018 meeting of the Marine Transportation System National Advisory Committee, DOT officials briefed industry representatives and participating federal agencies on the status of the strategy. During this briefing, DOT officials stated that the strategy had “undergone extensive revisions since 2015…but the vision, mission, and guiding principles are largely the same,” with the strategy refocused on areas where DOT plays a lead or major role. DOT officials stated this meeting afforded participants an opportunity to comment on topics germane to the strategy. DOT, however, did not circulate a draft of the strategy at this meeting, and so substantive reviews of the draft’s content were not possible. In August 2018, DOT completed its revisions and submitted the draft strategy to OMB for interagency review. OMB’s interagency review process. After receiving the revised strategy from DOT, OMB staff initiated the interagency review process. In August 2018, OMB staff sent the strategy to 12 federal agencies and 2 policy councils in the Executive Office of the President, according to OMB staff. DOT officials did not provide input to OMB on which agencies should review the strategy. According to DOT officials, they do not typically provide this type of input. We inquired with all 12 agencies and both councils whether they received the strategy from OMB and provided comments. As of September 2019, officials at six agencies or councils confirmed they had received the strategy in August 2018, and relevant officials at five agencies stated they did not have records of receiving the strategy. OMB staff we interviewed emphasized that it is the responsibility of each agency to make sure the strategy is provided to the right people within the agency. OMB did not include the Department of Agriculture, a major shipper of food aid, in the interagency review process, and Department of Agriculture subject matter experts told us they were not consulted by DOT during the revision of the strategy. Shortly after circulating the draft strategy, OMB suspended the interagency review process following a request from the EOP. According to OMB staff, in August 2018, an EOP policy council planned to convene a Policy Coordination Committee to address policy questions related to the strategy. As a result, OMB did not pass on the interagency comments it had already received to DOT, but instead provided those comments to the EOP policy council. According to DOT officials, OMB did not inform them that OMB had halted the interagency review process at the request of the EOP policy council. According to DOT officials, the process remained suspended until September 2019, when DOT officials learned from OMB staff that this committee had not and would not convene on the draft national maritime strategy. Furthermore, these DOT officials told us that until September 2019, when we informed them that OMB had suspended the process, they had been unaware that any such committee had been under consideration. Moreover, they indicated DOT had not worked with any EOP policy councils to resolve policy questions or concerns during that time. Likewise, DOD officials we interviewed also were unaware of any Policy Coordination Committee related to the strategy and had not worked with any EOP policy councils to resolve policy questions or concerns. As a result, from approximately September 2018 to September 2019, DOT was not working to advance the strategy, according to DOT officials we interviewed, nor did the OMB interagency process provide DOT with input from other agencies. Renewed interagency working group. Following our inquiries about both DOT’s and OMB’s interagency collaboration, in September 2019, DOT formed an interagency working group to finalize the strategy. According to DOT officials, following discussions with OMB, they understood that DOT could renew its efforts to finalize the strategy. According to DOT officials, DOT determined that the CMTS was the best forum for this finalization to occur. DOT officials explained the purpose of the working group is to receive substantive input from other agencies, fine tune the content of the strategy, and coordinate final edits. DOT officials told us the working group is open to any member of CMTS that elects to participate. Officials with CMTS we interviewed told us that it functions as an interagency forum for policy discussion and coordination, at the discretion of member agencies, and can help address issues that cut across multiple agencies. As of October 2019, participating agencies in the CMTS working group included DOT, OMB, DOD, and the Department of Homeland Security, among other agencies with maritime roles and responsibilities relevant to the strategy. DOT officials expected the working group to complete its work by the end of November 2019. After that time, DOT plans to send the strategy to OMB for an additional round of interagency review and clearance and to submit the finalized strategy to Congress. DOT officials stated the department remains committed to meeting the deadline to submit a finalized strategy by the February 2020 deadline. See figure 1 for the timeline of these three phases of development. Our previous work has found that national strategies are a mechanism for interagency collaboration, and that accordingly they can be used to address a range of purposes, including policy development and program implementation. We also found that collaborative mechanisms benefit from certain leading practices, including ensuring that all relevant participants have been included. These participants should have full knowledge of the relevant resources in their agency, the ability to commit those resources, and the knowledge, skills, and abilities to contribute to the collaborative effort. In addition, OMB guidance states that prior to submitting a document to OMB for interagency review, the submitting agency should make intensive efforts to reach agreement on policy issues in areas where there is overlapping interest between agencies. Since 2017, and throughout DOT’s revision of the strategy and the OMB interagency review initiated in 2018, key federal agencies and personnel were not included in the strategy’s development and lacked opportunities to provide their input on the strategy at that time. Without these agencies’ input, DOT did not have assurance that the strategy incorporated the agencies’ expertise or the most up-to-date information relevant to the strategy, including on DOD’s most recent sealift needs and priorities. Given the interconnected nature of maritime issues and the breadth of the statutory requirements for DOT to address in the strategy, including provisions that call for collaboration with DOD, interagency collaboration is an important step toward developing an effective national strategy. DOT’s work with the CMTS interagency working group should help ensure such collaboration and the input of key stakeholders that had previously not contributed to the revision of the strategy. In light of this new effort and our prior recommendation in 2018 that DOT complete and finalize the strategy, we are not making a new recommendation in this report. Agency Comments We provided a draft of this report to DOD, OMB, DOT, and the Department of Homeland Security for review and comment. DOD, DOT, and the Department of Homeland Security provided technical comments, which we incorporated as appropriate. OMB told us that they had no comments on the draft report. We are sending copies of this report to the appropriate congressional committees, Secretaries of Transportation, Defense, Homeland Security, and Director of OMB and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or flemings@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 I. Appendix I: GAO Contact and Acknowledgments GAO Contact Staff Acknowledgments In addition to the individual named above, Alwynne Wilbur (Assistant Director); John Stambaugh (Analyst in Charge); David Blanding; Lilia Chaidez; Emil Friberg; Geoffrey Hamilton; Dawn Hoff; Diana Maurer; Jan Montgomery; Valerie Nowak; Josh Ormond; Molly Ryan; Travis Schwartz; Sarah Veale; Michelle Weathers; and Suzanne Wren made key contributions to this report.

DOT's efforts related to a national maritime strategy aimed at helping to ensure the sustainability and competitiveness of the U.S.-flag fleet were first mandated in statute in 2014. In 2018, the due date for the national maritime strategy was extended to February 2020. A provision in statute directed GAO to identify the challenges facing the U.S. maritime industry and the status of the national maritime strategy. This report (1) identifies selected stakeholders' views on the key national defense implications of the challenges facing the U.S. maritime industry, among other things, and (2) examines the status of the national maritime strategy and the extent to which DOT coordinated the strategy's development with relevant federal agencies. GAO reviewed relevant laws and analyzed DOT and DOD documents related to the U.S. flag fleet. GAO also interviewed: (1) staff in the Executive Office of the President, including OMB, and (2) officials in DOT, DOD, and other federal agencies as well as selected industry stakeholders. Interview selections were based on a range of factors to gather different perspectives across the industry and results are not generalizable to all industry stakeholders. Selected stakeholders identified some key national defense implications of the challenges facing the U.S. maritime industry. This industry—which includes oceangoing U.S.-registered (i.e., U.S.-flag) ships and U.S. citizen mariners—provides global transportation capabilities to the Department of Defense (DOD) in times of peace, crisis, and war. The Department of Transportation (DOT), in cooperation with DOD and other federal agencies, is responsible for federal programs to ensure that this industry meets defense needs. Stakeholders, as well as DOD officials, cautioned that continued declines in the size and capabilities of the oceangoing U.S.-flag fleet could lead to inadequate capacity for DOD to transport military cargo during a national defense crisis. Likewise, a potential shortage of mariners could lead to DOD not having adequate crews to operate government-owned reserve ships that may be activated during a wartime surge. Seven of the 10 industry stakeholders GAO interviewed stated that a comprehensive national strategy could help address industry challenges. After a stalled strategy development process that did not include key stakeholders, DOT established a new interagency working group, in September 2019, to finalize the national maritime strategy. DOT has been working on a draft strategy since 2014 to address statutory mandates. In 2017, DOT began revising the draft strategy to align with the new administration's priorities. Interagency coordination, however, was limited as DOT did not include DOD or other key federal stakeholders. In August 2018, DOT submitted the revised draft to the Office of Management and Budget (OMB) for interagency review. OMB staff told GAO they circulated this draft to 12 agencies and two policy councils in the Executive Office of the President. However, according to OMB staff, OMB suspended this process shortly after it began at the request of the Executive Office of the President because of its plans to convene a committee to consider policy matters related to the strategy. According to DOT officials, the process remained suspended until DOT learned in September 2019 that the Executive Office of the President had not convened and no longer planned to convene such a committee. DOT then established a new interagency working group to revise and finalize the strategy, ending a year-long delay in the strategy's development (see figure). This working group includes DOD and other key agencies that were not previously consulted and should address gaps in interagency coordination. DOT officials told GAO that they intend to submit the strategy to Congress by February 2020, as required.

CRS_R41219

Introduction The United States and Russia signed a new strategic arms reduction treaty—known as New START—on April 8, 2010. This treaty replaced the 1991 Strategic Arms Reductions Treaty (START), which expired, after 15 years of implementation, on December 5, 2009. The U.S. Senate provided its advice and consent to ratification of New START on December 22, 2010, by a vote of 71-26. The Russian parliament, with both the Duma and Federation Council voting, did so on January 25 and January 26, 2011. The treaty entered into force on February 5, 2011, after Secretary of State Clinton and Foreign Minister Lavrov exchanged the instruments of ratification. New START superseded the 2002 Strategic Offensive Reductions Treaty (known as the Moscow Treaty), which then lapsed in 2012. New START provided the parties with 7 years to reduce their forces, and it will remain in force for a total of 10 years, unless the parties agree to extend it for no more than five additional years. Both parties completed their required reductions by February 5, 2018. With the reductions now complete, questions about whether the two nations will extend the treaty have begun to dominate public discussions. The Obama Administration briefly considered pursuing an extension of New START before it left office in 2016, but did not raise the issue with Russia. Press reports indicate that the President Trump rejected a proposal from Russian President Putin to extend the treaty during their first phone call in February 2017. The Presidents reportedly discussed the treaty during their summit in Helsinki in July 2018, with President Putin presenting President Trump with a document suggesting that they extend the treaty after resolving "existing problems related to the Treaty implementation," but the two reportedly did not reach an agreement on the issue. The Administration's Nuclear Posture Review (NPR), completed in February 2018, confirmed that the United States would continue to implement the treaty, at least through 2021, but was silent on the prospects for extension through 2026. Trump Administration officials have indicated that they are reviewing the treaty and assessing whether it continues to serve U.S. national security interests before deciding whether the United States would propose or accept a five-year extension. They noted, in testimony before the Senate Foreign Relations Committee in May 2019, that an interagency review was continuing, but they refused to elaborate on the substance of that review or speculate on the implications of a decision to allow New START to lapse in 2021. During this hearing, Under Secretary of State Andrea Thompson and Deputy Under Secretary of Defense David Trachtenberg emphasized that the New START Treaty might not be sufficient to address emerging threats to U.S. national security. They noted that Russia was developing new kinds of strategic offensive arms that would not count under the treaty, that Russia was expanding its stockpile of shorter-range nonstrategic nuclear weapons that were outside the scope of the treaty, and that China was modernizing and expanding its nuclear arsenal but was not a part of the treaty at all. These comments were consistent with press reports indicating that President Trump would like to pursue a new arms control agreement that captured all types of nuclear weapons and included China's forces under the limits. The witnesses were unable, however, to articulate a reason for why China would be willing to participate in such negotiations when its nuclear arsenal of around 300 warheads was far smaller than the arsenals of several thousand warheads held by the United States and Russia. Instead, when asked, Under Secretary Thompson provided a rationale for why the United States would want China to participate in the talks, noting that China wants "to be a responsible player on the world stage. They want to be part of this great power competition. And with that comes responsibilities." Some U.S. officials, including General John Hyten, the commander of U.S. Strategic Command (STRATCOM), have noted that New START serves U.S. national security interests because its monitoring regime provides transparency and visibility existing into Russian nuclear forces and because its limits provide predictability about the future size and structure of those forces. However, in testimony before the Senate Armed Services Committee in February 2019, General Hyten also expressed concern about new kinds of nuclear forces that Russia may develop in the coming years. He noted that these weapons could eventually pose a threat to the United States and said he thought the United States and Russia should expand New START so they would count them under the treaty limits. As is noted below, Article V, paragraph 2 of the treaty provides a mechanism for the parties to address concerns about the emergence of new kinds of strategic offensive arms. It states that the parties should raise their concerns about such weapons in the Bilateral Consultative Commission (BCC) established by the treaty, and seek to reach a resolution there. In May 2019, Undersecretary of State Andrea Thompson stated that the United States had begun to have discussions with Russia about these systems at the technical expert level, but she did not specify whether these discussions were occurring in the BCC. Russian officials have stated that some of its new systems should not count under New START because they do not meet the treaty's definition of deployed missile launchers or heavy bombers. Nevertheless, the public debate about the possible extension of New START has begun to incorporate views about how to address these weapons. For example, some experts believe the United States and Russia should extend the treaty before 2021, then use the time during the extension to discuss how to include these new systems under the treaty limits. Some, however, have suggested the opposite, arguing that the United States should not agree to extend New START unless Russia agrees, before the extension takes effect, to count its new systems under the treaty limits. Others believe that the United States should agree to extend New START only if Russia agrees, before the extension takes effect, to use the time during the extension to negotiate a new treaty that not only captures the new kinds of weapons, but also imposes limits on Russia's nonstrategic nuclear forces. Russian officials have also questioned whether the United States and Russia are in a position to extend New START before it expires in 2021. At a conference in Washington in March 2019, Anatoly Antonov, Russia's ambassador to the United States, noted that Russia is not interested in expanding New START so that it would count new kinds of strategic systems and that Russia would be unwilling to discuss an extension of New START until the United States addresses Russia's concerns with U.S. implementation of the treaty's conversion and elimination procedures. Moreover, he noted that, if the two sides negotiated a new treaty to capture the systems of concern to the United States, Russia would insist on addressing U.S. systems—like ballistic missile defenses and strategic conventional weapons—that are of concern to Russia. Background President Obama and and Russia's President Medvedev outlined their goals for the negotiations on a new START Treaty in early April 2009. In a joint statement issued after they met in London, they indicated that the subject of the new agreement "will be the reduction and limitation of strategic offensive arms." This statement indicated that the new treaty would not address missile defenses, nonstrategic nuclear weapons, or nondeployed stockpiles of nuclear weapons. The Presidents also agreed that they would seek to reduce their forces to levels below those in the 2002 Moscow Treaty, and that the new agreement would "mutually enhance the security of the Parties and predictability and stability in strategic offensive forces, and will include effective verification measures drawn from the experience of the Parties in implementing the START Treaty." The Presidents further refined their goals for New START, and gave the first indications of the range they were considering for the limits in the treaty, in a Joint Understanding signed at their summit meeting in Moscow in July 2009. They agreed that the new treaty would restrict each party to between 500 and 1,100 strategic delivery vehicles and between 1,500 and 1,675 associated warheads. They also agreed that the new treaty would contain "provisions on definitions, data exchanges, notifications, eliminations, inspections and verification procedures, as well as confidence building and transparency measures, as adapted, simplified, and made less costly, as appropriate, in comparison to the START Treaty." The New START Treaty follows many of the same conventions as the 1991 START Treaty. It contains detailed definitions and counting rules that the parties use to identify the forces limited by the treaty. It also mandates that the parties maintain an extensive database that describes the locations, numbers, and technical characteristics of weapons limited by the treaty. It allows the parties to use several types of exhibitions and on-site inspections to confirm information in the database and to monitor forces and activities limited by the treaty. But the new treaty is not simply an extension of START. The United States and Soviet Union negotiated the original START Treaty during the 1980s, during the latter years of the Cold War, when the two nations were still adversaries and each was still wary of the capabilities and intentions of the other. Many of the provisions in the original treaty reflect the uncertainty and suspicion that were evident at that time. The New START Treaty is a product of a different era and a different relationship between the United States and Russia. In some ways, its goals remain the same—the parties still sought provisions that would allow for predictability and transparency in their current forces and future intentions. But, the United States and Russia have streamlined and simplified the central limits and the monitoring and verification provisions. The new treaty does not contain layers of limits and sublimits; each side can determine its own mix of land-based intercontinental ballistic missiles (ICBMs), submarine-launched ballistic missiles (SLBMs), and heavy bombers. Moreover, in the current environment, the parties were far less concerned with choking off avenues for potential evasion schemes than they were with fostering continued cooperation and openness between the two sides. Central Limits and Key Provisions Central Limits Limits on Delivery Vehicles The New START Treaty contains three central limits on U.S. and Russian strategic offensive nuclear forces; these are displayed in Table 1 , below. First, it limits each side to no more than 800 deployed and nondeployed ICBM and SLBM launchers and deployed and nondeployed heavy bombers equipped to carry nuclear armaments. Second, within that total, it limits each side to no more than 700 deployed ICBMs, deployed SLBMs, and deployed heavy bombers equipped to carry nuclear armaments. Third, the treaty limits each side to no more than 1,550 deployed warheads. Deployed warheads include the actual number of warheads carried by deployed ICBMs and SLBMs, and one warhead for each deployed heavy bomber equipped for nuclear armaments. Table 1 compares these limits to those in the 1991 START Treaty and the 2002 Moscow Treaty. According to New START's Protocol a deployed ICBM launcher is "an ICBM launcher that contains an ICBM and is not an ICBM test launcher, an ICBM training launcher, or an ICBM launcher located at a space launch facility." A deployed SLBM launcher is a launcher installed on an operational submarine that contains an SLBM and is not intended for testing or training. A deployed mobile launcher of ICBMs is one that contains an ICBM and is not a mobile test launcher or a mobile launcher of ICBMs located at a space launch facility. These deployed launchers can be based only at ICBM bases. A deployed ICBM or SLBM is one that is contained in a deployed launcher. Nondeployed launchers are, therefore, those that are used for testing or training, those that are located at space launch facilities, or those that are located at deployment areas or on submarines but do not contain a deployed ICBM or SLBM. The New START Treaty does not limit the number of nondeployed ICBMs or nondeployed SLBMs. It does, however, state that these missiles must be located at facilities that are known to be within the infrastructure that supports and maintains ICBMs and SLBMs. These include "submarine bases, ICBM or SLBM loading facilities, maintenance facilities, repair facilities for ICBMs or SLBMs, storage facilities for ICBMs or SLBMs, conversion or elimination facilities for ICBMs or SLBMs, test ranges, space launch facilities, and production facilities." Nondeployed ICBMs and SLBMs may also be in transit between these facilities, although Article IV of the treaty indicates that this time in transit should be "no more than 30 days." The parties share information on the locations of these missiles in the database they maintain under the treaty and notify each other when they move these systems. These provisions are designed to allow each side to keep track of the numbers and locations of nondeployed missiles and to deter efforts to stockpile hidden, uncounted missiles. A party would be in violation of the treaty if one of its nondeployed missiles were spotted at a facility not included on the list, or if one were found at a location different from the one listed for that missile in the database. According to the Protocol to New START, a deployed heavy bomber is one that is equipped for nuclear armaments but is not a "test heavy bomber or a heavy bomber located at a repair facility or at a production facility." Moreover, a heavy bomber is equipped for nuclear armaments if it is "equipped for long-range nuclear ALCMs, nuclear air-to-surface missiles, or nuclear bombs." All deployed heavy bombers must be located at air bases, which are defined as facilities "at which deployed heavy bombers are based and their operation is supported." If an air base cannot support the operations of heavy bombers, then the treaty does not consider it to be available for the basing of heavy bombers, even though they may land at such bases under some circumstances. Test heavy bombers can be based only at heavy bomber flight test centers and nondeployed heavy bombers other than test heavy bombers can be located only at repair facilities or production facilities for heavy bombers. Each party may have no more than 10 test heavy bombers. Heavy bombers that are not equipped for long range nuclear ALCMs, nuclear air-to-surface missiles, or nuclear bombs will not count under the treaty limits. However, the treaty does specify that, "within the same type, a heavy bomber equipped for nuclear armaments shall be distinguishable from a heavy bomber equipped for non-nuclear armaments." Moreover, if a party does convert some bombers within a given type so that they are no longer equipped to carry nuclear weapons, it cannot base the nuclear and nonnuclear bombers at the same air base, unless otherwise agreed by the parties. Hence, the United States could reduce the number of bombers that count under the treaty limits by altering some of its B-52 bombers so that they no longer carry nuclear weapons and by basing them at a separate base from those that still carry nuclear weapons. In addition, if the United States converted all of the bombers of a given type, so that none of them could carry nuclear armaments, then none of the bombers of that type would count under the New START treaty. This provision allows the United States to remove its B-1 bombers from treaty accountability. They no longer carry nuclear weapons, but they still counted under the old START Treaty and were never altered so that they could not carry nuclear weapons. The conversion rules that would affect the B-1 bombers are described below. Limits on Warheads Table 1 summarizes the warheads limits in START, the Moscow Treaty, and the New START Treaty. Two factors stand out in this comparison. First, the original START Treaty contained several sublimits on warheads attributed to different types of strategic weapons, in part because the United States wanted the treaty to impose specific limits on elements of the Soviet force that were deemed to be "destabilizing." Therefore, START sought to limit the Soviet force of heavy ICBMs by cutting in half the number of warheads deployed on these missiles, and to limit future Soviet deployments of mobile ICBMs. The Moscow Treaty and New START, in contrast, contain only a single limit on the aggregate number of deployed warheads. They provide each nation with the freedom to mix their forces as they see fit. This change reflects, in part, a lesser concern with Cold War models of strategic and crisis stability. It also derives from the U.S. desire to maintain flexibility in determining the structure of its own nuclear forces. Table 1 also highlights how the planned numbers of warheads in the U.S. and Russian strategic forces have declined in the years since the end of the Cold War. Before START entered into force in 1991, each side had more than 10,000 warheads on its strategic offensive delivery vehicles. If the parties implement the New START Treaty, that number will have declined by more than 80%. However, although all three treaties limit warheads, each uses different definitions and counting rules to determine how many warheads each side has deployed on its strategic forces. Under START, the United States and Russia did not actually count deployed warheads. Instead, each party counted the launchers—ICBM silos, SLBM launch tubes, and heavy bombers—deployed by the other side. Under the terms of the treaty, they then assumed that each operational launcher contained an operational missile, and each operational missile carried an "attributed" number of warheads. The number of warheads attributed to each missile or bomber was the same for all missiles and bombers of that type. It did not recognize different loadings on individual delivery vehicles. This number was listed in an agreed database that the parties maintained during the life of the treaty. The parties then multiplied these warhead numbers by the number of deployed ballistic missiles and heavy bombers to determine the number of warheads that counted under the treaty's limits. In most cases, the number of warheads attributed to each type of ICBM and SLBM was equal to the maximum number that missile had been tested with. START did, however, permit the parties to reduce the number of warheads attributed to some of their ballistic missiles through a process known as "downloading." When downloading missiles, a nation could remove a specified number of reentry vehicles from all the ICBMs at an ICBM base or from all the SLBMs in submarines at bases adjacent to a specified ocean. They could then reduce the number of warheads attributed to those missiles in the database, and therefore, the number that counted under the treaty limits. Unlike ballistic missiles, bombers counted as far fewer than the number of warheads they could carry. Bombers that were not equipped to carry long-range nuclear-armed cruise missiles counted as one warhead, even though they could carry 16 or more bombs and short-range missiles. U.S. bombers that were equipped to carry long-range nuclear-armed cruise missiles counted as 10 warheads, even though they could carry up to 20 cruise missiles. Soviet bombers that were equipped to carry long-range nuclear-armed cruise missiles counted as 8 warheads, even though they could carry up to 16 cruise missiles. These numbers were then multiplied by the numbers of deployed heavy bombers in each category to determine the number of warheads that would count under the treaty limits. In contrast with START, the Moscow Treaty did not contain any definitions or counting rules to calculate the number of warheads that counted under the treaty limit. Its text indicated that it limited deployed strategic warheads, but the United States and Russia could each determine its own definition of this term. The United States counted "operationally deployed" strategic nuclear warheads and included both warheads on deployed ballistic missiles and bomber weapons stored near deployed bombers at their bases. Russia, in contrast, did not count any bomber weapons under its total, as these weapons were not actually deployed on any bombers. Moreover, because the Moscow Treaty did not contain any sublimits on warheads deployed on different categories of delivery vehicles, the two parties only had to calculate an aggregate total for their deployed warheads. In addition, while they exchanged data under START on the numbers of accountable launchers and warheads every six months, they only had to report the number of warheads they counted under the Moscow Treaty once, on December 31, 2012, at the end of the treaty's implementation period. Like START, the New START Treaty contains definitions and counting rules that will help the parties calculate the number of warheads that count under the treaty limits. For ballistic missiles, these rules follow the precedent set in the Moscow Treaty and count only the actual number of warheads on deployed delivery vehicles. For bombers, however, these rules follow the precedent set in START and attribute a fixed number of warheads to each heavy bomber. Article III of the New START Treaty states that "for ICBMs and SLBMs, the number of warheads shall be the number of reentry vehicles emplaced on deployed ICBMs and on deployed SLBMs." Missiles will not count as if they carried the maximum number of warheads tested on that type of missile. Each missile will have its own warhead number and that number can change during the life of the treaty. The parties will not, however, visit each missile to count and calculate the total number of warheads in the force. The New START database will list total number of warheads deployed on all deployed launchers. The parties will then have the opportunity, 10 times each year, to inspect one missile or three bombers selected at random. At the start of these inspections, before the inspecting party chooses a missile or bomber to view, the inspected party will provide a list of the number of warheads on each missile or bomber at the inspected base. The inspecting party will then choose a missile at random, and confirm that the number listed in the database is accurate. This is designed to deter the deployment of extra warheads by creating the possibility that a missile with extra warheads might be chosen for an inspection. As was the case under START, this inspection process does not provide the parties with the means to visually inspect and count all the deployed warheads carried on deployed missiles. Under START, this number was calculated by counting launchers and multiplying by an attributed number of warheads. Under New START, as was the case in the Moscow Treaty, each side simply declares its number of total deployed warheads and includes that number in the treaty database. Unlike the Moscow Treaty, however, the parties will provide and update these numbers every six months during the life of the treaty, rather than just once at the end of the treaty. Under the New START Treaty, each deployed heavy bomber equipped with nuclear armaments counts as one nuclear warhead. This is true whether the bomber is equipped to carry cruise missiles or gravity bombs. Neither the United States nor Russia deploys nuclear weapons on their bombers on a day-to-day basis. Because the treaty is supposed to count, and reduce, actual warheads carried by deployed delivery vehicles, the bomber weapons that are not deployed on a day-to-day basis are excluded. In addition, because the parties will use on-site inspections to confirm the actual number of deployed warheads on deployed delivery vehicles, and the bombers will have no warheads on them during inspections, the parties needed to come up with an arbitrary number to assign to the bombers. That number is one. Conversion and Elimination According to New START, ICBM launchers, SLBM launchers, and heavy bombers equipped to carry nuclear armaments shall continue to count under the treaty limits until they are converted or eliminated according to the provisions described in the treaty's Protocol. These provisions are far less demanding than those in the original START Treaty and will provide the United States and Russia with far more flexibility in determining how to reduce their forces to meet the treaty limits. ICBM Launchers Under START, ICBM launchers were "destroyed by excavation to a depth of no less than eight meters, or by explosion to a depth of no less than six meters." If missiles were removed from silos, and the silos were not eliminated in this fashion, then the silos still counted as if they held a deployed missile and as if the deployed missile carried the attributed number of warheads. New START lists three ways in which the parties may eliminate ICBM silo launchers. It states that silo launchers "shall be destroyed by excavating them to a depth of no less than eight meters or by explosion to a depth of no less than six meters." It also indicates that the silos can be "completely filled with debris resulting from demolition of infrastructure, and with earth or gravel." Finally, it indicates the party carrying out the elimination can develop other procedures to eliminate its silos. It may have to demonstrate this elimination alternative to the other party, but that party cannot dispute or deny the use of that method. Hence, instead of blowing up the silos or digging them out of the ground, the parties to the treaty might choose to disable the silo using measures it identifies itself, so that it can no longer launch a missile. This could be far less costly and destructive than the procedures mandated under START, and would help both nations eliminate some silos that have stood empty for years while continuing to count under the old START Treaty. For the United States, this would include the 50 silos that held Peacekeeper missiles until 2005 and the 50 silos that held Minuteman III missiles until 2008. The United States has never destroyed these silos, so they continued to count under START. It can now disable theses silos and remove them from its tally of launchers under the New START Treaty. According to the recent reports, the Air Force Global Strike Command began preparations to eliminate these silos in March 2011, and plans to fill them with gravel. It expects to complete this process by 2017. Mobile ICBM launchers Under START, the elimination process for launchers for road-mobile ICBMs required that "the erector-launcher mechanism and leveling supports shall be removed from the launcher chassis" and that "the framework of the erector-launcher mechanism on which the ICBM is mounted and erected shall be cut at locations that are not assembly joints into two pieces of approximately equal size." It also required that the missile launch support equipment be removed from the launcher chassis, and that the "mountings of the erector-launcher mechanism and of the launcher leveling supports shall be cut off the launcher chassis" and cut into two pieces of approximately equal size. START also required that 0.78 meters of the launcher chassis be cut off and cut into two parts, so that the chassis would be too short to support mobile ICBMs. Under New START, the elimination process for launchers for road mobile ICBMs is far more simple and far less destructive. As was the case under START, the elimination "shall be carried out by cutting the erector-launcher mechanism, leveling supports, and mountings of the erector-launcher mechanism from the launcher chassis and by removing the missile launch support equipment ... from the launcher chassis." But neither the framework nor the chassis itself have to be cut into pieces. If the chassis is going to be used "at a declared facility for purposes not inconsistent with the Treaty" the surfaces of the vehicle that will be visible to national technical means of verification must be painted a different color or pattern than those surfaces on a deployed mobile ICBM launcher. SLBM Launchers Under START, the SLBM launch tubes were considered to be eliminated when the entire missile section was removed from the submarine; or when "the missile launch tubes, and all elements of their reinforcement, including hull liners and segments of circular structural members between the missile launch tubes, as well as the entire portion of the pressure hull, the entire portion of the outer hull, and the entire portion of the superstructure through which all the missile launch tubes pass and that contain all the missile launch-tube penetrations" were removed from the submarine. The missile launch tubes then had to "be cut into two pieces of approximately equal size." Under New START, SLBM launch tubes can be eliminated "by removing all missile launch tube hatches, their associated superstructure fairings, and, if applicable, gas generators." In other words, the missile section of the submarine and the individual launch tubes can remain in place in the submarine, and cease to count under the treaty limits, if they are altered so that they can no longer launch ballistic missiles. Moreover, according to the Ninth Agreed Statement in the New START Protocol, SLBM launch tubes that have been converted in accordance with this procedure and are "incapable of launching SLBMs may simultaneously be located on a ballistic missile submarine" with launch tubes that are still capable of launching SLBMs. After a party completes this type of conversion, it "shall conduct a one-time exhibition of a converted launcher and an SLBM launcher that has not been converted" to demonstrate, to the other party, "the distinguishing features of a converted launcher and an SLBM launcher that has not been converted." The United States plans to use this procedure to reduce the number of launch tubes on each SSBN from 24 to 20. According to recent reports, it will begin this process in 2015, so that it will have no more than 240 operational launchers for SLBMs by the treaty deadline of February 2018. Under START, the United States had to essentially destroy an entire submarine to remove its launch tubes from accountability under the treaty limits. With these provisions in New START, the United States cannot only convert ballistic missile submarines to other uses without destroying their missile tubes and missile compartments; it can also reduce the number of accountable deployed SLBM launchers on ballistic missile submarines that continue to carry nuclear-armed SLBMs. These provisions will provide the United States a great deal of flexibility when it determines the structure of its nuclear forces under New START. During the past decade, the United States converted four of its Trident ballistic missile submarines so that they no longer carry ballistic missiles but now carry conventional cruise missiles and other types of weapons. These are now known as SSGNs. Because the United States did not remove the missile compartment from these submarines, they continued to count as if they carried 24 Trident missiles, with 8 warheads per missile, under the old START Treaty. These submarines will not count under the New START Treaty. In the Second Agreed Statement in the New START Protocol, the United States has agreed that, "no later than three years after entry into force of the Treaty, the United States of America shall conduct an initial one-time exhibition of each of these four SSGNs. The purpose of such exhibitions shall be to confirm that the launchers on such submarines are incapable of launching SLBMs." Moreover, if an SSGN is located at an SSBN base when a Russian inspection team visits that base, the inspection team will have the right to inspect the SSGN again to confirm that the launchers have not been converted back to carry SLBMs. Russia can conduct six of these re-inspections during the life of the treaty, but no more than two inspections of any one of the SSGNs. Heavy Bombers Under START, heavy bombers were eliminated by having the tail section cut off of the fuselage at a location that obviously was not an assembly joint; having the wings separated from the fuselage at any location by any method; and having the remainder of the fuselage cut into two pieces, with the cut occurring in the area where the wings were attached to the fuselage, but at a location obviously not an assembly joint. START also allowed the parties to remove heavy bombers from treaty accountability by converting them to heavy bombers that were not equipped to carry nuclear armaments. According to the elimination and conversion Protocol in START, this could be done by modifying all weapons bays and by removing or modifying the external attachment joints for either long-range nuclear ALCMs or other nuclear armaments that the bombers were equipped to carry. The elimination procedure for heavy bombers has also been simplified under New START. To eliminate bombers, the parties must cut "a wing or tail section from the fuselage at locations obviously not assembly joints," or cut "the fuselage into two parts at a location obviously not an assembly joint." It no longer has to remove the wings from the fuselage. In addition, to convert a bomber counted under the treaty to a heavy bomber no longer equipped to carry nuclear armaments, the parties can either modify the weapons bays and external attachments for pylons so that they cannot carry nuclear armaments, or modify all internal and external launcher assemblies so that they cannot carry nuclear armaments, or develop any other procedure to carry out the conversion. As was the case with the conversion and elimination of missile launchers, the party may have to demonstrate its conversion procedure, but the other party does not have the right to object or reject the procedure. The United States no longer equips its B-1 bombers with nuclear weapons, and has no plans to do so in the future. It has not, however, converted these bombers to nonnuclear heavy bombers using the procedures outlined in START. As a result, they continued to count as one delivery vehicle and one warhead under the counting rules in START. The United States does not, however, want to count these bombers under the New START Treaty. As a result, in the First Agreed Statement, the United States and Russia agreed, during the first year that the treaty is in force, the United States will conduct a "one-time exhibition" to demonstrate to Russia that these bombers are no longer equipped to carry nuclear weapons. The bombers that no longer carry nuclear weapons will have a "distinguishing feature" that will be recorded in the treaty database and will be evident on all B-1 bombers that are no longer equipped to carry nuclear weapons. After all the B-1 bombers have been converted in this manner, they will no longer count against the limits in the New START Treaty. Mobile ICBMs Mobile ICBMs in START Mobile ICBMs became an issue in the original START negotiations in the mid-1980s, as the Soviet Union began to deploy a single-warhead road-mobile ICBM, the SS-25, and a 10-warhead rail-mobile ICBM, the SS-24. The United States initially proposed that START ban mobile ICBMs because the United States would not be able to locate or target these systems during a conflict. Some also questioned whether the United States would be able to monitor Soviet mobile ICBM deployments well enough to count the missiles and verify Soviet compliance with the limits in START. Some also argued that the Soviet Union might be able to stockpile hidden missiles and launchers, and to reload mobile ICBM launchers during a conflict because the United States could not target and destroy them. The Soviet Union refused to ban mobile ICBMs. As a result, START limited the United States and Soviet Union to 1,100 warheads on mobile ICBMs. The treaty also limited the numbers of nondeployed missiles and nondeployed launchers for mobile ICBMs. Each side could retain 250 missiles and 110 launchers for mobile ICBMs, with no more than 125 missiles and 18 launchers for rail mobile ICBMs. This did not eliminate the risk of "breakout," which refers to the rapid addition of stored missiles to the deployed force, but it did limit the magnitude of the breakout potential and the number of missiles that the Soviet Union could "reload" on deployed launchers during a conflict. START also contained a number of complementary, and sometimes overlapping, monitoring mechanisms that were designed to help the parties keep track of the numbers and locations of permitted missiles. Each side could monitor the final assembly facility for the missiles to count them as they entered the force. The parties also agreed to record the serial numbers, referred to in the treaty as "unique identifiers," for the mobile ICBMs, and to list these numbers in the treaty's database. These numbers were used to help track and identify permitted missiles because the parties could check the serial numbers during on-site inspections to confirm that the missiles they encountered were those that they expected to see at the facility during the inspection. The parties also had to provide notifications when mobile ICBMs moved between permitted facilities and when mobile ICBMs moved out of their main operating bases for an exercise. These notifications were designed to complicate efforts to move extra, hidden missiles into the deployed force. Finally, missiles and launchers removed from the force had to be eliminated according to specific procedures outlined in the treaty. This not only helped the parties keep an accurate count of the deployed missiles, but served as a further deterrent to efforts to hide extra missiles outside the treaty regime. Mobile ICBMs in New START The New START Treaty contains many limits and restrictions that will affect Russia's force of mobile ICBMs, but it does not single them out with many of the additional constraints that were contained in START. Russia pressed for an easing of the restrictions on mobile ICBMs in New START, in part because these restrictions were one sided and only affected Russian forces. But Russian officials also noted, and the United States agreed, that mobile ICBMs could enhance the survivability of Russia's nuclear forces, and therefore strengthen strategic stability under the new treaty. The United States was also willing to relax the restrictions on mobile ICBMs because it is far less concerned about Russia's ability to break out of the treaty limits than it was in the 1980s. After 15 years of START implementation, the United States has far more confidence in its knowledge of the number of deployed and nondeployed Russian mobile ICBMs, as it kept count of these missiles as they entered and left the Russian force during START. There is also far less concern about Russia stockpiling extra missiles while New START is in force. During the 1980s, the Soviet Union produced dozens of new missiles each year; Russia now adds fewer than 10 missiles to its force each year. Some estimates indicate that, with this level of production, Russia will find it difficult to retain the 700 deployed missiles permitted by the treaty. In such a circumstance, it would have neither the need nor the ability to stockpile and hide extra missiles. Moreover, where the United States was once concerned about Russia's ability to reload its mobile launchers with spare missiles, after launching the first missiles during a conflict, this scenario no longer seems credible. It would mean that Russia maintained the ability to send extra missiles and the equipment needed to load them on launchers out on patrol with its deployed systems and that it could load these missiles quickly, in the field, in the midst of a nuclear war, with U.S. weapons falling all around. Yet, Russia has not practiced or exercised this capability and it is hard to imagine that it would try it, for the first time, in the midst of a nuclear war. The New START Treaty does not contain a sublimit on mobile ICBMs or their warheads. It also does not contain any limits on the number of nondeployed mobile ICBMs or the number of nondeployed mobile ICBM launchers. These launchers and warheads will, however, count under the aggregate limits set by the treaty, including the limit of 800 deployed and nondeployed launchers. As a result, the United States will still need to count the number of mobile ICBMs in Russia's force. New START will not permit perimeter and portal monitoring at missile assembly facilities. The parties must, however, provide notification at least 48 hours before the time when solid-fuel ICBMs and solid-fuel SLBMs leave the production facilities. Moreover, the parties will continue to list the serial numbers, or unique identifiers, for mobile ICBMs in the shared database. New START limits the locations of mobile ICBMs and their launchers, both to help the United States keep track of the missiles covered by the treaty and to deter Russian efforts to hide extra missiles away from the deployed force. Deployed mobile ICBMs and their launchers must be located only at ICBM bases. All nondeployed launchers for mobile ICBMs must be located at "production facilities, ICBM loading facilities, repair facilities, storage facilities, conversion or elimination facilities, training facilities, test ranges, and space launch facilities." The locations of nondeployed mobile ICBMs are also limited to loading facilities, maintenance facilities, repair facilities, storage facilities, conversion or elimination facilities test ranges, space launch facilities, and production facilities. Some of these facilities may be at bases for operational mobile ICBMs, but, in that case, the nondeployed missiles must remain in the designated facility and cannot be located in deployment areas. Moreover, when deployed or nondeployed missiles or launchers move from one facility to another, the parties will have to update the database so each facility contains a complete list of each item located at that facility, and of the unique identifier associated with each item. Then, according to the Protocol to the Treaty, "inspectors shall have the right to read the unique identifiers on all designated deployed ICBMs or designated deployed SLBMs, non-deployed ICBMs, non-deployed SLBMs, and designated heavy bombers that are located at the inspection site." Hence, the parties will have the opportunity to confirm that items located at the facilities are supposed to be there. This is designed not only to increase transparency and understanding while the treaty is in force, but also to discourage efforts to hide extra missiles and break out of the treaty limits. The treaty does not limit the number of nondeployed missiles, but it does provide the United States with continuous information about their locations and the opportunity, during on-site inspections, to confirm that these missiles are not mixed into the deployed force. Moreover, the number of nondeployed launchers for these missiles is limited, under the 800 limit on deployed and nondeployed launchers. So, even if Russia did accumulate a stock of nondeployed missiles, the number that it could add to its force in a relatively short amount of time would be limited. Some have questioned whether Russia might use these stored mobile ICBMs to break out of the treaty by deploying them on mobile launchers that are not limited by the treaty. Specifically, they have questioned whether the New START Treaty would count rail-mobile ICBMs, and, if not, whether Russia could develop and deploy enough of these launchers to gain a military advantage over the United States. This concern derives from the definition of mobile launcher in the paragraph 45 of the Protocol to the Treaty, which indicates that a mobile launcher is "an erector-launcher mechanism for launching ICBMs and the self-propelled device on which it is mounted [emphasis added]." This definition clearly captures road-mobile launchers, such as those that Russia uses for its SS-25 and SS-27 missiles, because the transporters for these missiles are self-propelled. But a rail car that carried an erector-launcher for an ICBM would not be self-propelled; it would be propelled by the train's locomotive. Others, however, point to several provisions in the treaty that indicate that rail-mobile launchers of ICBMs would count under the treaty limits. First, they note that the treaty limits all deployed and nondeployed ICBM launchers. It defines ICBM launcher, in paragraph 28 of the Protocol to the Treaty, as "a device intended or used to contain, prepare for launch, and launch an ICBM." Any erector-launcher for ICBMs would be covered by this definition, regardless of whether it was deployed on a fixed site, on a road-mobile transporter, or on a railcar. Moreover, the article-by-article analysis of the treaty specifically states that "all of the defined terms are used in at least one place elsewhere in the Treaty documents." Article III, paragraph 8 of the treaty lists the current types of weapons deployed by each side and notes that these all count against the limits. It does not list any missiles deployed on rail-mobile launchers, and, therefore, the Protocol does not define rail-mobile launchers, because Russia no longer deploys any missiles on rail-mobile launchers. It had deployed SS-24 missiles on such launchers during the 1980s and 1990s, but these were all retired in the past decade, and the last operating base for these missiles and railcars was closed in 2007. The treaty would not prohibit Russia from deploying these types of systems again in the future. Article V specifically states that "modernization and replacement of strategic offensive arms may be carried out." However, the second paragraph of this article indicates that, "when a party believes a new kind of strategic offensive arms is emerging, that party shall have the right to raise the question of such a strategic offensive arm for consideration in the Bilateral Consultative Commission." Section 6 of the Protocol to the Treaty, which describes the Bilateral Consultative Commission, states that this body should "resolve questions related to the applicability of provisions of the treaty to a new kind of strategic offensive arm." In addition, Article XV of the treaty states that "if it becomes necessary to make changes in the Protocol ... that do not affect the substantive rights or obligations under this Treaty," the parties can use the BCC to reach agreement on these changes without amending the treaty. Hence, if Russia were to deploy ICBMs on rail-mobile launchers, the parties could modify the definition to "mobile launcher" to confirm that these weapons count under the treaty limits. New START does not define rail-mobile launchers for ICBMs because neither the United States nor Russia currently deploys these systems and the treaty does not specifically prohibit their deployment in the future. If, however, either party installs an erector-launcher for an ICBM on a rail car, that launcher would count under the treaty limits, and the new type of strategic arm, represented by the launcher on a railcar, would be covered by the limits in the treaty. The parties would then use the BCC to determine which of the monitoring provisions and elimination and conversion rules applied to that type of weapons system. Monitoring and Verification29 The original START Treaty included a comprehensive and overlapping set of provisions that was designed to allow the United States and Soviet Union to collect a wide range of data on their forces and activities and to determine whether the forces and activities were consistent with the limits in the treaty. While each party would collect most of this information with its own satellites and remote sensing equipment—known as national technical means of verification (NTM)—the treaty also called for the extensive exchange of data detailing the numbers and locations of affected weapons, numerous types of on-site inspections, notifications, exhibitions, and continuous monitoring at assembly facilities for mobile ICBMs. Further, in START, the parties agreed that they would not encrypt or otherwise deny access to the telemetry generated during missile flight tests, so that the other side could record these data and use them in evaluating the capabilities of missile systems. The New START Treaty contains a monitoring and verification regime that resembles the regime in START, in that its text contains detailed definitions of items limited by the treaty, provisions governing the use of NTM to gather data on each side's forces and activities, an extensive database that identifies the numbers, types, and locations of items limited by the treaty, provisions requiring notifications about items limited by the treaty, and inspections allowing the parties to confirm information shared during data exchanges. At the same time, the verification regime has been streamlined to make it less costly and complex than the regime in START. It also has been adjusted to reflect the limits in New START and the current circumstances in the relationship between the United States and Russia. In particular, it focuses on maintaining transparency, cooperation, and openness, as well as on deterring and detecting potential violations. Under New START, the United States and Russia continue to rely on their NTM to collect information about the numbers and locations of their strategic forces. They may also broadcast and exchange telemetry—the data generated during missile flight tests—up to five times each year. They do not need these data to monitor compliance with any particular limits in New START, but the telemetry exchange will provide some transparency into the capabilities of their systems. The parties also exchange a vast amount of data about their forces, specifying not only their distinguishing characteristics, but also their precise locations. They will notify each other, and update the database, whenever they move forces between declared facilities. The treaty also requires the parties to display their forces, and allows each side to participate in exhibitions, to confirm information listed in the database. New START permits the parties to conduct up to 18 short-notice on-site inspections each year. These inspections began in early April 2011, 60 days after the treaty entered into force. These inspections can occur at facilities that house both deployed and nondeployed launchers and missiles. The treaty divides these into Type One inspections and Type Two inspections. Each side can conduct up to 10 Type One inspections and up to 8 Type Two inspections. Moreover, during each Type One inspection, the parties will be able to perform two different types of inspection activities—these are essentially equivalent to the data update inspections and reentry vehicle inspections in the original START Treaty. As a result, the 18 short-notice inspections permitted under New START are essentially equivalent to the 28 short-notice inspections permitted under START. Type One Inspections Type One inspections are those that occur at ICBM bases, submarine bases, and air bases that house deployed or nondeployed launchers, missiles, and bombers. The parties use these inspections "to confirm the accuracy of declared data on the numbers and types of deployed and non-deployed strategic offensive arms subject to this treaty. During Type One inspections, the parties may also confirm that the number of warheads located on deployed ICBMs and deployed SLBMs and the number of nuclear armaments located on deployed heavy bombers" are consistent with the numbers declared deployed on those specific launchers. The inspections used to confirm the number of deployed warheads in New START will be distinctly different from the inspections in START because the counting rules for ballistic missiles have changed. Under START, the treaty database listed the number of warheads attributed to a type of missile, and each missile of that type counted as the same number of warheads. The parties then inspected the missiles to confirm that the number of warheads on a particular missile did not exceed the number attributed to that type of missile. The database in New START will list the aggregate number of warheads deployed on all the missiles at a given base, but before beginning a Type One inspection, the team will receive a briefing on the actual number of warheads deployed on each missile at the base. During the inspections, the parties will have the right to designate one ICBM or one SLBM for inspection, and, when inspecting that missile, the parties will be able to count the actual number of reentry vehicles deployed on the missile to confirm that it equals the number provided for that particular missile prior to the inspection. The inspected party can cover the reentry vehicles to protect information not related to the number of warheads, but the party must use covers that allow the inspectors to identify the actual number of warheads on the missile. Because these inspections are random, and occur on short notice, they provide the parties with a chance to detect an effort by the other party to deploy a missile with more than its listed number of warheads. As a result, the inspections may deter efforts to conceal extra warheads on the deployed force. These inspections, by allowing the parties to count the actual number of deployed warheads, provide added transparency. Type Two Inspections Type Two inspections occur at facilities that house nondeployed or converted launchers and missiles. These include "ICBM loading facilities; SLBM loading facilities; storage facilities for ICBMs, SLBMs, and mobile launchers of ICBMs; repair facilities for ICBMs, SLBMs, and mobile launchers of ICBMs; test ranges; and training facilities." The parties will perform these inspections "to confirm the accuracy of declared technical characteristics and declared data, specified for such facilities, on the number and types of non-deployed ICBMs and non-deployed SLBMs, first stages of ICBMs and SLBMs, and nondeployed launchers of ICBMs." In addition, they can conduct these inspections at formerly declared facilities, "to confirm that such facilities are not being used for purposes inconsistent with this Treaty." They can also use Type II inspections to confirm that solid-fueled ICBMs, solid-fueled SLBMs, or mobile launchers of ICBMs have been eliminated according to treaty procedures. Ballistic Missile Defense Presidents Obama and Medvedev had agreed, when they met in April 2009, that the two nations would address Russia's concerns with U.S. missile defense programs in a separate forum from the negotiations on a New START Treaty. However, during their meeting in Moscow in July 2010, Presidents Obama and Medvedev agreed that the treaty would contain a "provision on the interrelationship of strategic offensive arms and strategic defensive arms." This statement, which appears in the preamble to New START, states that the parties recognize "the existence of the interrelationship between strategic offensive arms and strategic defensive arms, that this interrelationship will become more important as strategic nuclear arms are reduced, and that current strategic defensive arms do not undermine the viability and effectiveness of the strategic offensive arms of the parties." Russia and the United States each issued unilateral statements when they signed New START that clarified their positions on the relationship between New START and missile defenses. Russia stated that the Treaty can operate and be viable only if the United States of America refrains from developing its missile defense capabilities quantitatively or qualitatively. Consequently, the exceptional circumstances referred to in Article 14 of the Treaty include increasing the capabilities of the United States of America's missile defense system in such a way that threatens the potential of the strategic nuclear forces of the Russian Federation. In its statement, the United States stated that its missile defense systems are not intended to affect the strategic balance with Russia. The United States missile defense systems would be employed to defend the United States against limited missile launches, and to defend its deployed forces, allies and partners against regional threats. The United States intends to continue improving and deploying its missile defense systems in order to defend itself against limited attack and as part of our collaborative approach to strengthening stability in key regions. These statements do not impose any obligations on either the United States or Russia. As Senator Lugar indicated before New START was signed, these statements are, "in essence editorial opinions." Under Secretary of State Ellen Tauscher also stated that "Russia's unilateral statement on missile defenses is not an integral part of the New START Treaty. It's not legally-binding. It won't constrain U.S. missile defense programs." These statements also do not provide Russia with "veto power" over U.S. missile defense systems. Although Russia has said it may withdraw from the treaty if the U.S. missile defenses threaten "the potential of the strategic nuclear forces of the Russian Federation," the United States has no obligation to consult with Russia to confirm that its planned defenses do not cross this threshold. It may develop and deploy whatever defenses it chooses; Russia can then determine, for itself, whether those defenses affect its strategic nuclear forces and whether it thinks the threat to those forces justifies withdrawal from the treaty. Article V, paragraph 3 of New START also mentions ballistic missile defense interceptors. It states that the parties cannot convert ICBM launchers and SLBM launchers to launchers for missile defense interceptors and that they cannot convert launchers of missile defense interceptors to launchers for ICBMs and SLBMs. At the same time, the treaty makes it clear that the five ICBM silos at Vandenberg Air Force Base that have already been converted to carry missile defense interceptors are not affected by this prohibition. It states that "this provision shall not apply to ICBM launchers that were converted prior to signature of this Treaty for placement of missile defense interceptors therein." This provision is designed to address Russian concerns about the U.S. ability to "break out" of the treaty by placing ICBMs in silos that had held missile defense interceptors or by converting ICBM silos to missile interceptor silos then quickly reversing that conversion to add offensive missiles to its forces with little warning. Russia began to express this concern after the United States converted the five ICBM silos at Vandenberg for missile defense interceptors. It initially sought to reverse this conversion, or at least to count the silos under the New START limits. The United States refused, but, in exchange for Russia accepting that the five converted silos would not count under New START, the United States agreed that it would not convert additional silos. The provision will also protect U.S. missile defense interceptors from the START inspection regime. If the parties were permitted to convert missile defense silos to ICBM silos, they would also have been able to visit and inspect those silos to confirm that they did not hold missiles limited by the treaty. The ban on such conversions means that this type of inspection is not only unnecessary, but also not permitted. The Obama Administration has stated on many occasions that the New START Treaty does not contain any provisions that limit the numbers or capabilities of current or planned U.S. ballistic missile defense systems. The ban on launcher conversion does not alter this conclusion because the United States has no plans to use any additional ICBM launchers or any SLBM launchers to hold missile defense interceptors. It is constructing new launchers for its missile defense systems. Some have questioned, however, whether the ban on silo conversion may limit missile defenses in the future, particularly if the United States wanted to respond to an emerging missile threat by quickly expanding its numbers of missile defense interceptors. General Jim Jones, President Obama's National Security Adviser during the negotiations, stated that this provision is a "limit in theory, but not in reality." It is not just that the United States has no plans to convert ICBM silos to missile defense interceptor silos, it is that it would be quicker and less expensive for the United States to build new silos for missile defense interceptors than to remove the ICBMs and all their equipment, reconfigure the silo, and install all the equipment for the missile defense interceptors. Moreover, given that the missile defense interceptor launched from the central United States, where U.S. ICBM silos are located, would drop debris on U.S. territory, the United States might prefer to locate its missile defense interceptors in new launchers near the U.S. coast. General Patrick O'Reilly, then the Director of the Missile Defense Agency, also stated that his agency "never had a plan to convert additional ICBM silos at Vandenberg and intends to hedge against increased BMDS [ballistic missile defense system] requirements by completing construction of Missile Field 2 at Fort Greely. Moreover, we determined that if more interceptors were to be added at Vandenberg AFB, it would be less expensive to build a new GBI [ground-based interceptor] missile field (which is not prohibited by the treaty)." He went on to note that "some time ago we examined the concept of launching missile defense interceptors from submarines and found it an unattractive and extremely expensive option." Putting missile defense interceptors in SLBM launchers would undermine the primary mission of the submarine, which is designed to patrol deeply and quietly to remain invulnerable to attack, by requiring it to remain in one place near the surface while it sought to track and engage attacking missiles. Conventional Long-Range Strike During their summit meeting in July 2009, Presidents Obama and Medvedev agreed that the New START Treaty would contain "a provision on the impact of intercontinental ballistic missiles and submarine-launched ballistic missiles in a non-nuclear configuration on strategic stability." This statement, which is in the preamble to the treaty, simply states that the parties are "mindful of the impact of conventionally armed ICBMs and SLBMs on strategic stability." During the negotiations on New START, Russia voiced concerns about U.S. plans to deploy conventional warheads on ballistic missiles that now carry nuclear warheads. Russian officials have argued that these weapons could upset stability for several reasons. First, even if Russia were not the target of an attack with these missiles, it might not know whether the missile carried a nuclear warhead or a conventional warhead, or whether it was headed toward a target in Russia. Moreover, ballistic missiles armed with conventional warheads could destroy significant targets in Russia and, therefore, they might provide the United States with the ability to attack such targets, with little warning, without resorting to nuclear weapons. Finally, some argued that the United States might replace the conventional warheads with nuclear warheads to exceed the limits in a treaty. Russia initially sought to include a provision in New START that would ban the deployment of conventional warheads on strategic ballistic missiles. The United States rejected this proposal. It was considering this capability as a way to attack targets around the world promptly, and did not envision using these weapons against Russia. As a result, as the White House noted in its Fact Sheet on New START, "the Treaty does not contain any constraints on ... current or planned United States long-range conventional strike capabilities." However, if the United States deployed conventional warheads on missiles that are covered by the limits in START, the warheads on these missiles would count under the treaty limit on deployed warheads. Because the United States expected to deploy very small numbers of these systems, this trade-off would not have a significant effect on U.S. nuclear capabilities. Moreover, if the United States deployed conventional warheads on new types of long-range strike systems, these systems would not necessarily count under or be affected by the limits in New START. The United States would likely consider these to be a "new type of strategic offensive arms." Under Article V, paragraph 2, Russia would have the right to raise its concerns about these weapons within the Bilateral Consultative Commission (BCC), but the United States would not have to accept Russia's interpretation or accede to any requests to count the systems under the treaty. The same procedures would apply if Russia were to develop new types of strategic offensive arms—with either nuclear or conventional warheads. The United States could raise its concerns with these weapons in the BCC, but Russia would not have to accept a U.S. request to count these weapons under the treaty. U.S. and Russian Forces Under New START U.S. Forces According to the 2010 Nuclear Posture Review (NPR), which was released by DOD on April 6, 2010, the United States planned to maintain a triad of ICBMs, SLBMs, and heavy bombers under New START. The 2010 NPR did not specify how many ICBMs would remain in the force, but indicated that each would be deployed with only one warhead. It also indicated that the United States would, initially at least, retain 14 Trident submarines. It might, however, reduce its fleet to 12 submarines after 2015. The NPR did not indicate whether the Trident submarines would continue to be deployed with 24 missiles on each submarine, or if the Navy would eliminate some of the launchers on operational submarines in accordance with the treaty's Ninth Agreed Statement. Finally, the NPR indicated that the United States would convert some of its 76 dual-capable B-52 bombers to a conventional-only role. The Obama Administration clarified its plans for U.S. forces under New START in the 1251 plan that it submitted to the Senate with the treaty documents on May 13, 2010. This plan indicated that the United States would eliminate at least 30 deployed ICBMs, retaining a force of up to 420 deployed launchers under the treaty limits. It would also retain 14 Trident submarines, but each submarine would contain only 20 launchers, and two of the submarines would be in overhaul at any time, so only 240 launchers would count under the limit on deployed launchers. In addition, the report indicated that the United States would retain up to 60 deployed bombers equipped for nuclear weapons, including all 18 B-2 bombers in the current force. This force would have included up to 720 deployed ICBMs, SLBMs, and heavy bombers, a number that exceeds the 700 deployed missiles and bombers permitted by the treaty. In a hearing before the Senate Armed Services Committee on June 17, 2010, Secretary of Defense Gates and Admiral Mullen, then Chairman of the Joint Chiefs of Staff, acknowledged that the United States would have to make a small number of further reductions, or convert a small number of additional systems to nondeployed status, to meet the treaty limits. However, they noted that because the United States would have seven years to reduce its forces to these limits, they saw no reason to identify a final force structure at that point. Secretary Gates noted that DOD was considering a number of options for the final force structure, and would make a decision on this force structure after considering the international security environment and Russia's force structure in the treaty's later years. The Obama Pentagon released its plans for the New START force structure in April 8, 2014. As was indicated in May 2010, this force will include 14 submarines with 20 launchers on each submarine. Because two submarines will be in overhaul at any time, these submarines will count as carrying 240 deployed launchers within a total of 280 deployed and nondeployed launchers. The force also calls for a reduction in the number of deployed ICBMs from 450 to 400, with the retention of all 50 empty launchers, for a total force of 450 deployed and nondeployed ICBM launchers. The Air Force will also count 4 ICBM test launchers as nondeployed launchers within the total. Finally, New START force will include 60 deployed bombers and 6 nondeployed bombers. Even before it determined the final force structure, the Pentagon had requested funding to pursue activities that would enable these reductions, regardless of the specific force structure decisions. For example, in the FY2014 budget, the Pentagon requested funding for an environmental assessment (EA) that would be needed before it could eliminate ICBM silos. Several Members of Congress objected to this study, arguing that it would allow the Administration to eliminate an ICBM squadron regardless of whether this turned out to be the preferred option for force reductions. Several Members strongly supported the retention of all 450 ICBM silos, even if a portion of them were nondeployed, with the missiles removed to meet the New START limit of 700 deployed launchers. The Pentagon responded to this criticism by noting that the EA would not predetermine the outcome of the force structure decision. However, if it were not initiated by the end of 2013, it would not be completed in time to support reductions by 2018, if the Pentagon chose to pursue those reductions. In other words, even if the study were completed, the ICBM silos could remain in the force, but if the study was not begun in time, the ICBM silos could not be eliminated, even if that proved to be the preferred force structure option. In response to these concerns, Congress included a provision in the National Defense Authorization Act for 2014 ( H.R. 3304 , §1056) that limited the Pentagon's ability to reduce U.S. forces under New START. Specifically, the legislation states that "the Secretary of Defense may only use funds authorized to be appropriated by this Act or otherwise made available for fiscal year 2014 to carry out activities to prepare for such reductions." Further, the legislation states that only 50% of the funds authorized for the EA can be obligated or expended until the Secretary of Defense submits the required plan that describes preferred force structure option under New START. The Pentagon has now submitted the plan, but it is unclear whether the EA will proceed. Table 2 , below, contains an estimated force structure of the United States prior to New START's entry into force; the force structure as of February 5, 2018 (when the reductions were required to meet the treaty limits); and the New START force outlined by the Administration in April 2014. As these data demonstrate, the United States reached the reduced force level required by the treaty. Within these limits, the United States retains a triad of ICBMs, SLBMs, and heavy bombers. It has reduced the number of deployed nuclear-armed B-52 bombers by converting many to conventional missions. It has reduced the number of launchers on its Trident submarines and retains 400 Minuteman III missiles. An additional 54 Minuteman III launchers do not hold ICBMs and therefore do not count under the 700 limit for deployed launchers. As noted below, when two additional Trident submarines return to the fleet, the United States will have the treaty-permitted 700 deployed launchers and it will adjust the number of warheads on deployed SLBMs to meet the treaty limit of 1,550 warheads. The United States did not have to destroy many ICBM or SLBM launchers to reach the limits in New START. The treaty includes provisions that allowed the United States to exempt many of its existing nondeployed launchers, including 94 B-1 bombers, and 4 ballistic missile submarines that have been converted to carry cruise missiles, from treaty limits. Moreover, as it reduced its deployed forces, the United States did not have to destroy either ICBM or SLBM launchers; it could deactivate them so that they could no longer launch ballistic missiles. Instead of eliminating missiles and launchers, the United States reached the limits in New START by deploying its missiles with far fewer than the maximum number of warheads that each could be equipped to carry. The Air Force has completed the deactivation of 50 Minuteman III missiles that will be removed from the force under New START, and the Navy has completed the elimination of four launch tubes on all 14 of its Trident submarines. Russian Forces On February 5, 2018, when the treaty reductions were complete, Russia announced that it had reduced its forces to 1,444 warheads on 527 deployed ICBMs, SLBMs, and heavy bombers, within a total of 779 deployed and nondeployed launchers. During the implementation of New START, the number of warheads deployed on Russian missiles and bombers climbed above the New START limits, leading some to express concerns about Russia's intention to comply with the treaty. Others noted that this was a reflection of Russia's modernization program, as it deployed new multiple-warhead ballistic missiles in place of older single-warhead missiles, and waited until late in the implementation process to eliminate older multiple-warhead land-based missile. Russia also retired many of its older ballistic missile submarines, replacing them with several new Borey-class submarines; three of these have entered the force, and three more are under construction. This submarine is deployed with the new Bulava missile. The missile failed many of its early flight tests, and continues to experience some failed tests, although it has had more several successful tests since late 2010. Table 3 , below, presents estimates of Russia's force structure in 2010, before New START entered into force, and potential forces that it might deploy under the New START Treaty. It does not contain an estimate of the current force structure, as the New START data only include aggregate totals across the force and provides no information about the current structure of this force. This table assumes that, under New START, Russia's new RS-24 missile would carry four warheads. However, according to accounts in the Russian press this missile will carry "no fewer than 4" warheads. If each of these missiles were to carry 6-7 warheads, Russia could retain the 1,550 warheads permitted by the treaty. Russia has announced plans to deploy a new heavy, liquid-fueled multiple-warhead missile to replace the SS-18, although this missile is not likely to enter the force until at least 2020. Table 3 indicates that Russia may deploy fewer than the permitted number of deployed and nondeployed launchers under New START. This is evident in the data provided by the Russian Ministry of Foreign Affairs on February 5, 2018. Because it still had significant numbers of warheads on older missiles that it eliminated late in the implementation process, it was able to reach the New START limits. But, as is discussed below, observers disagree about whether Russia can remain at the New START limits through 2021. Ratification U.S. Ratification Process The Obama Administration submitted the New START Treaty to the Senate on May 13, 2010. The treaty package included the treaty text, the Protocol, the Annexes, the Article-by-Article analysis prepared by the Administration, and the 1251 report on future plans and budgets for U.S. nuclear weapons required by Congress. It also included the text of the unilateral statements made by the United States and Russia when they signed the treaty. The Senate offered its advice and consent to the ratification of the treaty by voting on a Resolution of Ratification. The treaty's approval requires a vote of two-thirds of the Senate, or 67 Senators. The Senate Foreign Relations Committee held 12 hearings on the treaty. These began in April 2009, with testimony from former Secretaries of Defense William Perry and James Schlesinger. In total, the committee received testimony from more than 20 witnesses from both inside and outside the Obama Administration. It received testimony from current senior officials from the State Department, the Defense Department, and the Department of Energy, and from several former officials from past Administrations. The committee completed its hearing process in mid-July, after receiving a National Intelligence Estimate on the future of Russian forces and a report on the verifiability of the treaty. The Senate Armed Services Committee held a total of eight hearings and briefings on the treaty. The Armed Services Committee heard testimony from Secretary of State Clinton, Secretary of Defense Gates, Secretary of Energy Chu, and Admiral Mullen on June 17, 2010. It also received testimony and briefings from other Administration officials and from experts from outside the government. The Intelligence Committee also held a closed hearing to discuss U.S. monitoring capabilities and the verifiability of the treaty. The Senate Foreign Relations Committee held a business meeting to mark up the Resolution of Ratification for New START on September 16, 2010. The committee began its consideration with a draft proposed by Senator Lugar, then addressed a number of amendments proposed by members of the committee. Both the Lugar draft and many of the proposed amendments addressed the members' concerns with U.S. missile defense programs, U.S. conventional prompt global strike capabilities, monitoring and verification, and Russian nonstrategic nuclear weapons. Most of these amendments were defeated, although the committee did modify and incorporate some into the resolution. The Senate Foreign Relations Committee approved the Resolution of Ratification by a vote of 14-4, and sent the resolution to the full Senate. The Senate did not address the treaty before the November elections. The Administration pressed the Senate to debate the treaty during the lame-duck session of Congress in December 2010. Many Senators supported this goal. Some, however, suggested that the Senate would not have time to debate the treaty during the lame-duck session, and indicated that they preferred the Senate wait until 2011 to debate the treaty. The Senate began the debate on New START on December 16, 2010. During the debate, some Senators proposed amendments to the treaty, both to strike language related to ballistic missile defenses and to add language related to nonstrategic nuclear weapons. The treaty's supporters argued that these amendments would "kill" the treaty because they would require Russian approval and could lead to the reopening of negotiations on a wide range of issues addressed in the treaty. The Senate rejected these amendments, but it did accept amendments to the Resolution of Ratification that underlined the U.S. commitment to modernizing its nuclear weapons infrastructure and its commitment to deploying ballistic missile defenses. In addition, President Obama sent a letter to the Senators confirming his view that the New START Treaty places "no limitations on the development or deployment of our missile defense programs," highlighting his commitment to proceed with the deployment of all four phases of the missile defense system planned for Europe, and noting that the continued development and deployment of U.S. missile defenses would not threaten the strategic balance with Russia and would not "constitute the basis for questioning the effectiveness and viability of the New START Treaty." The Senate gave its advice and consent to ratification of New START on December 22, 2010, approving the Resolution of Ratification by a vote of 71-26. President Obama signed the instruments of ratification in early February 2011. Russian Ratification Process Russia's President Medvedev submitted the New START Treaty to the Russian Parliament on May 28, 2010. Both houses of the Russian Parliament, the Duma and the Federation Council, will vote on the treaty, with a majority vote required to approve the law on ratification. Russia's president said he hoped that the two sides could "synchronize" their ratification, voting on the treaty at about the same time. This would avoid the circumstances that existed on the second START Treaty in the late 1990s, when the U.S. Senate gave its consent to ratification of START II in January 1996, but by the time the Russian Parliament voted in 2000, the parties had negotiated a Protocol to the Treaty that also required ratification. The Senate never voted on the new version of the treaty, and START II never entered into force. Most experts agreed that President Medvedev should be able to win approval for the treaty in the Russian Parliament with little difficulty. The Foreign Affairs Committee of the Russian Duma had initially supported the treaty. However, in early November 2010, Konstantin Kosachev, the head of the committee, indicated that the committee would reconsider the treaty. He indicated that this was in response to both the delay in the U.S. Senate's consideration of the treaty and the conditions and understandings that the Senate Foreign Relations Committee included in the U.S. Resolution of Ratification. Nevertheless, after the Senate voted on the treaty on December 22, members of the Duma called for the prompt ratification of New START. Reports indicated they received the documents from the Senate on December 23, and they held their first vote on the Draft Law on Ratification by Friday, December 24. The Duma then crafted amendments and declarations to the Federal Law on Ratification, and, after two more votes, approved the treaty by a vote of 350-96 (with one abstention) on January 25, 2011. The upper chamber of Russia's parliament, the Federation Council, also voted on the ratification of the treaty. Sergei Mironov, the Speaker of the Federation Council, indicated that the vote would take place after the vote in the Duma. This occurred on January 26, 2011, when the Federation Council unanimously approved the ratification of the treaty. President Medvedev signed the instruments of ratification on January 28, 2011. Russia's Federal Law on Ratification contains a number of declarations and understandings that highlight the Duma and Federation Council's concerns with the New START Treaty. These do not alter the text of the treaty and, therefore, did not require U.S. consent or agreement. Many of the provisions in the law call on Russia's leadership to pursue funding for the modernization and sustainment of Russia's strategic nuclear forces. They also reiterate Russia's view that the preamble to the treaty, and its reference to the relationship between offensive and defense forces, is an integral part of the treaty. The law does not indicate that this language imposes any restrictions on the United States. It does, however, reiterate that Russia has a right to withdraw from the treaty, and could do so if the United States deploys defenses that undermine Russia's strategic deterrent. In addition, the law indicates that new kinds of strategic offensive weapons, such as the potential U.S. conventional prompt global strike weapons, should count under the treaty limits. The law indicates that the parties should meet in the BCC and agree on how to count these systems before either party deploys the system. This differs from the U.S. interpretation because the United States has indicated that it could deploy such systems before completing the discussions in the BCC. These differing interpretations did not delay the entry into force of the treaty, but could raise questions in the future, if the United States deploys a PGS system that it does not consider to count under the treaty limits. Entry into Force and Implementation Secretary Clinton and Foreign Minister Lavrov exchanged the instruments of ratification for the New START Treaty on February 5, 2011. This act brought the treaty into force and started the clock on early activities outlined in the treaty. For example, the United States and Russia conducted their initial data exchange, 45 days after the treaty entered into force, on March 22, 2011, within 45 days of entry into force. They also had the right to begin on-site inspection activities in early April, 60 days after the treaty entered into force. Reports indicate that this process began in the United States with the display of a B-1 bomber and in Russia with the display of Russia's new RS-24 missile. Consultations The United States and Russia also met in Geneva, from March 28 through April 8, 2011, in the first meeting of the treaty's Bilateral Consultative Commission. The representatives issued two joint statements at the conclusion of the meeting that addressed procedures that would be used during the on-site inspection process. The parties met for the second session of the BCC from October 19 to November 2, 2011. The third meeting of the BCC occurred in late January 2012. During that meeting, the parties signed several statements on the sharing telemetry on missile test launches. They agreed that they would exchange telemetric data on one ICBM or SLBM launch that had occurred between February 5, 2011, when the treaty entered into force, and the end of 2011. They also agreed on when they would begin and end the sharing of telemetric data during the flight test of an ICBM or SLBM. They also agreed on the procedures they would use when demonstrating the recording media and playback equipment used when providing telemetric information. The BCC met for a fourth time in September 2012. During this meeting, the two sides agreed on the use of tamper detection equipment during on-site inspections. The BCC met again in February 2013. At this meeting, the two sides signed an agreement indicating that they would exchange telemetry on the launch of ICBM or one SLBM during the time between January 1 and December 31, 2012. The BCC met again in January 2014, with the two sides, again, agreeing that they would exchange telemetric information on the launch of one ICBM or SLBM from 2013. They also agreed to use an additional measuring device during reentry vehicle inspections at SSBN bases. In October 2016, the parties met in the 12 th session of the BCC; the State Department did not provide any public details about the substance of the meeting. The 13 th session of the BCC met from late March to mid-April 2017; the State Department, again, did not offer any details about the substance of the meeting. According to a State Department Fact Sheet released at the conclusion of the reduction period, on February 5, 2018, the two sides conducted a total of "14 meetings of the Treaty's Bilateral Consultative Commission (twice each Treaty year) to discuss issues related to implementation, with no interruption to the Parties' work during global crises causing friction elsewhere in the bilateral relationship." Two sessions also occurred in 2018. Reductions In a data exchange released in February 2011, with numbers drawn from the treaty's initial data exchange, the U.S. State Department noted that the United States had 1,800 warheads on 882 deployed ICBMs, deployed SLBMs, and deployed heavy bombers. These deployed forces were within a total of 1,124 deployed and nondeployed launchers of ICBMs and SLBMs, and deployed in nondeployed heavy bombers. By September 2011, the United States had reduced these numbers to 1,790 warheads on 882 deployed ICBMs, deployed SLBMs, and deployed heavy bombers. The total number of deployed and nondeployed launchers had declined to 1,043. The reduction in 81 nondeployed launchers likely reflects the conversion or elimination of some of the "phantom" launchers that remained in the U.S. force but no longer carried nuclear warheads. In the most recent exchange, with data current as of April 1, 2014, the United States indicated that it had 778 deployed ICBMs, deployed SLBMs, and deployed heavy bombers, within a total of 952 deployed and nondeployed launchers. It also indicated that these deployed forces carry a total of 1,585 warheads. In data released on January 1, 2015, from the exchange that occurred on September 1, 2014, the United States had 794 deployed ICBMs, deployed SLBMs, and deployed heavy bombers, within a total of 912 deployed and nondeployed launchers. It also indicated that these deployed forces carry a total of 1,642 warheads. The increase in deployed forces reported in this exchange likely reflected the return to service of one SSBN, after it completed its overhaul process. The numbers declined again, by the time of the October 2015 exchange, both because another SSBN has begun its overhaul and because the U.S. Air Force has completed the "de-MIRVing" of the ICBM force. Each Minuteman III missile now carries a single warhead. In addition, in September 2015, the Air Force announced that it had begun to convert a portion of the B-52H bomber force from nuclear to conventional-only capability, thus removing 30 operational bombers from accountability under New START. While the Air Force has not provided any public statements about the changes made to the B-52 bombers, these changes are likely consistent with the objective of rendering the bombers unable to carry or launch nuclear-armed cruise missiles. According to the State Department, as of September 1, 2016, the United States had a force of 1,367 warheads on 681 deployed ICBMs, deployed SLBMs, and deployed heavy bombers, within a total of 848 deployed and nondeployed launchers. This included 416 deployed ICBM launchers, with a total of 454 deployed and nondeployed ICBM launchers; 209 deployed SLBM launchers within a total of 320 deployed and nondeployed launchers; 10 deployed B-2 bombers, within a total of 20 deployed and nondeployed B-2 bombers; and 46 deployed B-52 bombers, within a total of 54 deployed and nondeployed B-52 bombers. These data show that the United States has continued to convert B-52 bombers from nuclear to conventional-only capability; to remove ICBMs from operational launchers, on the path to 400 deployed ICBM launchers; and to reduce the number of launchers from 24 to 20 on each ballistic missile submarine. The data released in April 2017, from the March 1, 2017, data exchange, show that the United States counted 1,411 warheads on 673 deployed launchers, within a total of 820 deployed and nondeployed launchers. The increase in warheads possibly reflects the return to service of ballistic missile submarines, following the elimination of the four excess launchers. The data exchange from September 2017, which shows the U.S. aggregate numbers of warheads and launchers, indicates that United States has met the New START limits. It now has 1,393 warheads on 660 deployed launchers, within a total of 800 deployed and nondeployed launchers. Some analysts questioned whether the U.S. reductions through September 2016, which placed the United States below the New START limits of 1,550 warheads on 700 deployed launchers, indicated that the Obama Administration had decided to reduce U.S. nuclear forces, unilaterally, to levels below the New START limits. However, these reductions were temporary, and the number of deployed launchers and warheads has now risen and should reach the levels permitted by the treaty when implementation is complete in 2018. For example, while the United States was reducing the number of launch tubes on deployed submarines, it removed them from deployment and removed the missiles from the launchers. These launchers and warheads did not count in the deployed force. Because each submarine now counts as 20 launchers, the September 2017 total of 660 deployed launchers can be read to indicate that two submarines, with 40 launchers, were still in nondeployed status at the time. The data exchanges from 2018 and 2019 show that the United States continues to have fewer than the permitted number of deployed missiles and warheads, as it continues to remove systems from deployment for short periods of time. In September 2018, it reported that it had 1,398 warheads deployed on 659 deployed ICBMs, deployed SLBMs, and deployed heavy bombers, within a total of 800 deployed and nondeployed launchers for missiles and bombers. On March 1, 2019, it reported that it had 1,365 warheads deployed on 656 deployed ICBMs, deployed SLBMs, and deployed heavy bombers, within a total of 800 deployed and nondeployed launchers for missiles and bombers. The State Department fact sheets also include the summary of Russia's force data. In February 2011, Russia reported that it had 1,537 warheads on 521 deployed ICBMs, deployed SLBMs, and deployed heavy bombers. Russia also reported a total of 865 deployed and nondeployed delivery vehicles. At the time of this report, analysts expressed surprise that Russian forces were already below the treaty limits in New START when the treaty entered into force. Some argued that this indicated the United States did not have to sign the treaty to bring about reductions in Russian forces, and that the treaty represented unilateral concessions by the United States. Others noted that the number of deployed warheads possibly reflected the ongoing retirement of older Russian missiles and could change in the future as Russia deployed new, multiple-warhead land-based missiles. In September 2011, in the second treaty data exchange, Russia reported that it had 1,566 deployed warheads on 516 deployed ICBMs, deployed SLBMs, and deployed heavy bombers. Hence, although the number of deployed delivery vehicles declined, the number of warheads increased by a small amount, and then exceeded the treaty limit of 1,550 warheads. Because the data provide no details of the force composition, this increase could have either been due to the deployment of the new MIRVed RS-24 missiles, which carry more warheads than the single-warhead SS-25 missile they replace, or due to variations in the numbers of warheads carried on deployed SLBMs. The number of deployed and nondeployed delivery vehicles had increased slightly, to 871. This could reflect the retirement of some of Russia's older missiles, which would move their delivery vehicles from the deployed to nondeployed column in the data. In the data exchange from April 1, 2014, Russia reported that it had 498 deployed ICBMs, deployed SLBMs, and deployed heavy bombers, within a total of 906 deployed and nondeployed launchers. It also indicated that these deployed forces carry a total of 1,512 warheads. In the data exchanged in September 2014, and released in January 2015, Russia reported a force of 528 deployed ICBMs, deployed SLBMs, and deployed heavy bombers, within a total of 911 deployed and nondeployed launchers. It also indicated that these deployed forces carried a total of 1,643 warheads. Within these totals, Russia continued to deploy some new ICBMs and SLBMs while retiring older systems. However, as all categories had increased since the last data exchange, new deployments seemed to be outpacing retirements. This continued over the past year, as, in March 2016—when Russia reported that it had 1,735 warheads on 521 deployed ICBMs, deployed SLBMs, and deployed heavy bombers, within a total of 856 deployed and nondeployed launchers. The pattern shifted a little in September 2016—when Russia reported that it had 1,796 warheads on 508 deployed ICBMs, deployed SLBMs, and deployed heavy bombers, within a total of 847 deployed and nondeployed launchers—as the number of warheads continues to rise while the number of deployed and nondeployed launchers has declined. The data exchanged in March 2017 show that Russia had begun to reduce the number of deployed warheads while increasing the number of deployed launchers—at that point it counted 1,765 warheads on 523 deployed launchers, within a total of 816 deployed and nondeployed launchers. The September 2017 data reinforce this trend. Russia reported a force 1,561 warheads, only 11 over the limit of 1,550 deployed warheads, on 503 deployed launchers. Hence, Russia appeared to be reducing older systems with larger numbers of warheads, while still deploying new missiles with fewer warheads, as it headed toward the New START limits by February 2018. On February 5, 2018, Russia reported that it had met the New START limits, with 1,444 warheads on 527 deployed ICBMs, SLBMs, and heavy bombers, within a total of 779 deployed and nondeployed launchers. The data exchanges from 2018 and 2019 show that the Russia continues to comply with the New START limits. In September 2018, it reported that it had 1,420 warheads deployed on 517 deployed ICBMs, deployed SLBMs, and deployed heavy bombers, within a total of 775 deployed and nondeployed launchers for missiles and bombers. On March 1, 2019, it reported that it had 1,461 warheads deployed on 524 deployed ICBMs, deployed SLBMs, and deployed heavy bombers, within a total of 760 deployed and nondeployed launchers for missiles and bombers. Some analysts questioned whether the increase in Russian warheads reported in March 2016 and September 2016 indicated that Russia would eventually withdraw from New START without reducing to its limit of 1,550 deployed warheads. Others, however, noted that Russia did not need to meet the limits until February 2018, so the warhead levels in 2016 should not be of concern. They also noted that Russia continues to deploy new systems, like a third new submarine and new multiple-warhead land-based missiles, at a faster pace than it has retired older systems. Hence, as Russia retired older multiple-warhead missiles before the deadline, it succeeded in reducing its forces below the limit of 1,550 warheads. Some have also suggested that Russia's continuing deployment of new missiles systems, and its plans for modernization through the next 5-10 years, indicate that Russia may be prepared to exceed the limits under New START, either before or shortly after the treaty's 2021 expiration. They have suggested that the United States respond to Russia's plans with its own plans to modernize and expand its nuclear forces. Others, however, while agreeing with assessments of Russia's ability to expand its nuclear forces, argue that the United States should respond by pressing Russia to extend New START through 2026 so that limits on Russian forces remain in place. Monitoring, Verification, and Compliance The United States has not raised any questions, in public, about Russia's compliance with the New START Treaty. In the January 2016 version of the Annual Report on Implementation of the New START Treaty, the State Department reported that "the United States certifies the Russian Federation to be in compliance with the terms of the New START Treaty." The report indicated that the United States "has raised implementation-related questions with the Russian Federation through diplomatic channels and in the context of the Bilateral Consultative Commission (BCC)." Russia has also raised questions about U.S. implementation during BCC sessions. In its statement released on February 5, 2018, the Russian Ministry of Foreign Affairs indicated that it had concerns with the conversion procedures the United States had used to eliminate some missile launchers and B-52 bombers from its force structure. It noted that Russia could not verify that the conversions had been done in a way that permanently "rules out the use of Trident II submarine-launched ballistic submarines and nuclear weapons of heavy bombers." The Protocol to New START states the parties must demonstrate their elimination procedures if there is a question about whether the method meets the treaty terms, but it does not allow for the other party to object and require changes in the procedures. As a result, although the United States has insisted that its procedures are sufficient, Russia continues to question this conclusion. Russian officials have indicated that the United States should address Russia's concerns with these procedures before the two parties agree to extend New START before it expires in 2021. In a joint briefing provided by the United States and Russia in October 2011, the parties that, in the first six months of treaty implementation, they had exchanged almost 1,500 notifications and had conducted demonstrations of telemetric information playback equipment. By the end of the first year of implementation, on February 5, 2012, the parties had exchanged over 1,800 notifications. They had also conducted three required exhibitions, with Russia exhibiting the RS-24 missile and its launcher, and the United States exhibiting the B-1 and B-2 bombers. During the year, both parties had also conducted all 18 of the permitted inspections at facilities in the other nation. These inspections occurred at ICBM, SLBM, and heavy bomber bases; storage facilities; conversion and elimination facilities; and test ranges. In late November 2012, the State Department reported that the United States and Russia had each, as of November 26, conducted 15 of the 18 permitted inspections under the treaty. Both nations also completed their full complement of 18 inspections before the end of the second year of implementation, in February 2013. According to the State Department, the United States and Russia have both completed all 18 of their permitted Type 1 and Type 2 inspections during each of the eight full years of treaty implementation. They continued to conduct these inspections in spite of growing tensions after Russia's annexation of Crimea and aggression against Ukraine in early 2014. According to the State Department, the two sides also exchanged 17,516 notifications by early April 2019. These notifications report on the location, movement, and disposition of strategic offensive arms. They have also "completed 14 exhibitions to demonstrate distinguishing features and technical characteristics of new types of strategic offensive arms or demonstrate the results of a conversion of a strategic offensive arm subject to New START." These monitoring activities will continue through 2021, or 2026 if New START is extended. Issues for Congress New START and Strategic Stability When the Obama Administration released the 2010 Nuclear Posture Review, it indicated that the United States would retain a triad of ICBMs, SLBMs, and heavy bombers under the New START Treaty. The NPR indicates that this force structure supports strategic stability because it allows the United States to maintain an "assured second-strike capability" with warheads on survivable ballistic missile submarines and allows the United States to retain "sufficient force structure in each leg to ... hedge effectively ... if necessary due to unexpected technological problems or operational vulnerabilities." The Trump Administration, in the 2018 NPR, also reaffirmed the support for the nuclear triad. Although it offered a more detailed rationale for the maintenance of a triad, the underlying themes of strengthening deterrence and supporting stability were part of the discussion. Obama Administration officials also indicated that New START promoted strategic stability by "discounting" the weapons on heavy bombers. As President Reagan argued during his commencement address at Eureka College in 1982, ballistic missiles are the "most destabilizing nuclear systems." As a result, in his START proposals, President Reagan sought deep reductions in ballistic missile warheads, but lesser reductions in the weapons on heavy bombers. The counting rules in New START reflect this logic. Because bomber weapons would take hours or days to reach their targets, and because they could be recalled after they were launched, they pose less of a threat to strategic stability than do ballistic missiles. As a result, some argue that, even if the United States and Russia retain hundreds of bomber weapons that do not count against the treaty limits, the reductions required in ballistic missile warheads will enhance strategic stability. Some have also noted that New START may strengthen strategic stability from the Russian perspective by removing the specific limits and restrictions on mobile ICBMs. Russia does not deploy many submarines at sea, and, therefore, lacks an assured second-strike capability on that leg of its triad. Instead, it has sought to improve the survivability of its forces by deploying ICBMs on mobile launchers. Under START, the United States sought to restrict these systems because it feared it would not be able to count them in peacetime and target them in wartime. In the current environment, concerns about wartime targeting played less of a role in the negotiations. Consequently, instead of limiting their numbers and restricting their operations, New START seeks to provide transparency and openness, so the United States can be confident in its ability to count these weapons in peacetime even though it might not be able to attack them during a conflict. Critics of the New START Treaty have questioned whether it serves U.S. security interests even if it did promote strategic stability. Some argued, during the negotiations, that the United States did not need to negotiate a new treaty to maintain its own triad, as this was possible with or without arms control. They also argued that the United States did not need to reduce its forces to bring about reductions in Russia's forces, as Russia would reduce its forces over the next decade as it retired aging systems, even in the absence of a new arms control agreement. Moreover, they questioned whether arms control should even be a part of the U.S.-Russian relationship, as arms control is a symbol of a Cold War, antagonistic relationship between the two nations. They believe that the United States and Russia should not measure their relationship with each other using Cold War-era measures like strategic stability and survivable warheads. This last argument has faded as the U.S.-Russian relationship has changed over the past decade. Few now argue that arms control is irrelevant in the absence of an antagonistic relationship. Instead, they dispute the value of arms control precisely because the major-power rivalry has returned and the United States and Russia now have a more antagonistic relationship. They note that this change has occurred in spite of the presence of New START, and, therefore, is evidence of the failure of arms control to either support or strengthen strategic stability. Moreover, they note that New START did not include any limits on Russian shorter-range nonstrategic nuclear weapons, and, therefore, failed to capture the full scope of threats that Russia presents to the United States and its allies. Monitoring and Verification in New START Monitoring and verification were among the central concerns addressed in the Senate committees during their review of the New START Treaty. The cooperative monitoring measures in the treaty received special scrutiny, as many observers of the arms control process specifically measured the value of the monitoring and verification regime in the original START Treaty by its widespread use of notifications, on-site inspections, and other cooperative measures. Some critics of New START questioned whether the monitoring provisions in the new treaty were sufficient to provide the United States with enough information to either confirm Russian compliance with the treaty or to detect efforts to violate its terms. They pointed to differences between the verification regime in the original START Treaty and those in New START to argue that the new verification regime is less robust than the old regime. They noted that the United States would no longer maintain a monitoring presence outside the Votkinsk facility where Russia assembles its mobile ICBMs, which, they argued, could weaken the U.S. ability to count these missiles as they entered Russia's forces. They also noted that the United States and Russia would no longer exchange telemetry data on all their ballistic missile flight tests, which, over time, could lessen the U.S. ability to understand and evaluate the capabilities of Russian ballistic missiles. The Obama Administration and others who supported the new treaty argued that the verification regime in New START would be more than sufficient to provide the United States with confidence in Russia's compliance with the treaty. They acknowledged that the regime is different from the regime in the original START Treaty, but noted that this was, in part, due to improvements in the relationship between Russia and the United States and differences between the limits and restrictions in the two treaties. They argued that the monitoring regime in New START was streamlined, both to reduce its costs and to ease the disruptions caused by monitoring for U.S. and Russian military forces. They also noted that it relied on as much or more cooperation between the two parties, which would continue to build confidence and reduce suspicions. Moreover, many in the Obama Administration noted that the United States had not had any opportunity to monitor Russian forces on Russian territory since the original treaty expired in December 2009. They argued that continuing delays in Senate consideration of New START could further reduce U.S. and Russian confidence in their knowledge of each other's forces, leading to worst-case assessments and possible instabilities. They further reminded those who contend that the verification regime in New START is less robust than the regime in old START that the absence of a treaty would have meant the absence of any monitoring and verification regime. The United States did not have the option of returning the regime of the original START Treaty; nor should it have wanted to do so since the new treaty has different limits and restrictions than the old treaty. Many U.S. officials, including Admiral Mullen and General Chilton, included their concerns about the absence of monitoring in their appeals for the prompt ratification of the New START Treaty. Questions about the monitoring and verification regime in New START go beyond concerns about the specific monitoring mechanisms and the U.S. ability to confirm Russian compliance with individual limits in the treaty. Most experts agree that neither party can be absolutely certain that the other is in perfect compliance with all the limits and restrictions in the treaty. This is due, in some cases, to ambiguities in the treaty language and varying interpretations of the treaty requirements. It is also due to the fact that both sides may have gaps in their knowledge about the details of the other side's forces and activities. These uncertainties do not, by themselves, indicate that the parties should not ratify and implement the treaty. The broader question often asked by experts on treaty monitoring and verification is whether the parties, in general, and the United States, in particular, will have high confidence in Russia's compliance with the treaty, and, in those cases when compliance concerns may come up, whether the United States will be able to detect evidence of potential violations that might undermine U.S. security with enough warning to respond and adjust U.S. forces to offset those security concerns. The Obama Administration indicated, in documents submitted to the Senate in July 2010, that the New START Treaty met this standard. The Administration concluded that the benefits to Russia of cheating would be minimal, as the United States, by maintaining a triad of ICBMs, SLBMs, and bombers, would be able to respond to any attempt to shift the strategic balance by adding significant numbers of warheads to its own forces. Moreover, if Russia were to cheat to any significant degree, it would undermine its relationship with the United States and interfere with any possible future arms control agreements. Therefore, in a letter sent to the Senate Foreign Relations Committee in September 2010, Secretary of Defense Gates concluded that Russia would not be able to achieve "militarily significant cheating" under the New START Treaty. A review of the verification regime in New START, and summary of some of the differences between the verification regime in the original START Treaty and the regime in New START can be found in CRS Report R41201, Monitoring and Verification in Arms Control . New START and Ballistic Missile Defenses As was noted above, during the debate over New START the Obama Administration testified repeatedly that the New START Treaty imposes no limits on current or planned ballistic missile defense programs in the United States. Some critics have claimed, however, that the United States might impose those limits itself, to ensure that Russia does not withdraw from New START, as it said it might do in the unilateral statement it released when it signed the treaty. Officials from the Obama Administration argued that this concern was unfounded. They noted that the Soviet Union issued a similar statement when it signed the original START Treaty, threatening to withdraw if the United States withdrew from the 1972 Anti-ballistic Missile (ABM Treaty). Yet, when the United States withdrew from the ABM Treaty in 2002, Russia not only did not withdraw from START, it continued to participate in negotiations on the 2002 Strategic Offensive Reductions Treaty. Moreover, in the 1990s, when the United States might have altered its missile defense plans in response to the Soviet letter, the United States actually expanded its missile defense activities and increased spending on missile defense programs. As a result, there is little reason, based on historical data, to expect the United States to restrain its missile defense programs. Moreover, officials from the Obama Administration have highlighted that the Ballistic Missile Defense Review, the Nuclear Posture Review, and the 2011 budget all offer strong support for continuing U.S. missile defense programs. Some critics have also claimed that Russia might seek, and the United States might agree to, new limits on U.S. missile defense capabilities in the Bilateral Consultative Commission established by the treaty. According to the Protocol to New START, this commission is designed "to promote the implementation of the provisions of the Treaty." The Protocol indicates that the United States and Russia will meet in the commission to "resolve questions relating to compliance with the obligations assumed by the Parties," agree on "additional measures as may be necessary to improve the viability and effectiveness of the Treaty," and "discuss other issues raised by either Party." Some have claimed that because this agenda is somewhat open-ended, Russia may raise its concerns about U.S. missile defenses in the commission and propose limits on those systems. The Obama Administration insisted that the parties could not, and would not use the BCC to negotiate new limits on ballistic missile defenses or any other elements of the U.S. strategic arsenal. In a fact sheet that accompanies the treaty, the State Department has indicated that the parties would use the BCC "to reach agreement on changes in the Protocol to the Treaty, including its Annexes, that do not affect substantive rights or obligations. The BCC may in no way make changes that would affect the substantive rights and obligations contained in the New START Treaty." The parties may use the BCC to "agree upon such additional measures as may be necessary to improve the viability and effectiveness of the Treaty" but these measures would address concerns that came up while implementing the existing limits and restrictions in the treaty. They would not be able to impose new limits or restrictions without amending the treaty, and any amendment to the treaty would be subject to the same ratification process as the treaty itself. The Senate would have to offer its advice and consent. Although the Obama Administration pursued discussions with Russia on missile defense issues for several years, it never accepted any limitations on U.S. missile defense programs and insisted, repeatedly, that U.S. missile defense programs were not designed or capable of undermining Russia's ballistic missile defenses. Russia, however, continued to question U.S. intentions and press for limits on ballistic missile defenses. It has insisted that any negotiations on further reductions in nuclear weapons include discussions about limits on ballistic missile defenses. Congress remains concerned about the possibility that the United States might accept limits on missile defenses in exchange for limits on offensive nuclear forces. Senator Barrasso raised this issue in a hearing before the Senate Foreign Relations Committee on September 18, 2018. He asked officials from the State Department and Defense Department to assure him that "in any arms control discussions with Russia for which you're responsible that the United States will not agree to limiting our own missile defense programs." Both Under Secretary of State Andrea Thompson and Under Secretary of Defense David Trachtenberg provided those assurances. Modernization The New START Treaty does not limit or restrict the ability of the United States or Russia to modernize strategic offensive nuclear forces. It specifically states, in Article V, paragraph 1, that, "Subject to the provisions of this Treaty, modernization and replacement of strategic offensive arms may be carried out." Both nations are currently modernizing their forces and replacing aging missiles, submarines, and bombers. Moreover, while some Members of the Senate insisted that the Obama Administration commit to modernizing the U.S. nuclear arsenal before voting in support of the treaty, many have also indicated that their continuing support for the modernization programs is linked to ongoing implementation of New START. Several Senators emphasized this linkage during a hearing in the Senate Foreign Relations Committee in September 2018. Senator Menendez noted that "bipartisan support for nuclear modernization is tied to maintaining an arms-control process that controls and seeks to reduce Russian nuclear forces." Senator Corker pointed out that, when the Senate gave its consent to the ratification of New START, "there was no doubt" about the "tie between the two." He stated that "the essence of this is that the modernization piece, and the reduction in warheads piece go hand in hand." U.S. Modernization The United States is currently recapitalizing all three legs of its nuclear triad, with replacements planned for its bombers, air-delivered cruise missiles, land-based ballistic missiles, and ballistic missile submarines over the next 20 years. It is also pursuing life extension programs for many of the warheads in the U.S. stockpile, to ensure that the weapons remain safe, secure, and effective. The Obama Administration outlined much of this modernization program in a report, known as the 1251 Report, mandated by Congress in the FY2010 Defense Authorization Act ( P.L. 111-84 , §1251). This provision required the Administration to submit a report to Congress when it submitted the New START Treaty to the Senate that described how it planned to "enhance the safety, security, and reliability of the nuclear weapons stockpile of the United States; modernize the nuclear weapons complex; and maintain the delivery platforms for nuclear weapons." In this 1251 report, the Administration stated that the United States planned to spend $180 billion over the next 10 years to meet these objectives, with $80 billion allocated to the U.S. nuclear weapons complex and nuclear warheads and $100 billion allocated to the Navy and Air Force for the maintenance and modernization of their delivery systems. The program has expanded over the years, and, although cost estimates vary, the Congressional Budget Office has estimated that the United States is likely to spend around $350 billion over 10 years and $1.2 trillion over 30 years to modernize its nuclear arsenal. In the 2018 Nuclear Posture Review, the Trump Administration reaffirmed its support for the continuing modernization of the U.S. nuclear triad, advocating for the completion of all the programs initiated under the Obama Administration, while adding two new systems to the plan. During the debate over New START's ratification, some Members of Congress and analysts outside government questioned whether the Obama Administration was sufficiently committed to modernizing and maintaining its strategic nuclear forces, nuclear weapons complex, and nuclear warheads. Some also questioned whether the funding in the program would be sufficient to maintain and sustain the U.S. nuclear arsenal. Some argued that the totals did not add enough above the previously planned program to go far in expanding the U.S. capability to maintain and modernize its forces. Others questioned whether the Administration would sustain its commitment for more than a year or two, particularly in an era of tight defense budgets. These concerns grew as the fiscal constraints imposed through the Budget Control Act in 2011 reduced the resources available for modernization in the nuclear enterprise and have led to delays in some programs. Others, however, argued that the Administration's budget for the nuclear weapons complex in FY2011 and the added funding outlined in the 1251 report demonstrated a strong commitment to recapitalizing the U.S. nuclear weapons complex, maintaining nuclear warheads, and maintaining and modernizing the delivery vehicles. The Administration added nearly 10%, or over $700 million, to the DOE budget for nuclear weapons in FY2011. Ambassador Linton Brooks, who had served as the Director of the National Nuclear Security Administration during the Bush Administration, indicated that he would have "killed" for a budget of that magnitude when he was managing the nuclear weapons complex for DOE. While the 2011 Budget Control Act required some delays in planned spending on nuclear weapons modernization, the Obama and Trump Administrations' budget proposals have continued to show increases above the levels expected before the ratification of New START. Russian Modernization Russia is also deploying new missiles, submarines, and bombers to replace aging systems within the limits of New START. At the same time, it may be developing new types of strategic offensive arms that might not be captured by the limits in the treaty. In his annual address on March 1, 2018, Russian President Putin announced that Russia was developing several new nuclear delivery vehicles that could evade or penetrate U.S. ballistic missile defenses. One of the new weapons mentioned in the speech, the large, multiple-warhead ICBM known as the Sarmat, would by most estimates clearly count under the New START Treaty. However, other systems—including a long-range nuclear-powered cruise missile, a long-range nuclear-armed underwater drone, and an air-delivered hypersonic cruise missile—may not be covered by the treaty's definitions of existing types of strategic offensive systems. As was noted above, the treaty addresses the possible emergence of new types of strategic offensive arms in paragraph 2 of Article V, where it states that the parties should raise their concerns about such weapons in the BCC. It does not, however, indicate how the parties will resolve such questions or whether they must agree before a weapon is included or excluded from the treaty limits. According to Under Secretary of State Thompson, in September 2018, the United States had not yet questioned Russia about these systems. However, these weapons would only raise concerns under New START if they were deployed before the treaty expired. Many analysts doubt that this will happen since most of the weapons mentioned in the speech seem to be in the early stages of development. Nonstrategic Nuclear Weapons Presidents Obama and Medvedev agreed, in April 2009, when they initiated the negotiations on the New START Treaty, that this agreement would address only strategic nuclear forces, the long-range weapons that each side could use to reach the territory of the other side. It would not seek to limit or restrict the shorter-range nonstrategic nuclear weapons in either side's arsenal. This agreement derived not only from the fact that the existing START Treaty, and nearly all past bilateral arms control treaties, had addressed only strategic nuclear weapons, but also from the fact that many of the issues that would need to be addressed in a treaty that limited nonstrategic nuclear weapons would likely prove too complex to resolve in the near term, when both sides sought to replace the existing START Treaty. There was widespread agreement in Congress, in the Obama Administration, and within the arms control community, that the United States and Russia should seek to negotiate a treaty that increases transparency and possibly imposes limits on nonstrategic strategic nuclear weapons. However, there is also widespread agreement that negotiating such a treaty would prove extremely difficult, as Russia maintains a far larger stock of these weapons than the United States, in part to compensate for perceived weaknesses in its conventional forces, and because U.S. nonstrategic nuclear weapons are a part of the U.S. commitment to NATO, and the United States believes that any changes in their deployment should be addressed by the alliance before they are addressed in an arms control negotiation. Some analysts and Senators questioned whether the United States should agree to further reductions in its strategic nuclear weapons in the absence of any limits on Russian nonstrategic nuclear weapons. They noted that Russia retains more than 2,000 operational nonstrategic nuclear weapons while the United States has around 200 in Europe, and that the value of these weapons could grow as the numbers of U.S. and Russian strategic nuclear weapons decline. They also noted that these weapons could seem particularly threatening to some of the new NATO states that are located near the periphery of Russia. Others however, argued that Russian nonstrategic nuclear weapons do not pose a threat to the United States or NATO, as Russia has indicated that these weapons would only be used in response to an attack on Russian territory. So, these analysts noted, as long as NATO does not initiate such an attack, NATO members would not be threatened by these weapons. Moreover, as Senator Lugar noted in his response to former Massachusetts Governor Mitt Romney's critique of New START, most of Russia's nonstrategic nuclear weapons do not pose a missile threat to Europe. Senator Lugar stated that "most of Russia's tactical nuclear weapons either have very short ranges, are used for homeland air defense, are devoted to the Chinese border, or are in storage." Many of the experts who testified in support of the New START Treaty agreed that the United States and Russia should pursue negotiations on a treaty on nonstrategic nuclear weapons. However, most agreed that Russia would be unwilling to participate in such discussions, and the United States and Russia would be unlikely to find common ground on such an agreement, unless both sides ratified and implemented the New START Treaty first. For example, in testimony before the Senate Foreign Relations Committee on April 29, 2010, former Secretaries of Defense James Schlesinger and William Perry both indicated that nonstrategic nuclear weapons should be an issue for the next treaty, and that the United States should ratify New START as a step on the path to get to reduction in nonstrategic nuclear weapons. The Trump Administration, in the Nuclear Posture Review released on February 2, 2018, also expressed concerns about Russia's stockpile of nonstrategic nuclear weapons. While it did not advocate for the negotiation of a treaty specifically limiting these weapons, it did indicate that Russia would have to address these concerns before the United States would be willing to negotiate further reductions in strategic nuclear weapons. New START and the U.S. Nuclear Nonproliferation Agenda The Obama Administration argued that U.S.-Russian cooperation on arms control, in general, and the New START Treaty, specifically, could help move forward the U.S. and international nuclear nonproliferation agenda. No one has argued that the treaty will convince nations who are seeking their own nuclear weapon that they should follow the U.S. and Russian lead and reduce those weapons or roll back those programs. However, some have argued that U.S.-Russian cooperation on arms control could strengthen the U.S.-Russian cooperation on a broader array of issues and that, "cooperation is a prerequisite for moving forward with tough, internationally binding sanctions on Iran." Moreover, some have noted that U.S.-Russian cooperation on arms control would also demonstrate that these nations are living up to their obligations under the Nuclear Nonproliferation Treaty (NPT). Most nations that are parties to the NPT believe that reductions in the number of deployed nuclear weapons are a clear indicator of U.S. and Russian compliance with their obligations under Article VI of the NPT. During the preparatory committee meetings (PrepComs) leading up to the 2010 Review Conference of the NPT, many of the participants called on the United States and Russia to complete negotiations on a New START Treaty. While the completion of this treaty may not assure the United States of widespread agreement on U.S. goals and priorities at the NPT review conference, many argue that the absence of an agreement would have certainly complicated U.S. efforts and reduced the chances for a successful conference. In contrast, some have argued that the New START Treaty will do little to advance U.S. nonproliferation goals. They noted that the parties at the NPT review conference may express their approval of the New START, but their positions on substantive issues would reflect their own national security interests and goals. Moreover, some critics argue that New START might undermine U.S. nonproliferation goals by calling into question U.S. security commitments and the continuing salience of U.S. nuclear weapons. The State Department, in its press releasing announcing that the United States had met its obligation to reduce to the New START limits, noted that "the United States continues to demonstrate its commitment to fulfilling its arms control obligations, including under the Treaty on the Non-Proliferation of Nuclear Weapons" through its adherence to the New START limits. Arms Control after New START Prospects for Further Reductions In 2010, when it signed the New START Treaty, the Obama Administration indicated that it hoped this would be the first step in a renewed arms control process with Russia. In his statement on April 8, 2010, President Obama indicated that "this treaty will set the stage for further cuts. And going forward, we hope to pursue discussions with Russia on reducing both our strategic and tactical weapons, including nondeployed weapons." In his State of the Union Address on February 12, 2013, the President stated that, as a part of the "effort to prevent the spread of the world's most dangerous weapons," the United States would "engage Russia to seek further reductions in our nuclear arsenals." Then, on June 19, 2013, in a speech in Berlin, President Obama stated that, after a comprehensive review, he had "determined that we can ensure the security of America and our allies, and maintain a strong and credible strategic deterrent, while reducing our deployed strategic nuclear weapons by up to one-third." He stated that he intended "to seek negotiated cuts with Russia to move beyond Cold War nuclear postures." Many analysts outside government supported the idea of further reductions beyond New START. They had hoped New START would cut more deeply into U.S. and Russian forces, reducing them to perhaps 1,000 warheads on each side. Others focused their concern on the absence of limits on nonstrategic nuclear weapons and nondeployed nuclear warheads. They expected a second treaty to address some of these concerns. Some have suggested that the two sides pursue a single, comprehensive treaty that would limit strategic, nonstrategic, and nondeployed warheads. This is similar to the approach that the Obama Administration appeared willing to pursue in 2013. Others suggested that the United States and Russia accelerate their reductions under New START, amend the treaty to reduce the numbers of permitted weapons, or agree informally to reduce their forces below New START levels. They argued that these steps, if the nations took them together, could enhance stability and reduce nuclear dangers, without waiting for the completion a new, lengthy treaty negotiation process. Some have also suggested that the United States and Russia work to increase transparency on their nonstrategic nuclear weapons, even if they are not yet ready to agree to limits or reductions in these systems. Others, however, disputed the notion that New START should be the first step in an ongoing process of further reductions in nuclear weapons. While some were willing to support the modest reductions of New START, they would not have supported a treaty that imposed deeper reductions on deployed nuclear weapons or limits on nondeployed nuclear weapons. They also objected to the broader arms control agenda that President Obama had outlined in his speech in Prague on April 5, 2009, including his call for the ratification of the Comprehensive Test Ban Treaty and his vision of a world free of nuclear weapons. Hence, some who concluded that the New START Treaty would not harm U.S. security by itself objected to its ratification because they believed its defeat would close the door on the rest of the President's arms control agenda. The prospects of additional reductions below the New START levels were further dimmed by the fact that Russia has been uninterested in negotiating another treaty. Shortly after New START entered into force, Russian Foreign Minister Sergei Lavrov stated that Russia would not want to pursue further negotiations until New START had been implemented. Russian officials have stated, repeatedly, that a treaty mandating further reductions would not only have to include limits on U.S. ballistic missile defenses and nonnuclear strategic strike systems, but would also have to limit the forces of the other major nuclear powers. Most experts agree that a new treaty that addressed each of these issues raised by both parties would likely be extremely difficult to complete. Russia has been unwilling to negotiate reductions in its nonstrategic nuclear weapons, and neither side may be willing to adopt the amount of transparency necessary to negotiate verifiable limits on nondeployed warheads in storage. The United States has firmly rejected Russia's proposals for limits on ballistic missile defense and is unwilling to include conventional-armed cruise missiles or other long-range missiles in nuclear arms control negotiations. Moreover, Britain, France, and China—the other declared nuclear weapons states under the NPT—have not shown any willingness to participate in the U.S.-Russian arms control process. Prospects for the negotiation of a follow-on treaty dimmed further in 2014, following Russia's annexation of Crimea and incursion into Ukraine. In addition, in July 2014, the Obama Administration—in its Annual Report on Adherence to and Compliance with Arms Control, Nonproliferation, and Disarmament Agreements and Commitments—stated that the United States "has determined that the Russian Federation is in violation of its obligations under the [1987] Intermediate Range Nuclear Forces (INF) Treaty not to possess, produce, or flight-test a ground-launched cruise missile (GLCM) with a range capability of 500 km to 5,500 km, or to possess or produce launchers of such missiles." While Russia appeared to be complying with New START, most agreed that further negotiations would be unwise; some also suggested that the United States suspend its implementation of New START until Russia returned to compliance with the INF Treaty. Others, however, have argued that the United States should continue to implement New START, as the limits on the size of Russia's strategic forces and the transparency provided by its verification regime continue to serve U.S. national security interests. Prospects for New START Extension Absent an agreement between the United States and Russia to extend New START for a period of no more than five years, the treaty will lapse in 2021. As was noted above, President Trump and President Putin reportedly discussed the treaty during their summit in Helsinki in July 2018, with President Putin presenting President Trump with a document suggesting that they extend the treaty after resolving "existing problems related to the Treaty implementation," but the two did not reach an agreement on the issue. In the 2018 Nuclear Posture Review, the Trump Administration noted that the United States had met the treaty's central limits, and that it would "continue to implement the New START Treaty and verify Russian compliance." It did not, however, indicate whether it might seek an extension of the treaty and made it clear that it was unlikely to negotiate a new treaty before New START's expiration in 2021. It noted that the United States is committed to "arms control efforts that advance U.S., allied, and partner security; are verifiable and enforceable; and include partners that comply responsibly with their obligations." But it also noted that Russian actions, including its noncompliance with the INF Treaty and other arms control agreements, and its actions in Crimea and Ukraine made further progress difficult. The Trump Administration is reportedly conducting an interagency review of New START to determine whether it continues to serve U.S. national security interests, and that this review will inform the U.S. approach to the treaty's extension. Among the issues that might be under consideration are whether the United States should be willing to extend New START following Russia's violation of the INF Treaty, whether the limits in the treaty continue to serve U.S. national security interests, whether the insights and data that the monitoring regime provides about Russian nuclear forces remain of value for U.S. national security, and whether an extension of the treaty should be linked to Russia's development of new kinds of strategic offensive arms. Administration officials addressed this review during testimony before the Senate Foreign Relations Committee on September 18, 2018. Both Under Secretary of State Andrea Thompson and Deputy Under Secretary of Defense David Trachtenberg emphasized how Russia's violation of the INF Treaty and its more general approach to arms control undermined U.S. confidence in the arms control process. Under Secretary Thomson noted that "the value of any arms control agreement is derived from our treaty partners maintaining compliance with their obligations and avoiding actions that result in mistrust and the potential for miscalculation." She also said that Russia's noncompliance "has created a trust deficit that leads the United States to question Russia's commitment to arms control as a way to manage and stabilize our strategic relationship and promote greater transparency and predictability." Deputy Under Secretary Trachtenberg also emphasized that "arms control with Russia is troubled because the Russian Federation apparently believes it need only abide by the agreements that suit it. As a result, the credibility of all international agreements with Russia is at risk." He went on to state that "It is that overall kind of behavior that I think from a national security perspective we at least need to consider." Several Senators questioned whether the Administration's review would include a broader assessment of whether the provisions in New START contributed to U.S. national security. They focused on both the benefits of the limits on U.S. and Russian nuclear forces and the value of the transparency provided by the monitoring and verification regime. Deputy Under Secretary Trachtenberg acknowledged that "the verification and monitoring and on-site inspection provisions provide a level of openness and transparency that is useful and beneficial not just to the United States but to our allies as well." But he reiterated that "any decision on extending the treaty will, and should be, based on a realistic assessment of whether the New START treaty remains in our national security interests in light of overall Russian arms control behavior." Senators held a similar conversation with Under Secretary Thompson and Deputy Under Secretary Trachtenberg during a hearing before the Senate Foreign Relations Committee on May 15, 2019. While the two witnesses repeated many of the same concerns about Russian compliance with its arms control obligations and the need for an atmosphere of trust between the treaty parties, they also addressed concerns about Russia's development of new kinds of strategic offensive arms that would fall outside the New START limits, Russia's nonstrategic nuclear weapons that are not covered by the Treaty, and China's nuclear modernization programs. They were unwilling to offer insights into the progress of the review—Under Secretary Thompson refused to speculate about possible changes in Russian forces if the treaty were to expire, and Deputy Under Secretary Trachtenberg declined to offer insights into how the United States might alter its nuclear forces or how it might recover the data and information provided by New START's verification regime if the treaty were to expire. Analysts outside government have offered several reasons why the United States should support the extension of New START. They note that extension would not only maintain limits on the number of deployed strategic nuclear weapons in Russia, but would also retain the predictability offered by the treaty's limits, maintain the monitoring and verification regime that provides the United States with insights into Russian nuclear forces and nuclear modernization programs, and avoid misperceptions that could upset strategic stability, exacerbate a crisis, or lead to a costly arms race. They also note that such an extension would provide the United States and Russia with an additional five years to resume negotiations and possibly reach new agreements on further reductions or transparency measures. Others, however, believe the United States and Russia should allow the New START Treaty to lapse, both to relieve the United States of its obligations and because they believe that Russia's interest in retaining limits on U.S. forces would provide the United States with leverage when negotiating a treaty to replace New START. Some also argue that the treaty better serves Russian than U.S. interests because, as was noted above, Russia is pursuing the development of weapons that may not be captured by the treaty limits. Some have questioned whether the treaty's extension will eventually constrain the ongoing U.S. nuclear modernization program. While the United States plans to recapitalize all three legs of its nuclear triad, each program is sized to fit within the limits of New START. But, with growing concerns about the challenges the United States might face from Russia and China, along with growing concerns about the scope of their nuclear modernization programs, the United States might eventually seek to expand its forces beyond the limits in New START. The 2018 Nuclear Posture Review hints at this possibility by noting that the plan for rebuilding the sea-based leg of the nuclear triad will include at least 12 Columbia-class submarines, thus leaving open the possibility of a larger program. Nevertheless, based on the pace of modernization, New START may not interfere with the U.S. modernization program, even if the treaty were extended for five years. Most of the new U.S. systems are not scheduled to enter the force until the late 2020s, after New START's 2026 expiration. Moreover, the new systems are to replace existing, older systems, which would keep the U.S. force within the New START limits for many years. Any expansion beyond those limits would not occur until later in the 2030s. On the other hand, if New START were to expire in 2021, the United States might feel compelled to both accelerate and expand its modernization programs if Russia were to expand its nuclear programs when released from the constraints of the treaty. President Trump's National Security Advisor, Ambassador John Bolton, addressed the question of New START extension in a press conference following his meeting with President Putin's National Security Advisor, Nikolai Patrushev, in August 2018. He noted that, instead of simply extending New START, the United States and Russia could either renegotiate the treaty or replace it with something more like the 2002 Moscow Treaty signed during the George W. Bush Administration. President Trump has also proposed that the United States and Russia replace New START with a new, broader treaty that would capture all types of nuclear weapons and include China's forces under the limits. Those who favor renegotiating New START believe it would provide the United States with the opportunity to press Russia to include limits on its new types of long-range nuclear delivery systems and to accept limits on shorter-range, nonstrategic delivery vehicles. But this approach envisions a more complicated treaty and could take years to complete the negotiations. A return to the Moscow Treaty envisions a more simple approach. The Moscow Treaty did not contain any detailed definitions or restrictions on deployed forces, and, instead, included a simple pledge by each side to reduce the number of deployed warheads within a 10-year period. Bolton both supported this approach and participated in the negotiations when he served as an Under Secretary of State in the Bush Administration. These options, however, may not provide a capable or timely response to the impending expiration of New START. As noted above, Russia has been unwilling to accept limits on its nonstrategic nuclear delivery vehicles in the past, and any attempt to convince them to do so in the future may require the United States to agree to the elimination of its nuclear weapons deployed in Europe. Moreover, while limits on nonstrategic nuclear weapons have long been a U.S. priority for the next arms control agreement, Russia has stated that the next agreement should include limits on U.S. ballistic missile defense programs, limits on nonnuclear strategic-range delivery systems (specifically, U.S. sea-launched cruise missiles), and limits on other nations' (specifically British and French) nuclear forces. Because neither side is likely to accept the demands of the other, an effort to renegotiate or replace New START would almost certainly fail to produce a new treaty before its 2021 expiration or a replacement treaty after its expiration. Russia has not rejected U.S. proposals to address its new kinds of long-range delivery systems, but it has refused to count them under New START. Instead, it has suggested that the two sides discuss these weapons in a separate forum that addresses concerns about strategic stability. It has indicated that this forum could meet in the years after the parties extend New START. Russia has not yet produced any of these weapons, and may produce only a small number between 2021 and 2026. So, even if these weapons were not captured by New START, such discussions could occur before the weapons posed a significant threat to the United States or its allies. The Trump Administration has not offered any details about how China could participate in the arms control process. Specifically, it has not indicated whether it would seek limits in a new treaty closer to the size of the Chinese arsenal, or whether it would invite China to expand its forces to levels closer to the New START limits of 1,550 warheads on 700 deployed missiles and bombers. While China has not offered any details about the size of is nuclear force, the 2019 version of the Pentagon's Annual Report to Congress on Military and Security Developments Involving the People's Republic of China notes that China's force missiles with a range greater than 5,500 kilometers (the range of missiles that count under New START) "currently consists of approximately 90 ICBMs" deployed on land and 48 missiles deployed four ballistic missile submarines. The Pentagon report does not include an estimate of the number of warheads carried by these missiles. Unclassified estimates, however, indicate that the submarine-launched ballistic missiles and most of the land-based missiles carry a single warhead, while some of the land-band based missiles may carry three warheads per missile. As a result, the Chinese missiles that would count under New START likely carry around 130 warheads. This is within a total estimated arsenal of around 280 nuclear warheads. China, in the past, has firmly rejected suggestions that it join in the nuclear arms control process. Chinese officials have noted that they deploy far fewer nuclear forces than the United States and Russia, that they do not engage in arms races with other nations, and that they support eventual nuclear disarmament. A spokesman for the Chinese Foreign Ministry reiterated its objections in May 2019, after the Trump Administration suggested that China join the arms control process. According to press reports, Geng Shuang said that the country's nuclear forces were at the "lowest level" of its national security needs, and that they could not be compared to the United States and Russia. He noted that "China believes that countries with the largest nuclear arsenals have a special responsibility when it comes to nuclear disarmament and should continue to further reduce nuclear weapons in a verifiable and irreversible manner, creating conditions for other countries to participate." A return to the 2002 Moscow Treaty raises different issues. Ambassador Bolton and others who support this approach to arms control note that this treaty provided the United States with the maximum amount of flexibility in sizing and structuring its nuclear forces. The limits in the treaty were consistent with the force levels the United States had already decided to pursue, and did not require that the United States match its force levels to those acceptable to Russia. It also was set to expire, on December 31, 2012, at the same time as both sides were required to reach the limits in the treaty, thereby imposing no real restrictions on U.S. force levels over the course of its implementation. Moreover, the treaty contained no specific definitions of forces covered by the limits, so each side could count and declare its force levels according to its own interpretation of the limits. But the absence of agreed definitions and counting rules, along with the absence of any specific provisions that would allow each side to monitor the other's forces, meant that neither side could verify that the other was complying with the limits in the treaty. While this issue was mitigated because the 1994 START Treaty, with its complex verification regime, remained in force through December 2009 and was soon after replaced by New START, such a solution would not be possible if a treaty of this type were to replace New START after its expiration. The monitoring regime under New START would also expire, leaving the United States and Russia with no data exchanges, declarations, or inspections that provide transparency into each other's forces and operations.

The United States and Russia signed the New START Treaty on April 8, 2010. After more than 20 hearings, the U.S. Senate gave its advice and consent to ratification on December 22, 2010, by a vote of 71-26. Both houses of the Russian parliament—the Duma and Federation Council—approved the treaty in late January 2011 and it entered into force on February 5, 2011. Both parties met the treaty's requirement to complete the reductions by February 5, 2018. The treaty is due to expire in February 2021, unless both parties agree to extend it for no more than five years. New START provides the parties with 7 years to reduce their forces, and will remain in force for a total of 10 years. It limits each side to no more than 800 deployed and nondeployed land-based intercontinental ballistic missile (ICBM) and submarine-launched ballistic missile (SLBM) launchers and deployed and nondeployed heavy bombers equipped to carry nuclear armaments. Within that total, each side can retain no more than 700 deployed ICBMs, deployed SLBMs, and deployed heavy bombers equipped to carry nuclear armaments. The treaty also limits each side to no more than 1,550 deployed warheads; those are the actual number of warheads on deployed ICBMs and SLBMs, and one warhead for each deployed heavy bomber. New START contains detailed definitions and counting rules that will help the parties calculate the number of warheads that count under the treaty limits. Moreover, the delivery vehicles and their warheads will count under the treaty limits until they are converted or eliminated according to the provisions described in the treaty's Protocol. These provisions are far less demanding than those in the original START Treaty and will provide the United States and Russia with far more flexibility in determining how to reduce their forces to meet the treaty limits. The monitoring and verification regime in the New START Treaty is less costly and complex than the regime in START. Like START, though, it contains detailed definitions of items limited by the treaty; provisions governing the use of national technical means (NTM) to gather data on each side's forces and activities; an extensive database that identifies the numbers, types, and locations of items limited by the treaty; provisions requiring notifications about items limited by the treaty; and inspections allowing the parties to confirm information shared during data exchanges. New START does not limit current or planned U.S. missile defense programs. It does ban the conversion of ICBM and SLBM launchers to launchers for missile defense interceptors, but the United States never intended to pursue such conversions when deploying missile defense interceptors. Under New START, the United States can deploy conventional warheads on its ballistic missiles, but these will count under the treaty limit on nuclear warheads. The United States may deploy a small number of these systems during the time that New START is in force. The Obama Administration and outside analysts argued that New START strengthens strategic stability and enhances U.S. national security. Critics, however, questioned whether the treaty serves U.S. national security interests, as Russia was likely to reduce its forces with or without an arms control agreement and because the United States and Russia no longer need arms control treaties to manage their relationship. Secretary of State-designate Tillerson offered support for the treaty during his confirmation hearings, noting that he supports "the long-standing bipartisan policy of engaging with Russia and other nuclear arms states to verifiably reduce nuclear stockpiles" and that it is important for the United States "to stay engaged with Russia [and] hold them accountable to commitments made under the New START." The 2018 Nuclear Posture Review confirmed that the United States would continue to implement the treaty, at least through 2021. The Administration has not yet determined whether it will request or support an extension of the treaty through 2026.

GAO_GAO-20-144

Background The federal government is the largest real property owner in the United States with a vast inventory costing billions of dollars annually to operate and maintain. Federally owned buildings include courthouses, offices, warehouses, hospitals, housing, data centers, and laboratories. GSA acts as the federal government’s landlord and is responsible for designing, constructing, and managing federal buildings that are occupied by federal agencies and the judiciary. Each year, GSA spends hundreds of millions of dollars on major construction projects, which include both new construction and repairs and alterations (R&A) to existing federal buildings. R&A projects can range from building system replacements and security upgrades to full building renovations. GSA manages its major construction projects through its central office in Washington, D.C., and its 11 regional offices. GSA’s central office establishes programming, design, and construction standards and guidance, and provides technical assistance, as needed, to the regional offices that are responsible for project implementation. To obtain authorization for projects above a defined threshold, GSA must submit to certain congressional committees a project prospectus that, among other items, describes the project and provides its estimated cost. Upon approving a project’s prospectus, Congress provides funding, either through an appropriation from the Federal Buildings Fund or appropriating funding to an agency. GSA posts approved project prospectuses on GSA’s public website. In general, GSA develops and implements projects through a sequential process that includes the following steps: Identification. Federal agencies submit a facility or space need to GSA; GSA prepares a feasibility analysis to determine the best way to fulfill the need, which could be through new construction, an R&A project, or a lease. Some R&A projects—limited to building system replacements—may be by identified by GSA based on building age and condition, and not originate from agencies’ space needs. Initiation. GSA assigns a project manager to define the project’s scope, develop cost and schedule estimates, and draft a project management plan (PMP). If a prospectus has not been previously submitted, GSA submits a prospectus to certain congressional committees for authorization. Planning. GSA’s project manager updates the PMP; the project’s baseline scope, schedule, and budget are finalized. Execution. For authorized and funded projects, GSA awards contracts for design and construction; the project’s baseline scope, schedule, and budget are revised, as needed, based on awarded contracts; GSA’s project manager monitors design and construction progress and manages changes to the project’s scope, cost, or schedule. Close-out. GSA’s project manager completes construction close-out activities and turns the project over for tenants’ use. GSA project managers perform key steps in the process that include overseeing contractors, monitoring and reporting on the progress of projects, managing changes to the project, and coordinating with tenant agencies. Additionally, GSA project managers are responsible for ensuring that “commissioning” is performed during the project. “Commissioning” generally requires that an independent commissioning agent oversee the construction contractor’s testing of installed building components to determine if they are performing as designed. GSA Obligated Over $3 Billion to Major Construction Projects Completed in the Past 5 Years; Various Federal Requirements Contributed to Costs GSA Obligated about $3.2 Billion for Major Construction Projects According to GSA data, GSA substantially completed 36 major construction projects in the 5-year period from fiscal year 2014 through fiscal year 2018. The total cost of those 36 projects was approximately $3.2 billion. Listed below are some characteristics of those projects. Cost: Project costs ranged between $21 million and $343 million, with an average cost of about $89.3 million. Schedule: Project durations ranged between about 12 months and 79 months, with an average of about 43 months. Project Type: R&A projects made up the majority of projects (64 percent), with an average cost of about $74.2 million and an average duration of about 47 months. New construction projects accounted for 36 percent, with an average cost of about $116 million and an average duration of about 35 months. On average, R&A projects cost about $42 million less than new construction projects but took about 13 months longer to complete. See figure 1 for summary information on the cost and duration of these projects, by project type. Location: The National Capital Region (GSA Region 11) had the most projects with nine (25 percent), and all but one of the 11 GSA Regions had at least one project. Project Delivery Method: GSA utilized four delivery methods for 35 of the 36 projects in our 5-year time frame. Construction Manager as Constructor, whereby GSA contracts separately with a design firm and a construction contractor. The construction contractor is involved early-on to consult on the design as it is being developed; upon the design’s completion, GSA negotiates with the construction contractor on a price to undertake the construction. GSA used this method for 12 of the 36 projects (average cost of about $99.8 million). Design-Bid-Build, whereby GSA contracts with a design firm to develop a project’s design. After the design is completed, GSA contracts separately with a construction contractor. GSA used this method for 11 of the 36 projects (average cost of about $81.3 million). Design/Build-Bridging, whereby GSA contracts with a construction contractor to finish a partially completed design— termed a “bridging design”—begun by a separately contracted design firm. GSA used this method for 8 of the 36 projects (average cost of about $77.4 million). Design/Build, whereby GSA contracts with a contractor to provide both design and construction services under a single contract. GSA used this method for 4 of the 36 projects (average cost of about $120.4 million). See appendix I for more detailed information on each of the 36 projects. GSA Identified Federal Design Requirements among Key Factors That Can Result in Higher GSA Construction Costs According to GSA officials and GSA’s internal construction-cost study prepared for GSA by the National Institute of Building Sciences (NIBS) in March 2016, several factors can result in higher costs for GSA’s construction projects compared to other similar private sector construction projects. For example, cost models in the 2016 NIBS study indicate that R&A projects cost roughly 15 to 25 percent more than R&A projects for a comparable Class A private sector building. Although the study was based on construction of R&A projects, both GSA and NIBS officials agreed that these same factors can contribute to similar cost premiums for GSA’s new construction projects compared to private sector projects. However, the NIBS staff who conducted the study told us that GSA’s more recent adoption of performance-based design standards, as compared to previously prescriptive standards, likely lowers the federal construction cost’s premium relative to private sector projects but some premium still exists. The performance-based design standards, for example, provide contractors greater latitude in selecting construction materials, which can have cost implications. According to the GSA’s internal construction-cost study, the factors that contribute to higher estimated costs for GSA construction projects when compared to similar private sector projects primarily include design and procurement requirements specific to federal projects that private sector counterparts may not have to comply with. Those requirements are specified in GSA’s design standards, as well as federal statutes and guidelines. Table 1 provides illustrative examples of factors cited by the study and GSA officials. In addition to the factors identified in the GSA’s internal construction-cost study, GSA officials said that meeting other statutory requirements, for example, the Buy American Act and the Federal Information Security Modernization Act of 2014 (FISMA), can contribute to higher costs for federal projects compared to private sector projects. GSA officials said that the cost of making information technology systems FISMA-compliant leads to federal projects costing more than private sector projects. FISMA-compliant systems, among other uses, are needed to enable the sharing of design and construction documents among GSA and contractor staff and the installation of control systems that are integral to the operation of building systems. GSA Uses Various Tools to Monitor Construction Projects’ Information, but the Agency’s Public Reporting Provides Limited Insight into Cost and Schedule Changes GSA Uses Three Primary Project Management Tools to Actively Monitor Construction Projects GSA uses three principal tools—(1) project management plans (PMP), (2) peer reviews, and (3) “earned value management” (EVM)—to monitor its construction projects, including cost and schedule performance. The PMP is the overarching tool GSA and its contractors use to guide projects’ implementation. According to GSA policy, a PMP primarily defines the parameters of a project, to include scope, schedule, cost, implementation strategy, and risks, among other items. GSA policy also indicates that the PMP—which is an industry recognized tool—is to be updated during a project’s execution and reflect notable changes affecting the project’s scope, cost, and schedule. The PMP is to also establish stakeholder roles and responsibilities, project goals, and tenant expectations. In all of the five case-study projects we reviewed, we found the associated PMPs generally: outlined the project’s scope, cost, and schedule information; identified GSA’s project stakeholders—such as GSA’s project manager and GSA’s contracting officer—and representatives for the tenant agencies that the project will benefit; and identified potential risks posed to the delivery of the project. Four of the five PMPs included a “revision history” table that demonstrated that GSA generally used and updated the PMPs over the course of the projects’ execution. The fifth project’s PMP was developed prior to GSA’s 2012 update to its PMP standard format, which then required the use of a revision history log. More information pertaining to our case-study projects, including some information from the GSA PMPs we reviewed can be found in appendix II. The second tool GSA utilizes to monitor its construction projects is peer reviews. GSA policy requires that external peer reviews be conducted on projects with a construction cost over $25 million. Per GSA guidance, these on-site peer reviews typically occur twice during construction— when projects are about 15 percent and 60 percent complete. External peers—typically, construction industry experts who were not involved with the project—assess whether a project is progressing as planned and identify for GSA managers and project stakeholders any issues they observe that may affect its timely completion or cost. In general, peers also assess stakeholders’ working relationships and make recommendations for improvement or identify opportunities for greater consistency in the performance of GSA’s construction program or greater efficiency among project stakeholders. We found that four of our case-study projects utilized external peer reviews during construction, as required. For example, one peer review report included the following observations: The project team showed great progress toward completing the project on time, and potentially ahead of schedule; the implementation of the recommendations made during the initial external peer review resolved potential unknowns and cost issues that would have put the project at high financial risk; the safety record was exceptional; tenants were better informed; and security issues had been streamlined, allowing the contractor to staff the project in a timely manner. Most of the GSA’s project managers and construction contractors we interviewed for these four case study projects said they generally believed the external peer reviews were fair and added value. Our fifth case-study project did not utilize an external peer review because it was not required at the time GSA awarded the construction contract. The third tool GSA uses is EVM, which is an industry-recognized project management tool and is required for major federal acquisitions, such as construction projects, to help project managers monitor cost and schedule during project execution. According to the Office of Management and Budget’s (OMB) guidance and GAO’s cost-estimating guide, EVM measures the value of work accomplished in a given period and compares it with the planned value of work scheduled for that period and the actual cost of work accomplished in that period. The differences between the estimated and actual costs and schedule are used to determine, for example, whether less or more work had been completed than had been planned. By tracking these differences, EVM can provide warning signs of impending cost overruns or schedule delays and provide estimates of anticipated costs at completion. Consistent with our previous findings related to GSA’s use of EVM, we found that GSA continues to use EVM to assess its construction project delivery performance on two dimensions—on-schedule and on-budget: On schedule: GSA considers a construction project to be on- schedule if its construction duration is within 10 percent of the planned duration, from the construction start date to the substantial completion date (i.e., GSA considers a project to be substantially complete on the date the project space is suitable for tenant occupancy; however, the project’s cost could change prior to the actual contract close-out). On budget: GSA considers a construction project to be on budget if its actual cost is within the planned construction cost (as measured by the construction contract’s value at award or the contract value as adjusted based on post-award contract modifications) and the additional 7 to 10 percent construction contingency. According to GSA guidance, a project’s construction contingency is intended to cover unforeseen conditions and design deficiencies; it does not apply to additional scope. According to GSA officials, GSA’s central office uses EVM to conduct monthly performance reviews of GSA’s major construction projects. At these reviews, GSA’s central office considers certain proposed project changes forwarded for approval by GSA regional offices. We have previously reported that federal construction projects typically involve some degree of change as the project progresses and that contract changes, made through contract modifications, can occur for a variety of reasons, including design errors and unforeseen site conditions. In addition, GSA officials said that funding delays, tenant-caused delays, and site acquisition issues can also be factors that cause project delays. According to GSA guidance, while GSA regional offices have some latitude to make contract changes, the regional offices and their project managers must get central office approval if a proposed change is anticipated to exceed the approved contract cost, construction contingency, or schedule contingency. If such a change is approved, GSA will then revise—commonly referred to as “rebaseline”—either the construction contract cost, the planned schedule duration, or both. GSA will then use that new value to measure and report on the project’s budget and schedule performance. According to GSA officials and summary data on its rebaselining decisions, the majority of GSA’s major construction projects within our 5- year scope were rebaselined, within its policy, to account for changes to projects’ costs and schedules. Specifically, GSA officials told us they rebaselined 25 of the 36 projects (about 70 percent). Of those projects, 18 (50 percent) were driven, at least in part, by tenant-requested changes, which GSA officials said were the most prevalent reasons for rebaselining a project. According to GSA policy, if a tenant agency requests a project change that falls outside the original scope, the project manager is to ensure that the tenant agency provides all the associated design-related requirements and funding necessary to perform this additional scope. For example, for one of our case study projects, the tenant provided $17.7 million in additional funding as part of the final phase of its headquarters building’s multi-year modernization. The tenant’s funds paid for, among other things, the tenant-requested change to convert part of the multi-story library into offices to increase the building’s space efficiency and allow more staff to move into the building. Based on our review of GSA’s internal data, we found that four of our five case-study projects were rebaselined; GSA rebaselined the cost of two projects, the schedule of one project, and both the cost and schedule of one project. For example, concerning costs, GSA rebaselined one project to account for a $2.7 million increase to the contract—initially awarded for $21.8 million—upon realizing that the tenant’s plan to increase the number of occupants in the building required another stairwell be added for fire safety purposes. With regard to schedule, GSA rebaselined one project, as previously discussed, to address a tenant-requested change to convert parts of the library into offices; this change extended the schedule by about 1 year. Given GSA’s methodology that allows for rebaselining and GSA’s cost and schedule contingencies, GSA’s EVM performance data showed that all five case-study projects were completed on budget and on schedule, if not early. See appendix II for a summary of the cost and schedule performance of our five case-study projects. GSA’s Public Reporting on Project Performance Has Improved but Final Cost and Schedule Information Could be More Transparent Federal agencies should report pertinent and reliable information to the Congress, so that Congress can adequately assess agencies’ progress in meeting established performance goals, ensure accountability for results, and understand how individual programs and activities fit within a broader portfolio of federal efforts to aid in federal funding decisions. GSA has publicly reported high-level information on its construction project performance in its Annual Performance Reports, which GSA provides to Congress and publishes on GSA’s website. For example, GSA’s fiscal year 2014 through 2018 Annual Performance Reports show that GSA met or exceeded its stated performance targets for project delivery (see fig. 2). Over this period (fiscal year 2014 through 2018), GSA took steps to improve the content and usefulness of its annual reports. For example, in fiscal year 2014, GSA included R&A projects in its performance measure to fully encompass all GSA capital construction projects. Prior to fiscal year 2014, GSA’s performance measure was calculated solely on the performance of GSA’s new construction projects. Also, starting in fiscal year 2017, GSA included additional summary-level information in its reports that identified the total number of projects and total contract value of both completed and ongoing projects that fiscal year. In fiscal year 2018, as shown in figure 2, GSA again revised its performance measure to reflect both the budget and schedule performance of projects. Prior to fiscal year 2018, GSA’s performance measure reflected only projects’ schedule performance. Further, in its fiscal year 2018 report, GSA listed the specific costs of its seven largest projects completed on-schedule and on-budget of the 24 projects completed that year. While GSA has taken some actions to improve the usefulness of its external reporting, neither GSA’s Annual Performance Reports nor its public prospectus website provide information on the extent to which projects have been rebaselined or the final costs of projects. Standards for Internal Control in the Federal Government state that agencies should provide necessary quality information to external stakeholders so that the external parties can help the agency achieve its mission and address related risks. As noted above, GSA regularly rebaselines projects, within policy, to account for changes to projects that affect construction contract costs and schedules due to a variety of reasons. GSA officials told us that they manage total project costs to be within the original prospectus estimate provided to Congress adjusted, as applicable, by funds it receives for tenant-requested changes; the officials do not believe that it is critical to report final costs or if projects have been rebaselined. However, we have found that simply measuring and reporting performance based on the most recent baseline may obscure how projects have performed over their entire construction time frame. Being more transparent about which projects or how many projects were rebaselined, as well as reporting cost and schedule growth from original baselines, can provide stakeholders with a more accurate view of project performance and enhance accountability. Reporting on such cost information, for example, would allow GSA to communicate to Congress actual construction costs at a project’s completion that may be different than the estimated costs on the prospectus approved by Congress at the project’s initiation which likely did not account for items to be funded by tenants. Without that information, it is not possible for Congress to know how projects performed against approved estimated costs and whether final project costs are consistently above, below, or meeting estimated costs. Having this information could benefit Congress in its oversight role and in making future funding decisions. GSA Assesses Whether Projects Have Met Requirements, but Does Not Fully Capture or Share Lessons Learned GSA Uses Commissioning to Test Building Systems, but Its Guidance Is Outdated Key Challenges Identified during Commissioning of Case Study Projects Issues with State-of-the-Art Building Systems State-of-the-art building systems and the automation systems that monitor and control them were not optimally operating for at least two of our case-study projects at substantial completion. For example, stakeholders for one project reported that it was very challenging to get all the integrated systems to work properly, in part, because the design was very technologically advanced. One GSA official said the biggest challenge was coordinating the operations sequence of the various building systems to function as the design team intended. As such, it took well over a year after the building was completed to resolve these issues. Limited Capabilities of Building Contractors to Maintain Complex Systems In three of the five case-study projects, stakeholders said maintenance service contractors were either not prepared to assume or had not yet been contracted to provide for the higher technical maintenance and operation responsibilities for all the building systems. For example, one construction contractor said there seemed to be a knowledge gap between the technical capabilities needed to effectively manage the more advanced building systems and the skills possessed by the existing maintenance contractor. A GSA official said that GSA plans to solicit a new contract for the building’s maintenance. agencies, and others. The Guide identifies its primary audience to be: GSA’s project managers, their construction management agents who help GSA manage the project, and the commissioning agent who oversees the commissioning process. The Guide’s secondary audience includes the many other stakeholders in the commissioning process, including tenant agencies. According to the Guide, the commissioning process is intended to assist in preparing maintenance personnel to operate and maintain any newly installed building systems. We found that GSA conducted commissioning largely in alignment with the Guide on our five case-study projects based on our review of project documentation and interviews with GSA’s project managers, facilities managers, and contractors. Further, we identified two key challenges in regard to state-of-the-art building systems’ and building contractors’ capabilities. See sidebar for additional information on the two challenges. While GSA generally conducted commissioning according to its Guide on the five case-study projects we reviewed, we found that the 2005 Guide is outdated. For example, the Guide references dated industry practices and some outdated external guidance, both of which were in existence at the time the Guide was developed. Specifically, it references the 2003 Leadership in Energy and Environmental Design (LEED), Green Building Rating System, Version 2.1; however, the LEED rating system for projects since 2016 was Version 4.0, and Version 4.1 was recently issued in 2019. We also found disconnects between the 2005 Guide and GSA’s current design standards or industry practices. For example: While the Guide states that GSA buildings should be LEED certified and strive for a Silver certification, GSA now requires buildings to achieve a higher certification, LEED Gold. The Guide states that GSA “strongly recommends” that GSA regions—and agencies to which GSA has delegated the operations of federal buildings—recommission buildings every 3 to 5 years. The current LEED standards call for “periodic commissioning requirements, ongoing commissioning tasks, and continuous tasks for critical facilities.” In general, over the past decade, federal statutes, guidance, executive orders, and changes to industry building certifications have moved the federal government and the industry toward more real- time, continuous monitoring and commissioning in cases where advanced building-automation systems, energy information- management systems, and advanced meters (e.g., electrical, water, gas, temperature, and light meters) have been installed. The continuous data provided by these systems can help building owners make real-time adjustments to optimize building operations. However, the Guide does not mention continuous monitoring-based commissioning as a possible option to, or in addition to, recommissioning buildings. Standards for Internal Control in the Federal Government state that management should periodically review policies, procedures, and related control activities for continued relevance and effectiveness in achieving the entity’s objectives or addressing related risks. Those standards also indicate that if there is a significant change in an entity’s process, management should review this process in a timely manner after the change to determine that the control activities are designed and implemented appropriately. Without updated guidance, GSA’s commissioning activities may be limited in their effectiveness in assuring building systems are operating optimally. Two of the five GSA contractors we interviewed expressed frustration that the commissioning process on their projects did not run smoothly. GSA’s external peer reviews for those same two projects also found that the roles of the various stakeholders in the commissioning process were not clear. In addition, three stakeholders on one of those projects said that some stakeholders—especially GSA’s contracted design team—were not fully involved during part of building’s commissioning. In light of our review, GSA is planning to evaluate its commissioning guidance to determine an appropriate update. GSA officials stated that this update may result in revising the existing commissioning guide or replacing it with industry-recognized guidance. However, GSA is still in the process of identifying the scope of the update, including a timeline and resources required to do so. GSA Intermittently Conducts POEs but Lacks Established Policies and Procedures and a Formal Mechanism for Sharing Lessons Learned According to OMB guidance, Post Occupancy Evaluations (POE) are tools to evaluate the effectiveness of an agency’s overall capital acquisition process. The primary objectives of a POE include (1) identifying how accurately a project meets its objectives, expected benefits, and strategic goals of the agency and (2) ensuring the continual improvement of an agency’s capital-programming process based on lessons learned. The guidance also states that agencies should have a documented methodology for conducting POEs to ensure that each asset is evaluated consistently. The guidance identifies 17 factors to be considered for evaluation in conducting a POE, such as a project’s performance, compliance with design standards, maintenance issues and building workforce competences, use of advanced building technologies, tenant satisfaction, and cost savings. The guidance also notes that a POE should generally be conducted 12 months after the project has been occupied to allow time for the tenant to evaluate the building’s performance and the delivery of the project. However, the guidance allows agencies some flexibility in the timing of a POE to meet their unique needs if 12 months is not the optimal timing to conduct the evaluation. We found GSA did not conduct any POEs on its completed major construction projects in the 4-year period from 2014 to 2017, as called for by OMB guidance. In fiscal year 2018, GSA contracted with the National Institute of Building Sciences (NIBS) to conduct six POEs and seven additional POEs in fiscal year 2019. GSA officials told us that while they understand the value POEs can provide, they are only able to conduct them when funding is available. They explained that POEs are funded through general program funding (not project funding based on the approved prospectus) within GSA’s Office of Facilities Management, and the available resources to conduct such efforts are limited given other GSA portfolio-wide maintenance and operations priorities. GSA acknowledged that it did not have a specific policy for conducting POEs or selecting completed projects for POEs. Instead, GSA officials said when selecting which buildings should undergo a POE, they ensure there is a representation of different building types (i.e., federal buildings, U.S. courthouses, and land ports of entry) and a mix of new and R&A projects. Because GSA does not have a policy for POEs, NIBS developed a general methodology, which it used for conducting each of those POEs. While GSA tries to ensure there is a mix of projects represented when selecting POEs, it is not clear that its selection factors help ensure GSA makes the best use of its limited resources. To balance OMB’s guidance to agencies that POEs should be conducted on agencies’ completed capital-construction projects, and given its resource constraints, GSA could benefit from a more strategic approach to select the projects for POEs. For example, GSA could use a risk-based approach to select for POEs (e.g., more expensive projects or those that include the integration of advanced, state-of-the-art building systems) to help improve the design and construction of future projects. Such an approach is consistent with the Standards for Internal Control in the Federal Government, which states that management should design control activities to achieve objectives and respond to risks and implement those control activities through policies. Control activities could include establishing criteria for selecting projects for POEs and formalizing it through policy. GSA officials also noted that GSA has conducted multi-building studies— which share some similarities with individual building POEs—that GSA officials broadly consider to be POEs. However, while the studies assessed some of the factors described in OMB guidance (e.g., project performance, maintenance, or advanced technology use), none of them comprehensively reviewed the 36 projects in our 5-year time frame. Accordingly, while these broader studies can provide some useful information to GSA, they are limited in their ability to provide GSA with timely information that meets the POE goal stated in OMB’s guidance: “to evaluate the overall effectiveness of the agency’s capital planning and acquisition process” and to “solicit customer feedback and incorporate that feedback into improvements to the performance and delivery of the capital investment process.” OMB guidance states that agencies should establish mechanisms to use lessons learned from POEs to minimize risks of repeating past mistakes on future projects. Along these lines, NIBS produced a summary report for GSA of the six 2018 POEs it conducted; the report identified design, construction, commissioning, and operational maintenance issues and lessons learned. From these lessons learned, NIBS also offered some recommendations to GSA. For example, NIBS said that GSA should establish a POE review committee to examine GSA’s building designs to highlight and offer solutions to previously identified problems in other buildings and develop and distribute a checklist describing the identified problems to teams that are responsible for designing new buildings. GSA developed an operational guide to synopsize the lessons learned from the NIBS report and expects that future building projects will benefit through its efforts to incorporate these lessons in the design of future projects. Further, NIBS reported that improvements to future projects in response to the issues identified in the six 2018 POE projects would result in reductions to GSA’s future operational costs. However, it is unclear whether the extent of these issues and lessons learned are unique to the 2018 POE projects reviewed by NIBS, or may be occurring across more of GSA’s construction projects. According to NIBS officials, they have observed some recurring project issues among the six POEs conducted in fiscal year 2018 and two of the seven conducted in fiscal year 2019. GSA officials said that they plan to implement lessons learned from these POEs into GSA’s design standards by the end of 2019 and expect to later update these design standards based on future POEs. According to GSA officials, they made NIBS’s individual POE reports and the 2018 POE summary report available to their project managers through a shared folder on GSA’s internal intranet site, which can be accessed by over 120 staff. In addition, one GSA project manager told us that GSA periodically holds knowledge-sharing webinars with its project managers where lessons learned from specific projects may be presented. This official indicated that the knowledge-sharing presentations are heavy on photos and that there is no real prescribed format or requirements for content. Accordingly, the presentations are an informal way for project teams to share project knowledge across GSA’s regions. Further, this official said the lessons-learned presentations from those webinars are also posted for a period of time on GSA’s internal website. However, communicating information via such means provides ad-hoc benefits to only the select individuals who know about the availability of the reports or webinars, and choose to access them. This approach may not effectively expand the broader knowledge base of the organization or best position GSA to, as OMB guidance indicates, ensure continual improvement of an agency’s capital-programming process based on lessons learned. Standards for Internal Control in the Federal Government also indicate that management should communicate necessary quality information to all relevant internal stakeholders to achieve the entity’s objectives. Without a sustained effort to consistently conduct POEs on its completed projects, GSA may miss opportunities to gather valuable tenant feedback and to identify marked successes or notable problems, including any issues that are recurring. Such information could inform future improvements to GSA’s major construction projects and increase tenant satisfaction. Further, such information may also help identify the need to change or update some of GSA’s policies, standards, guidance, or practices, such as those recommended by NIBS or other project stakeholders. However, even if GSA undertakes a more systematic approach to conducting POEs, the benefits of doing so can only fully materialize if GSA takes steps to effectively communicate POE lessons learned to all staff who may be at risk of repeating previously identified project mistakes. Conclusions GSA annually spends hundreds of millions of dollars on major construction projects to provide tenant agencies with new buildings and modernized spaces that help support agencies’ missions and enable the effective delivery of government services. GSA has improved its public reporting on major construction projects to depict project schedule and budget performance over time. However, GSA’s public reporting does not include information about the extent to which projects’ schedule or costs were rebaselined, or on projects’ final costs, which may differ from GSA’s estimates in the initial prospectuses approved by Congress. Providing the additional information on projects’ schedule and cost rebaselining, and projects’ final costs could further benefit Congress in its oversight role and improve public knowledge about the full costs of major federal construction projects. In addition, given the significant fiscal exposure for the government to maintain these buildings for the long term, having updated guidance on commissioning would enable GSA to better ensure that completed projects are meeting GSA’s design standards. Finally, given resource constraints, identifying and communicating information about when and how POEs are to be conducted could help GSA maximize opportunities to capture lessons learned from completed projects. Knowledge gained from POEs could also ensure tenant agencies are satisfied with completed projects and improve the design and construction of major projects in the future. Recommendations for Executive Action We are making the following three recommendations to GSA: The Administrator of the GSA should report for Congress and the public— for example, on GSA’s prospectus website—the extent to which completed projects’ construction costs and schedules were rebaselined and final construction costs, to include any additional funding tenant agencies may have provided to GSA for changes. (Recommendation 1) The Administrator of the GSA should update its 2005 Commissioning Guide—or replace it with appropriate industry-recognized standards and guidance—to be consistent with GSA’s current design standards and industry practices. (Recommendation 2) The Administrator of the GSA should identify and communicate—such as through policy, guidance, or other appropriate mechanism—(a) when and how Post Occupancy Evaluations should be conducted for completed projects considering resource constraints and (b) how recommendations or lessons learned from those evaluations are effectively communicated to future project teams. (Recommendation 3) Agency Comments and Our Evaluation We provided a draft of this report to GSA for review and comment. In written comments, reproduced in appendix III, GSA stated that it partially concurred with recommendation 1 and concurred with recommendations 2 and 3, and provided related comments. In response to recommendation 1, GSA agreed to publish key information that would be helpful, such as GSA’s total construction costs at project completion. However, GSA said it would be misleading to publish information on additional funds provided to GSA from tenant agencies— that lead to contract changes and rebaselining—because these funds come from different appropriations. GSA believes this would not accurately reflect how GSA managed its original budget and schedule. However, we believe that reporting total project costs in a way that clearly identifies both GSA and tenant agency costs is possible, and would not be misleading. We continue to believe that such additional transparency in reporting can benefit Congress in its oversight role and improve public knowledge about the full costs of major federal construction projects. Related to recommendation two that GSA concurred with, the agency noted that it has other commissioning documents and processes outside of its Building Commissioning Guide (Guide) that it uses to ensure building systems are operating optimally. We believe GSA’s use of other documents and processes is a good practice in light of the outdated nature of its current Guide, which serves as a key document in its commissioning process. Nevertheless, we continue to believe that it is important for GSA to update its outdated Guide, or replace it with appropriate industry-recognized standards and guidance to be consistent with GSA’s current design standards and industry practices, as we recommended. Finally, regarding recommendation three, after a discussion with GSA officials during the comment period, we modified the wording of the recommendation to recognize the range of administrative tools (e.g., policy, guidance, or other appropriate mechanism) that GSA could use to identify when and how Post Occupancy Evaluations (POEs) should be conducted and how lessons learned from those evaluations are communicated. As we noted in the report, under its current process, GSA selects the number of facilities evaluated as its annual budget allows based on several selection factors. We continue to believe that GSA could benefit from a more formalized and strategic approach to identifying and communicating when and how POEs should be conducted to make best use of its limited resources. GSA also mentioned its Design Guide for Operational Excellence as a tool to communicate lessons learned from POEs. We agree that such a guide is a good example of how POEs can be used to inform the design of future projects. However, because the guide was based on a limited number of POEs from 2018, we believe that there is more GSA can do to maximize opportunities to communicate lessons learned to future project teams. The draft report had included a fourth recommendation for the Administrator of the GSA to improve the transparency of what is being measured and reported in GSA’s Annual Performance Reports, including noting any key limitations, such as comparing results from year to year if the measure changed. While GSA was reviewing the draft, the agency provided clarifications on the structure and content of its annual reports that mitigated our concerns about the transparency of the information being presented. As a result, we made changes to the body of the report and removed that recommendation from our final report. GSA also provided technical and clarifying comments, which we incorporated, where appropriate. We are sending copies of this report to the appropriate congressional committees and the Administrator of the General Services Administration. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or rectanusl@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: General Services Administration’s (GSA) Completed Major Construction Projects, Fiscal Years 2014 to 2018 Appendix I: General Services Administration’s (GSA) Completed Major Construction Projects, Fiscal Years 2014 to 2018 Case study project. Appendix II: Case Study Snapshots This appendix contains information on five General Services Administration (GSA) case-study projects that we included in our review. We judgmentally selected these five major construction projects that were substantially completed between fiscal years 2014 through 2018 representing diversity in project type, geographic area, building-type, and range in cost and scope. Although not generalizable to all GSA major construction projects, information gathered from our case studies provides illustrative examples of GSA’s monitoring and construction efforts. For each case study, GSA provided us with extensive project documentation. We reviewed this documentation to obtain key information such as on contract award amounts and modifications that resulted in changes to the project’s original budget or schedule. The contract modifications we discuss for each project are examples of modifications that added cost or credit to the final contract value or that changed the delivery schedule; however, these modifications do not necessarily include all the modifications to the construction contract. In addition, we interviewed relevant stakeholders, such as GSA project managers, contractors, and facility managers who were involved with the projects. All information in the case study narratives is attributable to GSA based on our review of project documentation and interviews with GSA project officials and stakeholders. Charles F. Prevedel Federal Building Background The Charles F. Prevedel building was constructed in 1990. For fiscal year 2014, GSA proposed alterations and renovations to the building’s interior and upgrades to the building’s systems such that the Veterans’ Benefits Administration could consolidate into the building. The building was nearly two-thirds vacant at the time, as two federal tenants had moved out of the building. The Veterans’ Benefits Administration had been dispersed in both a nearby federal building and leased space. GSA estimated that the Veterans’ Benefits Administration’s move into the consolidated space would save $3.3 million annually in lease costs. Project Scope The building is five stories above-grade and two-stories below-grade. The project scope included renovating the building’s central atrium; reconfiguring and increasing the building’s useable space; replacing obsolete heating, ventilation, and air-conditioning (HVAC) systems; and, installing an energy-management control system to automate the HVAC and lighting systems and reduce energy consumption. The HVAC upgrades also included replacing and relocating the outdoor air intakes on the roof in order to meet current security requirements. Minor seismic upgrades were also implemented. Contract Cost or Schedule Changes The design/build-bridging construction contract was awarded in January 2015 for $21.8 million. The construction contract cost was rebaselined to $25.4 million, in part, to provide an additional stairwell to meet life-safety egress requirements as required by GSA’s design guide. GSA reported that change required GSA’s Public Buildings Commissioner to approve an overall project budget escalation of $2.7 million in June 2015. GSA reported the final construction cost was $25 million (roughly a 14.5 percent increase from the initial construction contract award). Construction of the repair and alteration project started in May 2015 and was substantially completed after a year and a half in November 2016, approximately 2 months earlier than originally projected. Figure 3 shows before and after views of the building’s main lobby and newly installed stairwell. Figure 4 shows views of meeting and training room spaces renovated during the project. Margaret Chase- Smith Federal Building and Courthouse Location (GSA Region): Bangor, Maine (Region 1) Original Construction Completion Year: 1967 Project Type: Repair and Alteration Project Delivery Method: Construction Manager as Constructor (CMc) Background The 3-story Margaret Chase-Smith Federal Building and Courthouse was built in 1967 and had not had a major renovation since its construction. The project was funded by the American Recovery and Reinvestment Act of 2009 (Recovery Act). GSA proposed the project be funded to recapture the vacant space in the building, which in part increased to approximately 33 percent after the U.S. Postal Service vacated. The proposed project would renovate and provide alterations to the building that would expand space for its existing tenants—including the U.S. Courts and the Social Security Administration, among others—and provide space for new tenant agencies. Project Scope GSA officials reported that in order to get the project started quickly using Recovery Act funds, GSA made the decision to deliver the project under the Construction Manager as Constructor (CMc) delivery method. Under CMc method, the contractor was brought in to advise on the design as it was being completed. In addition to space renovations and alterations, the project repaired and replaced HVAC systems, improved energy efficiency, and provided exterior structural improvements including the replacement of windows. New secure elevators were also added to improve court safety. Other components of the project included repairs and replacements of electrical systems, hazardous materials mitigation, elevator improvements, upgrades to the fire protection system, installing sprinklers, and correcting code deficiencies including bringing the building into compliance with accessibility standards. Contract Cost or Schedule Changes The CMc construction contract was initially awarded in March 2010 for $33.9 million. In September 2010 (6 months later), two contract modifications totaling roughly $4.6 million were issued to increase the contract price to reflect changes made in completing the design. GSA and the contractor reported that the baseline construction contract—after the design was completed—was $38.5 million. While GSA had provided some funding allowances within the initial construction contract to address some project requirements that were not yet fully designed— such as the building’s entry pavilion—another $1.9 million contract modification was issued in March 2011 (a year after the initial contract award), in part, to increase the funding allowances for the front entry pavilion and to provide additional glass that was to be installed in the lobby area. The entry pavilion was added to improve the security screening process and adhere to the U.S. Marshalls Service and U.S. Courts screening station requirements. That $1.9 million cost modification also addressed increased requirements associated with the geothermal heating system and below grade wells. Also, the contract costs increased, in part, due to tenant-requested changes. For example, an $802,000 contract modification was issued, in part, for requested millwork (e.g., judge’s bench and cabinet work) and the Court’s audiovisual equipment, telecommunications, and data-related requirements. GSA reported the final construction cost was approximately $41.3 million (about a 7.5 percent increase above the $38.5 baseline). Construction of the repair and alteration project started in October 2010 and was substantially completed approximately one month early in November 2013. Figure 5 shows the exterior of the building including its new entry pavilion. Figure 6 shows an exterior side view of the new entry pavilion and an interior view of the lobby. Social Security Administration, National Support Center Background As part of the Recovery Act, the Social Security Administration received an appropriation to construct a new National Support Center to replace an older data center whose systems were approaching the end of their useful lives. The new National Support Center provides a state-of-the-art data center, added reliability, and the ability to expand to meet future needs. For example, the data center’s flexible, scalable design allows for a smooth transition to future information technology upgrades and new, emerging technology. Project Scope The new 300,000 gross square foot data center complexbuilt on a 63 acre siteincludes the data center, warehouse, and office building; the facility was built to accommodate 200 employees. The constructed facility—supporting 24 hours a day, 7 day a week operations—is Leadership in Energy and Environmental Design (LEED) Gold Certified, even though data centers traditionally rank among the largest power users in modern facilities. Contract Cost or Schedule Changes GSA’s estimated construction cost for the project was adjusted down in August 2012 from $334 million to $262 million. GSA awarded the design- build construction contract in January 2012 for $191.6 million. The project’s construction contract cost was later rebaselined to $207.4 million due in part to the Social Security Administration requesting GSA have the contractor provide operations and maintenance transition services for 6 months. That contract change was made in March 2014—approximately 4 months before substantial completion—for roughly $2.1 million. GSA reported to us that the final construction cost was $208.1 million (roughly an 8.5 percent increase from the base contract award). Because the construction cost was well below GSA’s original construction estimate of $334 million, GSA reported to us the remaining project funds were returned to the Social Security Administration in accordance with the Recovery Act appropriation. GSA issued a notice to proceed (i.e., contract start date) to the design-build contractor in January 2012 and the project was substantially completed on-schedule roughly two and a half years later in July 2014. Figure 7 shows an exterior view of the main entrance to the data center. Figure 8 shows an interior view of the data center’s server space prior to occupancy. Figure 9 shows an exterior view of the on-site solar panel array with the data center in the background. Stewart Lee Udall Building, Department of the Interior Background The Department of the Interior (Interior) headquarters building— occupying two city blocks—was initially completed in 1936; upgrades to the building’s systems were required to extend the useful life of the building, support Interior’s operations, and meet current building codes and standards. In 2000, GSA began the construction of its multi-year, six- phase modernization plan, where each of the building’s six wings was to be modernized during one of the six phases. Project Scope Phase 6 (Wing 1)—the final phase of the building’s modernization— included upgrading the mechanical and electrical systems, replacing the lights and ceiling systems, installing fire safety upgrades and emergency egress stairs, upgrading restrooms, improving accessibility, and restoring historic spaces to include the auditorium, library, and the Undersecretary’s and Secretary’s suites. Contract Cost or Schedule Changes In 2001, GSA originally negotiated with the contractor the costs to execute Phase 6, which was structured as a contract option. The option could be exercised at GSA’s discretion upon receiving funding but allowed for future, economic price escalation, for inflation. The contract price in 2001 for the Phase 6 scope was approximately $19.3 million. Because appropriated funding was not received until fiscal year 2014, that earlier contract pricing was contractually updated by GSA in 2014 to roughly $38 million; however, that figure included roughly $4.5 million in additional scope that GSA added into the project. The additional scope included, among other items, that the Phase 6 space was to be certified under the Leadership in Energy and Environmental Design criteria and that lessons learned from the earlier completed phases—implemented over nearly 15 years—would be incorporated into the Phase 6 project. Additionally, Interior asked GSA that parts of the library be converted into office spaces to increase the building’s space efficiency and allow Interior to move more personnel into the building. That contract change, for about $6.2 million, was made in May 2016 and also resulted in the schedule’s being rebaselined, adding about one year to the project’s duration. GSA reported that Interior provided $17.7 million in additional funding, inclusive of the costs for converting the library space. GSA reported that the construction contract cost for Phase 6 was $51.7 million (about a 36 percent increase above the 2014 adjusted, base contract cost of $38 million). Phase 6’s construction started in May 2014 and was completed approximately 3 years later in June 2017. Figure 10 shows the exterior of the Department of Interior headquarters building with its six wings. Figure 11 shows interior view of historic spaces that were restored during Phase 6. United States Courthouse for the Southern District of Alabama Background The primary driver for the project was to address the long term housing needs of the United States Courts and related agencies. The District Court required additional space that the adjacent existing John A. Campbell Courthouse could not provide, and GSA determined that a new courthouse was necessary to accommodate the Courts’ projected 10 to 30 year space needs. The Campbell Courthouse renovation followed the new courthouse construction to allow for the relocation of the Bankruptcy and Probation Courts from leased space, and allow for the full Court family to be co-located between the two adjacent buildings. Project Scope The new courthouse building, adjacent to the existing Campbell Courthouse, was designed to provide 155,600 gross square feet of space, including parking. The building houses six courtrooms, nine judges’ chambers, the United States Marshalls Service, 38 below-grade parking spaces, and the capability to expand and accommodate eight additional courtrooms in the future. Contract Cost or Schedule Changes In fiscal year 2010, the new construction project received partial funding in an appropriation in the amount of $50 million, for construction. However, the project was not awarded at that time. The U.S. Courts and GSA had to revisit the long-term space needs for the U.S. Courts, which was later done as part of GSA’s 2013 feasibility study. In fiscal year 2014, an additional $69.5 million was appropriated for a new approach that would involve repairs and alterations to the existing Campbell Courthouse, as well as the construction of a new federal courthouse (which was to be smaller than originally designed), adjacent to the Campbell Courthouse. GSA fiscal year 2014 documentation for the new courthouse project estimated the total design cost at $8.5 million and the total construction cost at $71.1 million, which excluded any prior funding spent on site acquisition costs and the project’s earlier design. In April 2015, GSA awarded a single design-build contract for both the design and construction of the new courthouse and for the repairs and alteration of the existing Campbell Courthouse. GSA baselined the construction cost for the new courthouseexclusive of the costs for the Campbell Courthouse alterationsat $70 million. GSA data showed that the final construction cost for the new courthouse was $72.6 million (an increase of about 4 percent over the baseline cost of $70 million; roughly 9 percent less than the $79.6 million total estimated costs for both the design and construction). Construction started in Spring 2016 and was completed in just over 2 years, in June 2018. The schedule was rebaselined by roughly a month for severe weather delays during the construction. Figure 12 shows the exterior of the new U.S Courthouse and two interior spaces. Appendix III: Comments from the General Services Administration Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Mike Armes (Assistant Director); Catherine Kim (Analyst-in-Charge); John Bauckman; Delwen Jones; Timothy Kinoshita; Ying Long; Malika Rice; Rachel Stoiko; and Crystal Wesco made key contributions to this report.

As the federal government's landlord, GSA spends hundreds of millions of dollars to construct or modernize federal buildings. By delivering these major construction projects, GSA supports tenant agencies' missions and facilitates the delivery of government services. GAO was asked to review GSA's major construction projects. This report: (1) identifies costs of these projects in the last 5 years and factors that contribute to those costs; (2) examines how GSA monitors and publicly communicates cost and schedule information; and (3) assesses GSA's efforts to confirm that projects meet GSA's requirements and that tenants are satisfied with completed projects. GAO analyzed GSA's performance data from fiscal years 2014 to 2018 for 36 projects with a minimum cost each of $20 million (i.e., a major construction project); selected five case-study projects representing diversity in project type, geographic area, building type, and range in cost and scope; reviewed applicable GSA policies, procedures, guidance, and reports; and interviewed GSA officials and project stakeholders. In fiscal years 2014 through 2018, the General Services Administration (GSA) completed 36 major construction projects—projects with a minimum cost of $20 million to construct new buildings or modernize existing buildings—with a total cost of $3.2 billion. According to a GSA consultant, factors specific to federal construction projects may result in GSA's projects costing roughly 15 to 25 percent more than comparable private sector projects. For example, GSA uses more durable but more expensive materials to achieve a longer building service life compared to private owners who may plan for a shorter service life. GSA's Annual Performance Reports to Congress do not indicate how much GSA “rebaselined” projects' schedules and costs. Rebaslining reestablishes the point at which GSA measures on-schedule and on-budget performance. In accordance with agency policy, GSA rebaselined 25 of 36 projects GAO reviewed to account for issues such as design changes and tenant-funded requests. For example, GSA rebaselined one of its modernization projects for a $2.7 million increase to the construction contract initially awarded for $21.8 million. The increase resulted from a design change to add a stairwell for fire safety purposes to accomodate the tenant's plan to increase the building's occupants (see figure). After GSA rebaselines a project, costs may differ from the project estimates approved by Congress. Because GSA does not report the extent that it has rebaselined projects or projects' final costs, Congress lacks information about GSA's performance: such as whether final costs are consistently above, below, or meeting estimated costs. Reporting such information could benefit Congress' ability to carry out its oversight role and improve transparency about the full costs of major federal construction projects. GSA assesses whether projects meet requirements and tenants' needs but does not fully capture or share lessons learned. For example, GSA uses “commissioning”—testing installed building systems—to validate that the buildings' systems function as designed. However, because GSA's 2005 commissioning guide references outdated guidance, the effectiveness of its activities may be limited in assuring buildings are operating optimally. GSA also uses post occupany evaluations (POE) to assess projects' performance and tenants' satisfaction. However, in the last 5 years, GSA has not regularly conducted POEs, due in part to resource constraints, and lacks a policy for selecting projects for POEs and communicating findings from completed POEs. As a result, GSA may be missing opportunities to fully utilize POEs to gather tenants' feedback and inform the design and construction of future projects.

CRS_R45908

P resident Trump has long advocated for the construction of additional fencing, walls, and other barriers along the U.S.-Mexico border to deter unlawful border crossings. Less than a week after taking office, the President issued an executive order directing the Secretary of Homeland Security to "take all appropriate steps to immediately plan, design, and construct a physical wall along the southern border." This policy has engendered a robust debate in the public sphere, and a conflict has also made its way to federal court, with various plaintiffs challenging the lawfulness of the Trump Administration's initiatives to pay for the construction of border barriers by reprogramming funds from existing appropriations. At their core, these lawsuits concern whether the Administration's funding initiatives exceed existing statutory authorization and conflict with Congress's constitutionally conferred power over federal funds. Article I of the Constitution provides that "[n]o money shall be drawn from the Treasury but in Consequence of Appropriations made by Law." As Justice Joseph Story noted in his Commentaries on the Constitution , the appropriations power was given to Congress to guard against arbitrary and unchecked expenditures by the executive branch and to "secure regularity, punctuality, and fidelity, in the disbursement of the public money." "In arbitrary governments," he expounded, "the prince levies what money he pleases from his subjects, disposes of it, as he thinks proper, and is beyond responsibility or reproof." To avoid giving the President such "unbounded power over the public purse of the nation," the Framers designated Congress "the guardian of [the national] treasure"—giving to it "the power to decide, how and when any money should be applied[.]" This "power to control, and direct the appropriations," Justice Story explained, serves as "a most useful and salutary check upon profusion and extravagance, as well as upon corrupt influence and public speculation." Justice Story's sentiments echoed those of James Madison, who in The Federalist No. 58 described the legislature's "power over the purse" as "the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people, for obtaining a redress of every grievance, and for carrying into effect every just and salutary measure." The Trump Administration's early efforts to secure funding for border barriers focused on negotiating with Congress to secure appropriations specifically designated for that task. In his FY2018 budget proposal, President Trump requested that Congress appropriate $1.57 billion for border barrier construction. Similarly, President Trump's FY2019 budget request sought $1.6 billion "to construct approximately 65 miles of border wall in south Texas." Congress did not appropriate the amounts requested for either fiscal year. For FY2018, Congress appropriated $1.375 billion for new or repaired fencing and other forms of barriers along the U.S.-Mexico border, as well as $196 million for border monitoring technology. As FY2019 began, Congress and the President negotiated, inter alia , the amount of funding to provide the Department of Homeland Security (DHS) for border barrier construction for FY2019. Ultimately, Congress and the President did not agree on funding levels, leading to a 35-day lapse of appropriations for DHS and other portions of the federal government. During the partial government shutdown, President Trump increased his request for border barrier funding from $1.6 billion to $5.7 billion. Congress did not grant this request. Instead, in the Consolidated Appropriations Act, 2019 (CAA 2019), Congress appropriated $1.375 billion—$4.325 billion less than was ultimately requested—for "the construction of primary pedestrian fencing . . . in the Rio Grande Valley Sector." President Trump signed the CAA 2019 on February 15, 2019, that same day announcing that his Administration would "take Executive action" to "secure additional resources" to construct barriers along the southern border. In particular, President Trump announced that his Administration had identified "up to $8.1 billion" from three additional funding sources "to build the border wall." It remains to be seen whether the Administration will identify further funding sources from the FY2020 budget cycle. Several plaintiffs filed lawsuits in federal courts in California, the District of Columbia, and Texas to prevent the Trump Administration from taking this action. These plaintiffs assert that the Administration's funding initiatives are not authorized under existing law and thus violate the constitutional and statutory provisions requiring that federal money be spent only for the purposes, and in the amounts, specified by Congress. In May 2019, a federal district court in California concluded that one of the Administration's funding initiatives was unlawful and prohibited the Administration from using that authority to repurpose funds for border barrier construction. Though the U.S. Court of Appeals for the Ninth Circuit denied the Administration's request to stay the injunction, the Supreme Court granted that request, thus allowing the Administration to begin contracting for construction of border barriers while litigation in the case continues. A second federal district court in Texas has separately enjoined the use of military construction funds for border barrier construction. Meanwhile, the federal district court in the District of Columbia ruled that the plaintiff in that case—the U.S. House of Representatives—did not have standing to sue and dismissed the suit. The U.S. House of Representatives has appealed the decision. According to DHS's U.S. Customs and Border Protection (CBP), there had been roughly 654 miles of primary barriers deployed along the U.S.-Mexico border as of January 2017. In May 2019, CBP declared that "approximately 205 miles of new and updated border barriers" had been funded (though not necessarily constructed) "through the traditional appropriations process and via Treasury Forfeiture Funding" since January 2017. In addition to this mileage, CBP described DOD as funding in FY2019 "up to approximately 131 miles of new border barriers in place of dilapidated or outdated designs, in addition to road construction and lighting installation." In total, CBP stated that some 336 total miles of barriers (including both replacement barriers and barriers deployed in new locations) would be deployed using funds from FY2017 through FY2019. This report addresses the litigation surrounding the Trump Administration's initiatives to repurpose existing appropriations for the construction of border barriers along the U.S.-Mexico border. It begins by providing an overview of the authorities cited by the Trump Administration to obtain border barrier funding and the steps the Administration has taken to utilize those authorities. It then discusses DHS's existing authority to construct border barriers and the various authorities on which the Trump Administration has relied to secure additional border barrier funding. Finally, this report discusses the ongoing litigation regarding the Administration's funding initiatives, with a focus on the parties' arguments and judicial decisions. Legal Authorities Cited by the Trump Administration The Trump Administration has cited several statutory authorities as giving it both the power and the necessary funds to construct additional border barriers. Some of these authorities belong to DHS, the agency with primary responsibility for securing the U.S. borders. Other authorities permit the Department of Defense (DOD) or the Department of the Treasury to transfer funds for specified military, law enforcement, or other emergency purposes. These authorities are described in more detail below. First , Section 102 of the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA) as amended generally authorizes DHS to construct barriers and roads along the international borders in order to deter illegal crossings at locations of high illegal entry, and further directs the agency to construct fencing along no less than 700 miles of the U.S.-Mexico border. This law also authorizes the Secretary of Homeland Security to waive "all legal requirements . . . necessary to ensure expeditious construction of . . . [the] barriers." Second , the Secretary of Defense is authorized by 10 U.S.C. § 2808 to "undertake military construction projects . . . not otherwise authorized by law that are necessary to support such use of the armed forces." President Trump stated that he would invoke his authority under this provision to repurpose $3.6 billion allocated to "military construction projects" for border barrier construction. This authority becomes available upon a "declaration by the President of a national emergency" as authorized by the National Emergencies Act (NEA). Third , DOD has authority under 10 U.S.C. § 284 ("Section 284") to support other departments' or agencies' counterdrug activities, including through the construction of fencing to block drug smuggling corridors. President Trump proposed to direct the DOD to use its authority under Section 284 to support DHS's "counterdrug activities" through the construction of fencing across drug trafficking corridors at the southern border. These support activities would be funded by $2.5 billion in DOD's Drug Interdiction and Counter-Drug Activities Account (Drug Interdiction Account), which would be transferred to that account using the transfer authority in Sections 8005 and 9002 of the 2019 DOD Appropriations Act. These authorities authorize the transfer of up to $6 billion of DOD funds for "unforeseen military requirements" but only "where the item for which funds are requested has been denied by Congress." Fourth , the Treasury Forfeiture Fund contains funds that are confiscated by, or forfeited to, the federal government pursuant to laws enforced or administered by certain law enforcement agencies, and unobligated money in this fund may be used for obligation or expenditure in connection with "law enforcement activities of any Federal agency." The President proposed to withdraw $601 million in unobligated funds from the Treasury Forfeiture Fund ( TFF) to pay for border barrier construction. The Trump Administration has taken steps to make these funds available to construct border barriers along the U.S.-Mexico border. On February 15, the President declared a national emergency under the NEA, and has subsequently vetoed two congressional resolutions disapproving that declaration (which Congress did not override). On September 3, 2019, the Secretary of Defense directed the Acting Secretary of the Army to "expeditiously undertake" 11 border barrier military construction projects pursuant to Section 2808. In addition, on February 25, DHS requested that DOD use its authority under 10 U.S.C. § 284 to assist in constructing border barriers. DOD granted this request on March 25 and invoked the transfer authority in Section 8005 of the FY2019 DOD Appropriations Act to move $1 billion of Army personnel funds into DOD's Drug Interdiction Account for DOD to help DHS construct border barriers. A few months later, DOD again invoked Section 8005 (along with the related transfer authority in Section 9002 of the FY2019 DOD Appropriations Act) to transfer another $1.5 billion of personnel, procurement, and overseas contingency operation funds into the Drug Interdiction Account for use in constructing border barriers. The Trump Administration proposed to construct "approximately 131 miles of new border barriers . . . in addition to road construction and lighting installation" with these funds. For each of the proposed projects, the Acting Secretary of Homeland Security utilized IIRIRA § 102's waiver authority to waive the application of several federal environmental, conservation, and historic preservation statutes, including the National Environmental Policy Act (NEPA), the Endangered Species Act, the Safe Drinking Water Act, and the Antiquities Act, to the "fence[s], roads, and lighting" that DOD will be "assist[ing]" in "constructing" under Section 284. Department of Homeland Security Authority DHS's authority to construct barriers along the southern border derives from IIRIRA § 102, as amended. This law provides that "[t]he Secretary of Homeland Security shall take such actions as may be necessary to install additional physical barriers and roads . . . in the vicinity of the United States border to deter illegal crossings in areas of high illegal entry into the United States." IIRIRA § 102 directs that "the Secretary of Homeland Security shall construct reinforced fencing along not less than 700 miles of the southwest border," while also "identify[ing] the 370 miles . . . along the southwest border where fencing would be most practical and effective in deterring smugglers and aliens attempting to gain illegal entry into the United States." Finally, IIRIRA § 102 gives the Secretary of Homeland Security flexibility on where to construct barriers, allowing the Secretary to decline to build a border barrier in a particular location if "[the Secretary] determines that the use or placement of such resources is not the most appropriate means to achieve and maintain operational control over the international border. . . ." To expedite the construction of border barriers, IIRIRA § 102 authorizes the Secretary of Homeland Security to, "in [the] Secretary's sole discretion," "waive all legal requirements" that the Secretary "determines necessary to ensure expeditious construction of the barriers and roads under this section." And to limit potential legal challenges to this waiver authority, IIRIRA § 102 cabins the jurisdiction of federal district courts to claims "alleging a violation of the Constitution" and forecloses appellate review of district court decisions, except by seeking discretionary review in the U.S. Supreme Court. IIRIRA § 102's waiver authority has been challenged on constitutional grounds in cases involving waivers of NEPA and other federal environmental statutes. Those challenging the waiver authority have contended that it violates the nondelegation doctrine, the Presentment Clause, and the Take Care Clause. Courts, however, have uniformly rejected these challenges and concluded that "a valid waiver of the . . . laws under [IIRIRA § 102] is an affirmative defense" to all claims arising from the waived laws. The National Emergencies Act and Military Construction Funds The President invoked 10 U.S.C. § 2808 and announced that his Administration would seek to reallocate $3.6 billion from DOD's military construction budget for border barrier construction. The authority to take this action hinges on the President declaring a national emergency under the NEA, which President Trump did on February 15. On September 3, 2019, DOD identified 127 military construction projects that it would delay or suspend in order to reallocate $3.6 billion toward 11 barrier construction projects using this authority. The NEA provides general requirements governing the declaration of a national emergency, while Section 2808 contains additional requirements for its exercise. The National Emergencies Act The Supreme Court has explained that the President's authority "must stem either from an act of Congress or from the Constitution itself." Because Article II of the Constitution does not grant the Executive general emergency powers, the President generally must rely on Congress for such authority. Congress has historically given the President robust powers to act in times of crisis. By 1973, Congress had enacted more than 470 statutes granting the President special authorities upon the declaration of a "national emergency," but these statutes imposed no limitations on either the President's discretion to declare an emergency or the duration of such an emergency. The Senate Special Committee on National Emergencies and Delegated Emergency Powers (previously named the Senate Special Committee on the Termination of the National Emergency) ("Special Committee") was apparently concerned that four presidentially declared national emergencies remained extant in the mid-1970s, the earliest dating to 1933. In 1973, the Special Committee concluded that the President's crisis powers "confer[red] enough authority to rule the country without reference to normal constitutional process," and so Congress enacted the NEA in 1976 to pare back the President's emergency authorities. The NEA does not define "national emergency." Rather, the NEA established a framework to provide enhanced congressional oversight and prevent emergency declarations from continuing in perpetuity. To accomplish these goals, the NEA terminated all then-existing presidentially declared emergencies. The NEA also established procedures for future declarations of national emergencies, requiring the President to specify which statutory emergency authorities he intends to invoke upon a declaration of a national emergency (unlike the pre-NEA regime, under which the declaration of an emergency operated as an invocation of all of the President's emergency authorities); publish the proclamation of a national emergency in the Federal Register and transmit it to Congress; maintain records and transmit to Congress all rules and regulations promulgated to carry out such authorities; and provide an accounting of expenditures directly attributable to the exercise of such authorities for every six-month period following the declaration. The NEA further provides that a national emergency will end (1) automatically after one year unless the President publishes a notice of renewal in the Federal Register , (2) upon a presidential declaration ending the national emergency, or (3) if Congress enacts a joint resolution terminating the emergency (which would likely require the votes of two-thirds majorities in each house of Congress to override a presidential veto). While the NEA directs each house of Congress to meet every six months to consider whether to end a national emergency by joint resolution, Congress has never met to consider such a vote under that deadline prior to this year. The statute does not appear to prevent Congress from considering a resolution to terminate a national emergency at any time before or after a six-month interval. Although a purpose of the NEA was to end perpetual states of emergency, the law does grant the President authority to renew an emergency declaration. As a result, there are currently 34 national emergency declarations in effect, some of which have been renewed for decades. The declaration of a national emergency under the NEA enables the President to invoke a wide array of emergency authorities conferred by statute. The most often invoked is the International Emergency Economic Powers Act (IEEPA), which gives the President broad authority to impose sanctions on foreign countries and entities. Besides Section 2808, another authority that could provide for the reprogramming of funds for construction purposes is 33 U.S.C. § 2293, which, in the event of a national emergency or declaration of war, authorizes the Secretary of the Army to end or defer Army Corps of Engineers civil works projects that are "not essential to the national defense." The Secretary of the Army can then use the funds otherwise allocated to those projects for "authorized civil works, military construction, and civil defense projects that are essential to the national defense." No President has ever invoked this authority, but it could potentially be used in connection with President Trump's declaration of a national emergency at the southern border. Military Construction Funds A declaration of a national emergency triggers Section 2808, which provides emergency authority for unauthorized military construction in the event of a declaration of war or national emergency. President Trump invoked this statutory authority to reallocate $3.6 billion from DOD military construction funds to border barrier construction, stating in his emergency declaration that "this emergency requires use of the Armed Forces and . . . that the construction authority provided in section 2808 of title 10, United States Code, is invoked and made available, according to its terms, to the Secretary of Defense and, at the discretion of the Secretary of Defense, to the Secretaries of the military departments." The President did not describe in his proclamation the tasks the Armed Forces would undertake with respect to the emergency at the southern border. Originally enacted in 1982, Section 2808 provides that upon the President's declaration of a national emergency "that requires use of the armed forces," the Secretary of Defense may "without regard to any other provision of law . . . undertake military construction projects . . . not otherwise authorized by law that are necessary to support such use of the armed forces." The term "military construction project" is defined to include "military construction work," and "military construction" is, in turn, defined to "include any construction, development, conversion, or extension of any kind carried out with respect to a military installation . . . or any acquisition of land or construction of a defense access road." The term "military installation" means a "base, camp, post, station, yard, center, or other activity under the jurisdiction of the Secretary of a military department." Finally, Section 2808 limits the funds available for emergency military construction to "the total amount of funds that have been appropriated for military construction" but which have not been obligated. Section 2808's legislative history provides limited guidance on the types of emergencies and military construction projects envisioned. A House Armed Services Committee report accompanying the original 1982 legislation indicated that while "[i]t is impossible to provide in advance for all conceivable emergency situations," Section 2808 was intended to address contingencies "ranging from relocation of forces to meet geographical threats to continuity of efforts after a direct attack on the United States during which the Congress may be unable to convene." With certain limited exceptions, prior Presidents have generally invoked this authority for construction at military bases in foreign countries. Department of Defense Authorities To obtain additional funds to construct border barriers, the Trump Administration has invoked DOD's authority under 10 U.S.C. § 284 to support DHS in constructing border fencing. This support would be funded by money transferred to DOD's Drug Interdiction Account pursuant to Sections 8005 and 9002 of the 2019 DOD Appropriations Act. These authorities are not contingent on the declaration of a national emergency. Section 284 In general, U.S. military involvement in civilian law enforcement is permitted only when specifically authorized by Congress. For example, the Secretary of Defense can "make available any equipment . . . base facility, or research facility" to any "civilian law enforcement official . . . for law enforcement purposes." Section 284 is another of these authorities. It authorizes the Secretary of Defense to "provide support for the counterdrug activities or activities to counter transnational organized crime of any other department or agency of the Federal Government or of any State, local, tribal, or foreign law enforcement agency." DOD may provide support under Section 284 only after it has been "requested" by the appropriate official from the governmental agency or department, and then only for "the purposes set forth" in Section 284. Those purposes include "the maintenance and repair" of certain equipment, the "training of law enforcement personnel" related to "[c]ounterdrug or counter-transnational organized crime," and "[a]erial and ground reconnaissance." Section 284 also authorizes DOD to provide support for the "[c]onstruction of roads and fences and installation of lighting to block drug smuggling corridors across international boundaries of the United States." And to ensure that DOD can provide this support expeditiously, support under Section 284 is generally not subject to the requirements that govern DOD's other authority to support civil law enforcement agencies. Section 284 also provides for congressional oversight of DOD's support activities. At least 15 days prior to providing support to another agency under Section 284, the Secretary of Defense must submit "a description of any small scale construction project for which support is provided" to the appropriate congressional committees. "Small scale construction project" is, in turn, defined to encompass projects that cost no more than $750,000. Section 284 does not include a reporting requirement for any projects exceeding $750,000. Historically, DOD's activities under Section 284 have been funded by the "Drug Interdiction and Counter-Drug Activities" line item in its annual appropriations bill. For FY2019 Congress appropriated $1,034,625,000 to this line item, with $517,171,000 of that amount being allocated for "counter-narcotics support." Sections 8005 and 9002 of the 2019 DOD Appropriations Act On February 25, 2019, DHS submitted a request to DOD to provide assistance pursuant to Section 284 in constructing border barriers in three locations along the U.S.-Mexico border, and DOD then approved the use of funds from the Drug Interdiction Account for these projects. However, much of the FY2019 funds appropriated for "counter-narcotics support" had been obligated by the time DOD made its request. As a result, DOD sought to use its authority under Section 8005 of the 2019 DOD Appropriations Act to transfer other funds into the Drug Interdiction Account. Section 8005 authorizes the Secretary of Defense—"[u]pon a determination by the Secretary of Defense that such action is necessary in the national interest" and with "approval of the Office of Management and Budget"—to "transfer not to exceed [$4 billion] of working capital funds of the [DOD] or funds made available in [the 2019 DOD Appropriations Act] for military functions (except military construction)." Section 8005 further provides that funds may be transferred only "for higher priority items, based on unforeseen military requirements, than those for which originally appropriated," and may not be transferred "where the item for which funds are requested has been denied by Congress." Finally, Section 8005 requires the Secretary of Defense to "notify the Congress promptly of all transfers made pursuant to this authority." This transfer authority, in its current form, originated with the FY1974 DOD Appropriations Act. The 1974 act appears to be the first instance when Congress expressly prohibited the transfer of DOD funds for purposes for which Congress had denied funding. The House committee report for this legislation explained that this language was added "to tighten congressional control of the reprogramming process." Before that time, DOD had "on . . . occasion[]" reprogrammed funds "which ha[d] been specifically deleted in the legislative process" after obtaining the consent of the authorizing and appropriations committees in the House and Senate. The House committee report explained that this practice "place[d] committees in the position of undoing the work of the Congress." Characterizing this practice as "untenable," the House report declared that "henceforth no such requests will be entertained." Invoking Section 8005's transfer authority, DOD in February 2019 authorized the transfer of an initial $1 billion of Army personnel funds to the Drug Interdiction Account. And on May 9, DOD authorized the transfer of an additional $1.5 billion to that fund using Sections 8005 and 9002 of the 2019 DOD Appropriations Act. Section 9002 authorizes the Secretary of Defense to "transfer up to [$2 billion] between the appropriations or funds made available to [DOD] in this title." This authority is "in addition to any other transfer authority available to [DOD]"—including Section 8005—and is also "subject to the same terms and conditions as the authority provided in section 8005." The Acting Secretary of Defense informed Congress of these transfers. Treasury Forfeiture Fund In various federal statutes, Congress has authorized the confiscation, or forfeiture to the federal government, of any property used to facilitate a crime as well as the profits and proceeds of such crimes. None of these statutes is contingent on the declaration of a national emergency. Congress established the TFF to hold proceeds of property forfeited under most laws enforced or administered by a law enforcement organization within the Department of the Treasury or by the Coast Guard. Funds in the TFF may be used by the Secretary of the Treasury for a variety of law enforcement purposes. Some of these purposes are mandatory, such as making "equitable sharing payments" to other federal, state, and local law enforcement agencies that participate in the seizure or forfeiture of property. Others, such as awards for information leading to forfeited property covered by the TFF, are subject to the discretion of the Secretary of the Treasury. At the end of each fiscal year, the Secretary of the Treasury must reserve a sufficient amount in the TFF to cover mandatory and discretionary expenditures. Unobligated balances in the fund over the reserved amount may be used "for obligation or expenditure in connection with the law enforcement activities of any Federal agency or of a Department of the Treasury law enforcement organization." This unobligated amount is known as "Strategic Support." At the end of 2018, DHS requested $681 million of Strategic Support from the TFF for "border security." In response to that request, the Secretary of the Treasury transferred roughly $601 million to CBP for "border barrier construction." The Border Barrier Litigation Following the Trump Administration's announcement of its initiatives to fund border barrier construction, citizens groups, states, and the U.S. House of Representatives filed lawsuits in federal district courts in California, the District of Columbia, and Texas. The plaintiffs in these lawsuits have argued that the Trump Administration's funding initiatives are not authorized by (or are inconsistent with) the relevant statutory authorities. As a result, they have also contended that the Administration's funding initiatives violate constitutional separation of powers principles and the Appropriations Clause's directive that money may be withdrawn from the Treasury only "in Consequence of Appropriations made by Law." Finally, some plaintiffs have asserted that IIRIRA § 102 does not empower DHS to waive the requirements of NEPA for the border barrier projects being constructed with DOD's assistance because IIRIRA § 102's waiver authority extends only to projects undertaken by DHS. After bringing suit, certain plaintiffs filed motions for a preliminary injunction, asking the courts to prohibit DOD from implementing its funding initiatives while the litigation was ongoing. On May 24, 2019, a judge on the U.S. District Court for the Northern District of California issued decisions in the two cases pending in that court— Sierra Club v. Trump and California v. Trump —resolving one of the issues presented by the plaintiffs' motion: whether Sections 8005 and 9002 of the 2019 DOD Appropriations Act authorized the transfer of funds for border barrier construction. The district court determined that it did not for two reasons. It first concluded that this would violate Section 8005's prohibition on transferring funds where "the item for which funds [were] requested ha[d] been denied by Congress." The court also ruled that the Administration's proposed use of Section 8005 was unlawful because DOD's purported need for additional border barrier funding was not an "unforeseen military requirement," as required by Section 8005. Based on this ruling, the court in Sierra Club issued a preliminary injunction barring the Administration from using Section 8005 to transfer funds for border barrier construction while litigation proceeded. The court declined to also issue a preliminary injunction in the California case because (with the Sierra Club injunction in place) the plaintiffs in California could not establish that they would be irreparably harmed by the denial of an injunction. Because the plaintiffs' lawsuit preceded DOD's May 9 decision to transfer $1.5 billion to the Drug Interdiction Account, the preliminary injunction applied only to the initial, February 25 transfer of $1 billion to fund projects in New Mexico and Arizona. But in a later decision, the district court applied the reasoning from its initial ruling to conclude that the $1.5 billion transfer, like the first, was not authorized by Section 8005 or Section 9002. The court then issued an order permanently prohibiting the Administration from using either of these provisions to transfer any of the $2.5 billion for border barrier construction. The Trump Administration appealed the district court's permanent injunction to the U.S. Court of Appeals for the Ninth Circuit and asked that court to stay the injunction pending appeal. The Ninth Circuit denied that request, agreeing with the district court that Section 8005 does not authorize the transfer of funds for border barrier construction. However, the Supreme Court subsequently issued an order staying the injunction during the pendency of the litigation. As a result of the Supreme Court's order, the Trump Administration may use Section 8005 to transfer funds for border barrier construction. The district court subsequently issued a permanent injunction against the use of military construction funds as well, but stayed the injunction pending appeal. The Texas lawsuit, El Paso County v. Trump , also resulted in a permanent injunction against the Trump Administration's funding scheme for border barrier construction using Section 2808. The district court determined that the use of those provisions to fund border barriers clashed with the Consolidated Appropriations Act, 2019 (CAA 2019), provision that prohibits the use of appropriated funds "to increase . . . funding for a program, project, or activity as proposed in the President's budget request for a fiscal year" unless it is made pursuant to the reprogramming or transfer provisions of an appropriations Act. This section discusses the various arguments raised in these lawsuits regarding the lawfulness of the Trump Administration's initiatives for funding border barrier construction. It also discusses the judicial decisions that have resolved, or otherwise opined on, the lawfulness of the Administration's funding initiatives. The federal court in the District of Columbia presiding over the U.S. House of Representatives' case dismissed that suit for lack of standing, and that decision is currently being appealed. Legal Arguments and Judicial Decisions Regarding the Trump Administration's Efforts to Fund Additional Barrier Deployments Section 8005 The Northern District of California's Sierra Club Decision166 As discussed earlier, Section 8005 authorizes the transfer of funds for "military functions," but provides that funds may be transferred only "for higher priority items, based on unforeseen military requirements, than those for which originally appropriated." Further, funds may not be transferred "where the item for which funds are requested has been denied by Congress." The district court in Sierra Club v. Trump concluded that Section 8005 does not authorize the transfer of funds for the construction of border barriers because the transfer was for an "item" for which funds had been denied by Congress and, in any event, because the asserted need for the construction of border barriers was not "unforeseen." The district court first addressed whether the proposed transfer was for an "item" for which Congress had denied funds. In its briefs, the Trump Administration had argued that the relevant "item for which funds [were] requested" was DOD's assistance to DHS under 10 U.S.C. § 284 for "counterdrug activities," not (as the plaintiffs urged) the construction of border barriers generally. Thus, the Administration urged, because Congress had not "denied" a request for appropriations for DOD "counterdrug" assistance under Section 284, transferring funds for that purpose was not prohibited by Section 8005. The district court rejected that argument, concluding instead that the historical context leading up to the transfer—including the previous disagreement between the Administration and Congress on the appropriate funding for border barriers that led to an extended lapse in appropriations—showed that the "item for which funds [were] requested" was the construction of border barriers generally, regardless of which agency would undertake construction or the statutory authority on which it might rely. "[T]he reality is that Congress was presented with—and declined to grant—a $5.7 billion request for border barrier construction," the court explained. Thus, "[b]order barrier construction, expressly, is the item [the Administration] now seek[s] to fund via the Section 8005 transfer, and Congress denied the requested funds for that item." The court also relied on portions of Section 8005's legislative history to support this conclusion. In particular, the court cited portions of a House report from 1973, which explained that Congress originally adopted the "denied by Congress" language to "'tighten congressional control of the reprogramming process''' and to "'prevent the funding for programs which have been considered by Congress and for which funding has been denied.'" In the court's view, an interpretation of Section 8005 that would allow the Administration to transfer money for border barrier construction, despite Congress's refusal to appropriate the amount of money requested for that purpose, would undermine Section 8005's objective. The court also determined that Section 8005's transfer authority was unavailable because the Administration's proposed border barrier construction was not an " unforeseen military requirement[]." The Administration had argued that the proposed border barrier construction (i.e., the "military requirement") was "unforeseen" because the need for DOD to provide support to DHS through Section 284 was not known until DHS had requested that assistance—which occurred after the President's budget request and after Congress had passed the DOD appropriations bill with less funding for barrier construction than the Administration had requested. The district court rejected this interpretation of Section 8005. On this theory, the court explained, " every request for Section 284 support" would be unforeseen because the need to rely on that particular statutory authority would only ever arise when another agency requests DOD's assistance under that provision. The district court also asserted that "[the Administration's] argument that the need for the requested border barrier construction funding was 'unforeseen' cannot logically be squared with the Administration's multiple requests for funding" for a border wall. Finally, the court invoked the canon of constitutional avoidance to support its reading of Section 8005. Under this rule of statutory interpretation, when there are two possible interpretations of a statute, one of which would raise serious constitutional concerns, courts should adopt the interpretation that avoids the constitutional difficulties. According to the district court, the Administration's interpretation of Section 8005 would "pose serious problems under the Constitution's separation of powers principles" because it would allow the executive branch to "render meaningless Congress's constitutionally-mandated power" to control federal expenditures by "ceding essentially boundless appropriations judgment" to the executive branch. Avoiding these potential pitfalls was, in the court's view, another reason to reject the Administration's broader interpretation of Section 8005. On these grounds, the court decided that the plaintiffs would likely succeed on their claim that the Administration could not lawfully use Section 8005 to transfer funds for border barrier construction. Thus, after finding the remaining preliminary injunction requirements satisfied, the court entered an order temporarily prohibiting the Administration from using the $1 billion of funds transferred under Section 8005 to construct the specified border barriers in New Mexico and Arizona. After issuing this decision, the parties submitted additional briefing on the lawfulness of the Administration's May 9 decision to use Sections 8005 and 9002 to transfer another $1.5 billion to the Drug Interdiction Account for the construction of border barriers in four additional locations in California and Arizona. On June 28, the district court issued a decision adopting the same reasoning as its earlier opinion. And having found both of the Administration's proposed uses of Section 8005's transfer authority unlawful, the court entered an injunction permanently prohibiting the Administration "from taking any action to construct a border barrier" using Section 8005. The Ninth Circuit's Sierra Club Decision The Trump Administration appealed the district court's permanent injunction to the U.S. Court of Appeals for the Ninth Circuit and asked that court to stay the injunction pending appeal. On July 3, a divided panel of the Ninth Circuit denied the Administration's request for a stay, concluding that the Administration had not shown a likelihood of success on the merits. In reaching that conclusion, the Ninth Circuit first agreed with the district court that the construction of a border barrier was not an " unforeseen military requirement," as required by Section 8005. Like the district court, the Ninth Circuit declared that the relevant "requirement" was the construction of border barriers—not, as the Administration contended, the need for DHS to request support from DOD under Section 284. The Ninth Circuit also concluded that Congress had "denied" funds for construction of the border barrier. The Administration had argued to that court that the "item for which funds [were] requested" referred to "'a particular budget item' for section 8005 purposes"—which Congress had not denied—and did not encompass other requests for DHS funding for border barriers. The court of appeals rejected this reading, concluding that the "item for which funds [were] requested" was "a wall along the southern border," and that Congress had denied the Administration's request to fund that "item." "In sum," the court reasoned, "Congress considered the 'item' at issue here—a physical barrier along the entire southern border"—and it "decided in a transparent process subject to great public scrutiny to appropriate less than the total amount the President had sought for that item. To call that anything but a 'denial' is not credible." However, as discussed in more detail below, the Supreme Court ultimately stayed the district court's injunction. The Court's stay order did not rule on the merits of Section 8005 or any of the other statutory authorities on which the Administration has relied to secure additional border barrier funding. Instead, the Court stayed the injunction because it concluded that "the Government had made a sufficient showing at this stage that the plaintiffs have no cause of action to obtain review of the Acting [Secretary of Defense's] compliance with Section 8005." Section 284 The plaintiffs in Sierra Club and California also argued that even if Section 8005 authorized the transfer of funds to the Drug Interdiction Account, Section 284 does not empower DOD to assist another agency in constructing border barriers. The plaintiffs in these cases raised several points to support this conclusion. First , they observed that Section 284 requires DOD to provide to Congress "a description of the small scale construction project for which support is provided," and defines "small scale construction" to mean "construction at a cost not to exceed $75,000 for any project." That Section 284 requires DOD to report to Congress on "small scale construction projects" and not larger projects, the plaintiffs argued, suggests that Section 284 should not be read to authorize assistance with larger-scale projects. "Congress would not have required a description of 'any small scale construction' projects if it was, at the same time, authorizing massive, multibillion-dollar expenditures under this provision," the plaintiffs argued. But even if Section 284 could be read otherwise, the plaintiffs contended that it should not be read broadly here given "the more specific and recent judgment by Congress" to appropriate only $1.375 billion for DHS border barrier construction. If there is a "specific policy embodied in a later statute," they argued, that later statute "should control judicial construction of the earlier broad statute, even though [the latter statute] has not been expressly amended." Second , the plaintiffs argued that Section 284 does not authorize DOD's proposed border barrier projects because the portion of Section 284 relied on by DOD applies solely to "block[ing] drug smuggling corridors." By contrast, the plaintiffs argued that DOD intended to use "Section 284 . . . as a tool to create a contiguous border wall, not to address specific corridors." Third , the plaintiffs pointed to a neighboring statutory provision requiring an agency receiving DOD support "to reimburse [DOD] for that support," though DOD may waive this requirement if its support (1) "is provided in the normal course of military training or operation," or (2) "results in a benefit . . . that is substantially equivalent to that which would otherwise obtain from military operations or training." The plaintiffs argued that DOD has breached this requirement—thus rendering Section 284 unavailable—because DHS had "requested support on a 'non-reimbursable basis,'" but neither of the two exceptions to the reimbursement requirement was met. Finally , the plaintiffs argued that DOD's reliance on Section 284 "violates the core principle that executive branch agencies may not mix and match funds from different accounts to exceed the funding limits Congress imposed." In particular, the plaintiffs noted the general rule of appropriations law that "specific appropriations preclude the use of general ones even when the two appropriations come from different accounts." Here, the plaintiffs contended, "Congress ha[d] allocated a specific amount of funding" for border barrier construction, precluding "the government [from] cobbl[ing] together other, more general sources of money to increase funding levels for that same goal." The Administration responded that the plaintiffs in Sierra Club and California had misconstrued Section 284. The Administration first argued that Section 284 contemplates that DOD may assist with projects other than "small scale construction," as certain provisions in Section 284 "refer to—but are not limited to—'small scale' or 'minor' construction." As to the reimbursement requirement, the Administration asserted that Section 284 itself makes the reimbursement requirement inapplicable to DOD's counterdrug activities, providing that "[t]he authority provided in this [S]ection [284] for the support of counterdrug activities . . . by [DOD] is . . . not subject to the other requirements of this chapter." Next, the Administration contended that its proposed border barrier projects satisfied Section 284's "drug smuggling corridor" requirement, as the proposed project areas were "known to have high rates of drug smuggling between the ports of entry." Finally, the Administration rejected as "without merit" the plaintiffs' argument that its use of Section 284 violated the principle that agencies "must use the [most] specific appropriation to the exclusion of [a] general appropriation." This principle, the Administration contended, applies only when both sources of funding belong to a single agency, not where the appropriations at issue are to different agencies—that is, Section 8005 and Section 284 to DOD and $1.375 billion to DHS in its appropriations bill. However, the district court in Sierra Club and California ultimately did not resolve this issue because it concluded that Section 8005 does not authorize the transfer of funds to be used by DOD under its Section 284 authority. And, with no district court ruling to review, the Ninth Circuit in Sierra Club also did not address this authority. The district court in El Paso County agreed with the plaintiffs on the basis that Congress's appropriation of funds for border barrier construction is a specific statute that should be given precedence over more general statutes. The court stated that "[a]n appropriation for a specific purpose is exclusive of other appropriations in general terms which might be applicable in the absence of the specific appropriation." Moreover, the court held the use of Section 284 funds for border barrier construction was precluded by Section 739 of the CAA 2019, which prohibits the use of appropriated funds to increase funding for a program, project, or activity proposed in the President's budget request beyond what Congress had provided except through reprogramming or transfer actions pursuant to an appropriations act. Because the President had requested $5.7 billion for FY2019 "for construction of a steel barrier for the Southwest border" but Congress had appropriated $1.375 billion to be made on "construction . . . in the Rio Grande Valley Sector" alone, the court found that the use of Section 284 funds for the border project amounted to an unlawful increase in funding for that activity using appropriated funds. The court noted that Section 284 is not an appropriations statute and its use was thus not eligible for the exception in Section 739 of the CAA 2019 for reprogramming provisions. Nevertheless, because of the Supreme Court's stay of the injunction issued in the Sierra Club case, the court in El Paso declined to enjoin the use of Section 284. Department of Homeland Security Waiver Authority The plaintiffs in Sierra Club and California also argued that the Administration's proposed construction of a border barrier was subject to the environmental assessment requirements of NEPA, and that DHS's waiver authority under IIRIRA § 102 is ineffective to waive NEPA's application for projects funded and undertaken by any other department or agency. The plaintiffs noted that IIRIRA § 102's waiver authority may be used only for the "construction of the barriers and roads under this section ." Because the Administration was relying on DOD authority and appropriations (i.e., Section 284 and the Drug Interdiction Account) to construct the border barriers, the plaintiffs contended that those projects did not meet the statutory requirement and thus were not covered by an IIRIRA § 102 waiver. By contrast, the Administration argued that by requiring DHS to take "such actions as may be necessary" to construct additional border barriers, IIRIRA § 102 authorized DHS to request DOD's assistance, and thus the waiver authority applied. Ruling for the Administration, the district court in Sierra Club and California held that IIRIRA § 102's waiver authority extends to border projects undertaken by another agency on behalf of DHS, and thus DHS's waivers rendered NEPA inapplicable to the challenged border barrier projects. "DOD's authority under Section 284 is derivative," the court explained, as it may invoke "its authority [under Section 284] only in response to a request from [another] agency." "Plaintiffs' argument would require the court to conclude that even though it is undisputed that DHS could waive NEPA's requirements if it were paying for the projects out of its own budget, that waiver is inoperative when DOD provides support in response to a request from DHS." The court rejected this approach because it found it "unlikely that Congress intended to impose different NEPA requirements on DOD when it acts in support of DHS's IIRIRA § 102 authority in response to a direct request under Section 284 than would apply to DHS itself." The court thus ruled that DHS's waivers applied to the challenged border projects—and all parties agreed that "the waivers, if applicable, would be dispositive of the NEPA claims." Treasury Forfeiture Fund The state plaintiffs in California v. Trump also argued that the Administration's allocation of $601 million from the TFF was not authorized by 31 U.S.C. § 9705, specifically because the construction of border barriers is not an expenditure for "law enforcement activities." In response, the Administration argued that the allocation of payments from the TFF is not reviewable, citing Supreme Court and Ninth Circuit decisions establishing that an agency's determination of how to allocate funds from a lump-sum appropriation is committed to the agency's discretion. The district court determined that, while the statute provided some discretion for the Secretary of the Treasury to decide what payments should be made from the TFF, the statute provided a "comprehensive list of payments for which TFF" payments must be made. There were therefore sufficient standards for determining whether the Administration had transferred funds in a "statutorily impermissible manner." Despite finding that the use of the TFF was reviewable, the district court declined to address the merits of the state plaintiffs' arguments because the plaintiffs did not meet the other requirements for a preliminary injunction. Specifically, a preliminary injunction requires the court to find that the moving party will suffer irreparable injury if the injunction is not issued. But the TFF statute requires equitable sharing payments for the current and next fiscal years to be reserved before any unobligated balances were available for Strategic Support expenditures. Because the Secretary of the Treasury had reserved such amounts before the requested transfer to DHS, there was no justification for the "extraordinary" remedy of a preliminary injunction against the TFF transfer. Subsequently, on August 2, the parties in California stipulated to the voluntary dismissal of the plaintiffs' TFF claim. According to the parties, this dismissal was based on representations by the Administration that (1) its proposed use of $601 million from the TFF would not cause state and local law enforcement agencies to lose any funds they would otherwise receive from the TFF, and (2) "funds from the TFF will not be used to fund or support the construction of border barriers in any areas other than within the Rio Grande Valley and/or Laredo Sectors"—that is, areas within Texas. The plaintiffs in Sierra Club have not dismissed their TFF claim. Reprogramming of Funds During National Emergency Two types of challenges have arisen to the reprogramming of military construction funds for use in border barrier construction. The first challenges the declaration of the national emergency itself, while the second challenges the invocation of authority pursuant to Section 2808. The El Paso County Challenge to the President's Declaration of a National Emergency Though the plaintiffs in Sierra Club and California did not challenge the lawfulness of President Trump's declaration of a national emergency under the NEA, the plaintiffs in El Paso County v. Trump did. They have charged that the President's declaration of a national emergency to make use of military construction funds for border barrier construction is unlawful because the situation at the border does not constitute an emergency within the meaning of the NEA. They argue that "emergency" in the NEA must be construed in accordance with its ordinary meaning—"an unforeseen combination of circumstances requiring immediate action"—or the NEA is an unconstitutional violation of the nondelegation doctrine. Under the nondelegation doctrine, they argue, Congress cannot delegate legislative authority to the executive branch without providing an intelligible principle to guide implementation of a law. Plaintiffs assert that an interpretation of the NEA that leaves unfettered discretion to the President to decide what constitutes a national emergency would be an unconstitutional delegation of congressional authority. The government responded with its own interpretation of the NEA, one that views Congress's failure to provide a definition for "national emergency" as an indication that Congress intended to avoid constricting presidential power. The government also cites historical examples to demonstrate that national emergency declarations need not address circumstances that are unforeseen. Moreover, it argues that courts have uniformly concluded that presidential declarations of national emergencies present a nonjusticiable political question. The Supreme Court set forth the factors courts must consider in determining whether a matter raises nonjusticiable political questions in Baker v. Carr . These factors are a textually demonstrable constitutional commitment of the issue to a coordinate political department; a lack of judicially discoverable and manageable standards for resolving it; the impossibility of deciding without an initial policy determination of a kind clearly for nonjudicial discretion; the impossibility of a court's undertaking independent resolution without expressing lack of the respect due coordinate branches of government; an unusual need for unquestioning adherence to a political decision already made; or the potentiality of embarrassment from multifarious pronouncements by various departments on one question. The Administration argues that the President's national emergency declaration fulfills "most, if not all of these factors." First, the executive branch claims that Congress intentionally chose to leave the determination of a national emergency to the President with oversight by Congress, without setting forth criteria from which a court could judge the President's action. Second, the Administration contends that how to combat illegal immigration is quintessentially "the sort of policy determination of a kind clearly for nonjudicial discretion." Third, it argues that the policy questions regarding the exclusion of aliens are entrusted to the political branches. The district court did not address the constitutionality of the NEA or the proclamation, but entered summary judgment in favor of the plaintiffs on the basis that the Administration's funding plan for the border, in the court's view, violates the CAA 2019, in particular Section 739. The Challenge to the Use of Section 2808 Considered in Sierra Club The Sierra Club plaintiffs did not challenge the lawfulness of President Trump's declaration of a national emergency under the NEA, but they did argue that the Administration's plan to reallocate $3.6 billion in military construction funds was unlawful because 10 U.S.C. § 2808 does not authorize the construction of border barriers. Though the district court declined to grant a preliminary injunction because the plaintiffs had not demonstrated irreparable harm from the Administration's as-yet undetermined plans to divert the funds, the court did express doubt that the definition of "military construction" in Section 2808 encompassed border barriers. As noted previously, Section 2808 permits reprogramming of funds for "military construction" necessary to support the use of the Armed Forces in a national emergency. Military construction is defined to "include any construction, development, conversion, or extension of any kind carried out with respect to a military installation," which means a "base, camp, post, station, yard, center, or other activity " under the jurisdiction of the Secretary of a military department. The Administration relied on the term "other activity" and the nonexhaustive word "includes" in the definitions related to "military construction" to argue that Congress had meant the term "military construction" in Section 2808 to be construed broadly. In other words, the government interpreted the definition of military construction to include any sort of construction related to a military installation. This would include any "other activity under the jurisdiction of the Secretary of a military department," which could conceivably include border barriers constructed by DOD. The court in Sierra Club rejected that view, explaining that "the critical language of Section 2801(a) is not the word 'includes,' it is the condition 'with respect to a military installation.'" Further, the court rebuffed the Administration's reliance on the term "other activity." That language, the court explained, is not unbounded but should be interpreted in context of the words that immediately precede it—"a base, camp, post, station, yard, [and] center." Applying the rule of statutory interpretation that "a word is known by the company it keeps," the court concluded that "other activity" refers to similar discrete and traditional military locations. The court did "not readily see how the U.S.-Mexico border could fit this bill." The court likewise employed the rule of interpretation that "[w]here general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words." The court explained that if Congress "had . . . intended for 'other activity' . . . to be so broad as to transform literally any activity conducted by a Secretary of a military department into a 'military installation,' there would have been no reason to include a list of specific, discrete military locations." Thus, viewing the term "in context and with an eye toward the overall statutory scheme," the court could not conclude that "Congress ever contemplated that 'other activity' has such an unbounded reading that it would authorize Defendants to invoke Section 2808 to build a barrier on the southern border." However, because the issue was not yet ripe for decision, the district court did not enjoin the use of military construction funds for border barrier construction. And because the district court did not rule on this issue the Ninth Circuit did not address it either. On December 11, 2019, however, the district court determined that the government's formulation of plans to allocate the military construction funds for 11 border barrier projects made the issue ripe for decision in both the California and Sierra Club cases. Although the court declined to take on the question of whether an emergency requiring the use of troops in fact exists, it found the question of whether the specific projects are "military construction projects" that are "necessary to support such use of the armed forces" to be suitable for adjudication. With respect to the first issue, the court reaffirmed its earlier assessment based on the statutory definitions that such projects have insufficient connection with any military installation to be permissible military construction projects, notwithstanding the government's argument that its taking of administrative jurisdiction over the land for them and assigning it to Fort Bliss in Texas created such a connection. The court was not persuaded that Congress intended "military construction" to have no stronger connection to a military installation than Defendants' own administrative convenience. If this were true, Defendants could redirect billions of dollars from projects to which Congress appropriated funds to projects of Defendants' own choosing, all without congressional approval (and in fact directly contrary to Congress' decision not to fund these projects). Elevating form over substance in this way risks "the Executive [] aggrandizing its power at the expense of [Congress]." Addressing the government's contention that "installation" was meant to be read broadly in the emergency context, the court pointed out that the aim of the NEA was to narrow executive emergency power, and that "Section 2808 has rarely been used, and never to fund projects for which Congress withheld appropriations." The court therefore found that the border barrier construction projects, with the exception of two projects on the Barry M. Goldwater range, are not "'carried out with respect to a military installation' within the meaning of Section 2808." The court next addressed whether the 11 barrier projects are "necessary to support the use of the armed forces," and found the government's arguments unconvincing. In the government's view, these projects will support the armed forces because they "allow DoD to provide support to DHS more efficiently and effectively," and could "ultimately reduce the demand for DoD support at the southern border over time." The court rejoined: Defendants do not explain how the projects are necessary to support the use of the armed forces while simultaneously obviating the need for those forces. This appears to defy the purpose of Section 2808, which specifically refers to construction that is necessary to support the use of the armed forces, not to construction that the armed forces will not use once constructed. Again, Defendants' argument proves too much. Under their theory, any construction could be converted into military construction—and funded through Section 2808—simply by sending armed forces temporarily to provide logistical support to a civilian agency during construction. The court concluded that there was "simply nothing in the record . . . indicating that the eleven border barrier projects—however helpful—are necessary to support the use of the armed forces." The court entered a permanent injunction against the 11 proposed border construction projects, but stayed the injunction pending appeal. The government has appealed. The district court in El Paso County rejected the use of Section 2808 for border barrier construction not because of the definitions at issue, but because the court concluded the provision is not an appropriations measure and therefore cannot be used to circumvent Section 739 of the CAA 2019, for the same reasons that the judge rejected the use of Section 284. Procedural Barriers to Lawsuits Challenging Border Barrier Funding Aside from the merits of the Trump Administration's funding initiatives, the various legal challenges brought by states, private individuals, and the House of Representatives also involve two threshold requirements that must be satisfied by any party seeking to maintain a lawsuit in federal court. A plaintiff must first show that he has suffered a "concrete" and "particularized" injury that was caused by the challenged government action—the so-called "standing" requirement. A plaintiff must also have a legal right (i.e., a "cause of action") to enforce whatever provision of federal law is at issue, and he must also fall within the "zone of interests" meant to be protected by that law. These procedural requirements have presented obstacles to those opposing the Trump Administration's funding initiatives. In U.S. House of Representatives v. Mnuchin , the U.S. District Court for the District of Columbia held that the House of Representatives lacked standing to challenge the Trump Administration's actions. And though the district court in Sierra Club and California (and the Ninth Circuit in Sierra Club ) concluded that the plaintiffs in those cases—nonprofit organizations and state plaintiffs—satisfied these procedural requirements, the Supreme Court ultimately stayed the district court's injunction because "the Government ha[d] made a sufficient showing at this stage that the plaintiffs have no cause of action to obtain review of the Acting [Secretary of Defense's] compliance with Section 8005." In staying the permanent injunction in the Sierra Club litigation, the Supreme Court cleared the way for the Trump Administration to use funds transferred under Section 8005 to construct border barriers while the Ninth Circuit considers the Administration's appeal of the permanent injunction. However, the Court's order did not address the merits of Section 8005 or any of the other statutory authorities at issue in that litigation. Standing Article III of the U.S. Constitution "limits federal courts' jurisdiction to certain 'Cases' and 'Controversies.'" This limitation has been interpreted to require that every person or entity bringing a claim in federal court must establish "standing" to sue—that is, establish that he has suffered an injury that (1) is "concrete, particularized, and actual or imminent"; (2) "fairly traceable to the challenged action"; and (3) would be "redressable by a favorable ruling." The Supreme Court has explained that this standing requirement "is built on separation-of-powers principles" and "serves to prevent the judicial process from being used to usurp the powers of the political branches." Separation-of-powers concerns are heightened where a court is being asked to deem the actions of one of the other two branches of government unconstitutional, and especially so when a suit involves a dispute between the other two branches of the federal government. The plaintiffs challenging the Trump Administration's funding initiatives argued that they satisfied Article III's standing requirement. In Sierra Club and California , the Trump Administration conceded that constructing border barriers would cause a sufficient injury for Article III purposes, but it argued that this injury did not confer standing to challenge the Administration's use of Section 8005 to transfer funds. Rejecting that argument, the district court in Sierra Club and California held that the plaintiffs had established an "actual or imminent" injury that was "fairly traceable" to the Trump Administration's proposed transfer of money. The court explained that the supposedly distinct actions of (1) transferring funds and (2) using those transferred funds to construct border barriers were both part of a single objective—the construction of border barriers. And because a sufficiently concrete injury followed from the attainment of that objective, the plaintiffs had standing to challenge government action that was part of the chain of events leading to the injury. Similarly, in El Paso County , the court held that the plaintiffs' reputational and economic injuries resulting directly from the border barrier construction were sufficient for Article III purposes. By contrast, the federal district court presiding over the U.S. House of Representatives' lawsuit held that the House of Representatives lacks standing because the House's asserted injury—"an institutional injury to [Congress's] Appropriations power" —was not the kind of injury that supports Article III standing. The district court relied on the Supreme Court's decision in Raines v. Byrd , which held that Members of Congress lacked standing to challenge the constitutionality of the Line Item Veto Act. While Article III requires a "particularized" injury—that is, an injury that "affect[s] the plaintiff in a personal . . . way" —the Court in Raines determined that the Members of Congress had asserted "a type of institutional injury (the diminution of legislative power)" that did not belong to the Members individually. As a result, those Members were unable to show "a sufficient[ly] 'personal stake' in th[e] dispute." Similarly, the district court in Mnuchin noted that the appropriations power is held by Congress as a whole , not by each chamber of Congress separately. Moreover, as had the Court in Raines , the Mnuchin court supported its conclusion by noting the absence of historical examples of federal courts being asked to adjudicate lawsuits "brought on the basis of claimed injury of official authority or power." The U.S. House of Representatives appealed the district court's decision to the D.C. Circuit, but the court of appeals has not yet issued a decision. Cause of Action and Zone of Interests Even if a plaintiff establishes standing, the party must also be able to identify a source of law that authorizes the party to sue—also known as a "cause of action." In some instances, Congress has included a cause of action within a federal law to enable those injured by a violation of that law to obtain judicial relief. Separately, the Administrative Procedure Act contains a more general cause of action, authorizing "person[s] suffering legal wrong because of agency action" to challenge that action in federal court. Finally, even absent a statutory cause of action, a plaintiff may still be authorized to sue based on "[t]he power of federal courts of equity to enjoin unlawful executive action." Moreover, in order to show that a particular cause of action applies to him, a plaintiff must (generally) show that "[t]he interest he asserts [is] 'arguably within the zone of interests to be protected or regulated by the statute' that he says was violated." This "zone of interests" requirement "applies to all statutorily created causes of action," and its purpose is to "foreclose[] suit . . . when a plaintiff's 'interests are so marginally related to or inconsistent with the purposes implicit within the statute that it cannot reasonably be assumed that Congress intended to permit the suit.'" Before concluding that the Trump Administration cannot use Section 8005 to transfer funds for border barrier construction, the district court in Sierra Club and California (and the Ninth Circuit on appeal in Sierra Club ) concluded that the plaintiffs in these cases had satisfied these threshold procedural requirements. The court ruled that the plaintiffs' ability to bring their suits was based on the federal courts' equitable power to enjoin unlawful executive action. In so doing, the district court also determined that the "zone of interests" requirement does not apply to claims resting on an equitable (as opposed to a statutory) cause of action. Reviewing the district court's ruling in Sierra Club , the Ninth Circuit agreed that the plaintiffs had an equitable cause of action to challenge the lawfulness of executive action, and determined that they also had a cause of action under the Administrative Procedure Act. The Ninth Circuit expressed "doubt[s]" that the zone-of-interests test applied to equity-based claims, but determined that the plaintiffs satisfied any zone-of-interest requirement that might apply to either of these causes of action. The Supreme Court's Order Though the district court and the Ninth Circuit concluded that the plaintiffs in Sierra Club and California were proper parties to challenge the Trump Administration's intended use of Section 8005, the Supreme Court issued an order staying the district court's injunction. After the Ninth Circuit declined to stay the district court's permanent injunction, the Trump Administration asked the Supreme Court to do so, and on July 26, 2019, the Supreme Court issued an order staying the permanent injunction. Chief Justice Roberts and Justices Thomas, Alito, Gorsuch, and Kavanaugh voted to grant the stay in full, while Justice Breyer indicated that he would have granted the stay in part. The Court's order stated that "[a]mong the reasons" for staying the injunction, "the Government ha[d] made a sufficient showing at this stage that the plaintiffs have no cause of action to obtain review of the Acting [Secretary of Defense's] compliance with Section 8005." The Court's order further stated that the stay would continue "pending disposition of the [Administration's] appeal in the [Ninth Circuit] and disposition of the Government's petition for a writ of certiorari," and will "terminate automatically" upon the Court's denial of a petition for certiorari submitted by the Administration. Justices Ginsburg, Sotomayor, and Kagan voted to deny the request for a stay. Justice Breyer explained that he would have "grant[ed] the Government's application to stay the injunction only to the extent that the injunction prevents the Government from finalizing the contracts [for border barrier construction] or taking other preparatory administrative action," but would have left the injunction "in place insofar as it precludes the Government from disbursing funds or beginning construction." Justice Breyer explained that granting a stay of the injunction in full would irreparably harm the plaintiffs, while denying a stay of the injunction would irreparably harm the government because all funds not obligated by the end of the fiscal year would become unavailable. According to Justice Breyer, staying the injunction to allow the Trump Administration to "finaliz[e] contracts or tak[e] other preparatory administration action" for constructing border barriers would "avoid harm to both the Government and [the plaintiffs] while allowing the litigation to proceed." By staying the district court's permanent injunction, the Supreme Court enabled the Trump Administration to use funds transferred under Section 8005 to construct border barriers, at least during the pendency of the litigation in the Sierra Club and California cases. However, the Court's order did not address the merits of Section 8005 or any of the other statutory authorities at issue in that litigation. Moreover, the Court's order makes clear that it applies only at "this stage" of the litigation and therefore is not binding on the Ninth Circuit as it considers the Administration's appeal of the permanent injunction. As a result, the Court's order does not prevent the Ninth Circuit in Sierra Club —which is currently considering the Trump Administration's appeal from the permanent injunction—from concluding that the Sierra Club plaintiffs have a cause of action to enforce Section 8005. Nor does it prevent the district court in Sierra Club and California from ruling on the other funding authorities (including Section 284) and, perhaps, enjoining the Trump Administration from using those authorities to construct border barriers. Considerations for Congress Subsequent Legislation The Supreme Court has said that the Appropriation Clause's "fundamental and comprehensive purpose . . . is to assure that public funds will be spent according to the letter of the difficult judgments reached by Congress as to the common good and not according to the individual favor of Government agents or the individual pleas of litigants." Consequently, Congress has the power, subject to presidential veto, to enact legislation either appropriating more funds for border barrier construction, to limit the extent that the Administration's proposed funding sources may be used for border barrier construction, or to prohibit the Administration from obtaining additional funding through existing mechanisms. As part of the FY2020 appropriations process, the 116th Congress had considered provisions limiting the expenditure of annually appropriated funds for border barrier construction, though none have yet been enacted. For example, Section 8127 of Division C of H.R. 2740 , the DOD Appropriations Act for FY2020, as passed by the House on June 19, 2019, would generally have provided that "None of the funds appropriated or otherwise made available by this Act or any prior Department of Defense appropriations Acts may be used to construct a wall, fence, border barriers, or border security infrastructure along the southern land border of the United States." If this provision had been enacted it would likely have rendered the litigation over the Northern District of California's injunction moot, as the use of FY2019 funds for the purposes sought by the Administration would be expressly prohibited. Separately, the House-passed H.R. 2740 would also have limited the general transfer authority under either Sections 8005 or 9002 from being used to transfer funds into or out of the DOD Drug Interdiction Account, and the bill would reduce the overall amount of general transfer authority available under Section 8005 from $4 billion to $1 billion. The initial House-passed National Defense Authorization Act for FY2020 included similar limitations. None of these limitations were included as part of the enacted Consolidated Appropriations Act, 2020, or the enacted FY2020 National Defense Authorization Act. In February 2019, the Administration requested $5 billion in border barrier funding for FY2020 to support the construction of approximately 206 miles of border barrier system. The House Appropriations Committee responded to this by recommending no funding for border barriers in H.R. 3931 —its FY2020 DHS Appropriations bill. In addition, the House Appropriations Committee-reported bill would have restricted the ability to transfer or reprogram funds for border barrier construction. That bill stated in Section 227 that, aside from appropriations provided for such purpose in the last three fiscal years, "no Federal funds may be used for the construction of physical barriers along the southern land border of the United States during fiscal year 2020." Furthermore, Section 536 of that bill proposed to rescind $601 million from funding appropriated for border barriers in FY2019 —thus reducing the FY2019 funding available by the amount pledged from the Treasury Forfeiture Fund. On September 26, 2019, the Senate Appropriations Committee reported its annual appropriations act for DHS for FY2020, which would have provided $5 billion for additional new miles of pedestrian fencing. As part of the Consolidated Appropriations Act, 2020, Congress provided $1.375 billion for "construction of barrier system along the southwest border." Comptroller General Opinion Committees and Members of Congress have also requested legal opinions from the Comptroller General of the United States, head of the Government Accountability Office (GAO), regarding questions of appropriations law and executive agencies' compliance with such laws. Though GAO's decisions are not binding on federal courts, those decisions are sometimes given consideration by reviewing courts because of GAO's expertise in appropriations law and its role as the "auditing agent of Congress." On September 5, 2019, in response to such a request from Senate Appropriations Committee Vice Chairman Leahy, Subcommittee on Defense Vice Chairman Durbin, and Subcommittee on Military Construction, Veterans Affairs, and Related Agencies Ranking Member Schatz, the Comptroller General issued a legal opinion concluding that the Administration's use of Section 8005 of the 2019 DOD Appropriations Act and 10 U.S.C. § 284 to fund border barrier construction is lawful. Like the Northern District of California and the Ninth Circuit decisions, GAO's analysis of the transfer authority focused primarily on (1) whether the use of the funds for border barrier construction was an unforeseen military requirement, and (2) whether Congress had denied funds for the item to which funds were being transferred. GAO agreed with the Administration's argument that the relevant "military requirement" for purposes of Section 8005 was the construction of border barriers by DOD pursuant to its Section 284 authority, not the construction of border barriers generally. According to GAO, this military requirement was "unforeseen" because it was not until DHS requested assistance from DOD to construct border barriers—well after the President's budget requests—that the need for DOD assistance became known. Consequently, GAO concluded that DHS's request for assistance constituted an unforeseen military requirement that made available the transfer authority under Section 8005. GAO next addressed whether the construction of border fencing had been "denied by the Congress." GAO began by noting that this language was not defined by Section 8005 or elsewhere in the FY2019 DOD Appropriations Act. Relying on the "ordinary meaning" of the term "deny" as well as previous decisions by the Comptroller General, GAO concluded that a denial of funds for purposes of Section 8005 required that Congress "actively refuse" funds for an item, rather than merely fail to appropriate the full amount requested for that item. Applying this standard, GAO asserted that it could not identify any statutory provision that prohibited DOD from using funds to build border barriers pursuant to its Section 284 authority. Accordingly, GAO agreed with the Administration that Congress had not denied funds for that purpose, within the meaning of Section 8005.

President Trump has prioritized the construction of border barriers along the U.S.-Mexico border. Over the course of negotiations for FY2019 appropriations, the Administration asked Congress to appropriate $5.7 billion to the Department of Homeland Security (DHS) for that purpose. When Congress appropriated $1.375 billion to DHS for border fencing, the President announced that his Administration would fund the construction of border barriers by repurposing funds appropriated to the Department of Defense (DOD) and transferring funds from the Department of the Treasury. The Administration asserted that these funding transfers were authorized by a combination of the following federal laws: National Emergenc ies Act (NEA) . The NEA establishes a framework for the President to declare national emergencies. The NEA does not itself appropriate or authorize the transfer of funds, but the declaration of a national emergency triggers other statutory provisions that allow certain executive departments to repurpose existing appropriations. 10 U.S.C. § 2808 . Section 2808 becomes available upon the President's declaration of a national emergency under the NEA. This provision authorizes the Secretary of Defense to use unobligated military construction funds for the construction of otherwise unauthorized military construction projects. Section s 8005 and 9002 of the 2019 D OD Appropriations Act . Sections 8005 and 9002 of the 2019 DOD Appropriations Act authorize the transfer of up to $6 billion appropriated in that act for "military functions" arising from "unforeseen military requirements." Funds may be transferred under these authorities only for "unforeseen military requirements" where the item for which funds will be transferred "has [not] been denied by the Congress." 10 U.S.C. § 284 . The 2019 DOD Appropriations Act also appropriated funds to a Drug Interdiction Account. Pursuant to 10 U.S.C. § 284, money in this fund may be spent by DOD in support of other agencies' counterdrug activities, including by constructing "roads and fencing . . . to block drug smuggling corridors across international borders of the United States." The Trump Administration proposed to use Sections 8005 and 9002 of the 2019 DOD Appropriations Act to transfer additional funds into the Drug Interdiction Account, which would then be used to construct border barriers. 31 U.S.C. § 9705 . This provision establishes a Treasury Forfeiture Fund (TFF) in the Department of the Treasury and authorizes the Secretary of the Treasury to make payments from unobligated sums in the TFF to federal, state, and local law enforcement agencies for various law enforcement purposes. Several plaintiffs filed lawsuits in federal courts in California, the District of Columbia, and Texas to prevent the Administration from using these authorities to repurpose appropriations for border barrier construction, arguing that none of the Administration's funding initiatives were authorized by Congress. Some plaintiffs also argued that the construction of border barriers was subject to the environmental assessment requirements of the National Environmental Policy Act (NEPA). Though a federal court in California initially entered an injunction prohibiting the Trump Administration from using the funds to initiate construction of border fencing, the U.S. Supreme Court ultimately stayed that injunction. The California federal district court's injunction would have prohibited the Administration from using Sections 8005 and 9002 to transfer funds for border barrier construction. The court did not rule on the lawfulness of the Administration's other proposed funding sources, though it did determine that waivers issued by DHS under Section 102 of the Illegal Immigration Reform and Immigrant Responsibility Act rendered NEPA inapplicable to the proposed border projects. But following the Supreme Court's stay of the district court's injunction, DOD was able to use funds transferred under Sections 8005 and 9002 for barrier construction purposes while litigation in the case continues. A second federal district court in Texas has enjoined the use of Section 2808 for border barrier construction purposes. A third lawsuit challenging the Trump Administration's funding initiatives is ongoing in the District of Columbia, though that court has not ruled on the merits. Meanwhile, both houses of Congress have continued to move through the annual appropriations process. Although the House of Representatives initially passed a version of the DOD Appropriations Act for FY2020 that would have expressly prohibited the use of funds for the construction of border barriers, these limitations were not included as part of the Consolidated Appropriations Act, 2020 (which included DOD appropriations and $1.375 billion for construction of a barrier system along the southwest border), or the FY2020 National Defense Authorization Act as they were passed by both chambers of Congress and signed into law.

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I n October 2018, the Office of the U.S. Trade Representative (USTR) officially notified the Congress, under Trade Promotion Authority (TPA), of the Trump Administration's plans to enter into formal trade negotiations with the European Union (EU). This action followed a July 2018 U.S.-EU Joint Statement by President Trump and then-European Commission (EC) President Juncker announcing that they would work toward a trade agreement to reduce tariffs and other trade barriers, address unfair trading practices, and increase U.S. exports of soybeans and certain other products. Previously, in 2016, U.S.-EU negotiations as part of the Transatlantic Trade and Investment Partnership (T-TIP) stalled after 15 rounds under the Obama Administration. The outlook for new U.S.-EU talks remains uncertain. There continues to be disagreement about the scope of the negotiations, particularly the EU's intent to exclude agriculture from the talks on the basis that it "is a sensitivity for the EU side." EU sensitivities stem in part from commercial and cultural practices that are often embodied in EU laws and regulations and vary from those of the United States. For food and agricultural products, such differences include regulatory and administrative differences between the United States and the EU on issues related to food safety and public health—or Sanitary and Phytosanitary (SPS) measures, and Technical Barriers to Trade (TBTs). Other differences include product naming schemes for some types of food and agricultural products subject to protections involving Geographical Indications (GIs). Addressing food and agricultural issues in the negotiations remains important to U.S. exporters given the sizable and growing U.S. trade deficit with the EU in agricultural products. Renewed trade talks also come amid heightened U.S.-EU trade frictions. In March 2018, President Trump announced 25% steel and 10% aluminum tariffs on most U.S. trading partners, including the EU, after a Section 232 investigation determined that these imports threaten U.S. national security. In response, the EU began applying retaliatory tariffs of 25% on certain U.S. exports to the EU. Additionally, as part of the Boeing-Airbus subsidy dispute, in October 2019 the United States began imposing additional, World Trade Organization (WTO)-sanctioned tariffs on $7.5 billion worth of certain U.S. imports from the EU. This report provides an overview of U.S.-EU trade in agriculture and background information on selected U.S.-EU agricultural trade issues concerning a potential trade liberalization agreement between the United States and the EU. Following a review of U.S.-EU agricultural trade trends, this report describes recent agricultural trade trends and tariff actions affecting certain U.S.-EU traded food and agricultural goods. It then describes potential issues in U.S.-EU trade agreement negotiations involving food and agricultural trade. Figure 1 shows a timeline of selected events. Figure 1. Selected Timeline of Events Related to U.S.-EU Agricultural TradeSource: CRS. Actions related to the U.S.-EU Trade Agreement negotiations are shown in red.Note: USTR = U.S. Trade Representative (USTR). WTO = World Trade Organization. EU27 includes the current 27 EU member states, excluding the United Kingdom (UK). EU28 includes the UK. Trade Data and Statistics Following are trade data and statistics for the current 27 EU member states (EU27). Unless otherwise noted, these figures exclude the United Kingdom (UK), which formally exited the EU in January 2020. Moving forward, U.S. trade negotiations with the EU are expected to exclude the UK, which may enter into trade discussions with the United States separately. Trade data presented here are compiled from U.S. Department of Agriculture (USDA) trade statistics for "Agricultural and Related Products." As defined by USDA, this product grouping includes agricultural products (including bulk and intermediate products and also consumer-oriented products) and agricultural-related products (including fish and shellfish products, distilled spirits, forest products, and ethanol and biodiesel blends). Additional information on the various data sources is discussed in the t ext box . The United States and the EU are the world's largest trade and investment partners. While food and agricultural trade between the United States and the EU27 accounts for less than 1% of the value of overall trade in total goods and services ( Figure 2 ), the EU27 remains a leading market for U.S. agricultural exports. It accounted for about 8% of the value of all U.S. exports and ranked as the fifth-largest market for U.S. food and farm exports in 2019—after Canada, Mexico, China, and Japan. Data depicted in Figure 2 do not reflect trade in fish and seafood, distilled spirits, and bioenergy products. During the past two decades, growth in U.S. agricultural exports to the EU has not kept pace with growth in trade to other U.S. markets. U.S. agricultural imports from the EU27 currently exceed U.S. exports to the EU27. In 2019, U.S. exports of agricultural and related products to the EU27 totaled $12.4 billion, while U.S. imports of agricultural and related products from the EU27 totaled $29.7 billion, resulting in a U.S. trade deficit of approximately $17.3 billion. This reverses the U.S. agricultural trade surpluses with the EU27 during the early 1990s ( Figure 3 ). Leading U.S. agricultural exports to the EU27 were corn and soybeans, tree nuts, distilled spirits, fish products, wine and beer, planting seeds, and processed foods. Leading U.S. imports from the EU27 were wine and spirits, beer, drinking waters, olive oil, cheese, and processed foods. While data shown in the graphic reflect total trade in "Agricultural and Related Products," including agricultural products, fish and shellfish products, distilled spirits, and other agricultural related products, the trade picture may vary by product category (as shown in Table 1 ). Trade data presented here do not include the UK, which is a major importer of U.S. agricultural products. In 2019, U.S. agricultural and related product exports to the UK totaled $2.8 billion, which roughly equaled the value of imports from the UK ( Figure 4 ). U.S.-EU Tariff Retaliation The U.S.-EU trade negotiations come amid heightened U.S.-EU trade frictions. In March 2018, President Trump announced 25% steel and 10% aluminum tariffs on most U.S. trading partners after a Section 232 investigation determined that these imports threaten to impair U.S. national security. The EU was not among the trading partners with whom the Trump Administration negotiated permanent exemptions from tariffs or alternative quota arrangements, and U.S. tariffs on U.S. imports from the EU went into effect in June 2018. The EU views the U.S. national security justification as groundless and the U.S. tariffs to be inconsistent with WTO rules. The EU has challenged the U.S. actions at the WTO. Effective June 2018, the EU began applying retaliatory tariffs of 25% on imports of U.S. whiskies, corn, rice, kidney beans, preserved and mixed vegetables, orange juice, cranberry juice, peanut butter, and tobacco products, along with selected non-agricultural products ( Figure 5 ). This action includes the EU27 countries and the UK (EU28), as U.S. exports to the UK remain subject to the additional tariffs. The value of U.S. agricultural exports to the EU28 targeted by these additional tariffs is estimated to have been approximately $1.2 billion in 2018, or nearly 9% of total U.S. agricultural exports to the EU28 (excluding nonagricultural products) ( Table 2 ). Some analysts estimate that U.S. agricultural exports subject to tariff retaliation in 2018-2019 experienced a 33% decline in the EU28 market. In October 2019, U.S.-EU trade tensions escalated further when the United States imposed additional tariffs on $7.5 billion worth of certain U.S. imports from the EU, or about 1.5% of all U.S. imports from the EU28 in 2018 (including the UK and nonagricultural products). This action, authorized by WTO dispute settlement procedures, followed a USTR investigation initiated in April 2019 under Section 301 of the Trade Act of 1974. The USTR determined that the EU had denied U.S. rights under WTO agreements. Specifically, USTR concluded that the EU and certain member states (including the UK) had not complied with a WTO Dispute Settlement Body ruling recommending the withdrawal of WTO-inconsistent EU subsidies to Airbus for the manufacture of large civil aircraft. The list of products subject to additional tariffs stemming from the Airbus subsidy dispute targets mainly the EU member states responsible for the illegal subsidies. It includes agricultural products such as spirits and wine, cheese and dairy products, meat products, fish and seafood, fresh and prepared fruit products, coffee, and bakery goods. Agricultural imports account for about 56% of the total value of EU28 products subject to these additional tariffs. As of February 2020, tariff increases are limited to 25% on agricultural products, and they target primarily France, Germany, UK, and Spain ( Figure 6 ). By agricultural product category, whiskies, liqueurs, and wine (mainly from UK and France) account for approximately 38%, and other food and agricultural products (mainly from Spain and France) account for 19% ( Table 3 ). In December 2019, USTR began a review to determine if the list of imports subject to additional tariffs should be revised or tariff rates increased. In February 2020, USTR made some changes to the list of products affected by Section 301 tariffs. In terms of U.S. agricultural imports from the EU, the only change will be the removal of prune juice from the list, which will not be subject to additional 25% tariffs effective March 5, 2020. U.S.-EU trade negotiations could be affected further if the EU retaliates and imposes tariffs on U.S. exports, in response to either these U.S. actions or an upcoming WTO decision in the parallel EU dispute case against the United States. Later this year a WTO arbitrator is expected to authorize the EU to seek remedies in the form of tariffs on U.S. exports to the EU, after the WTO determined in early 2019 that the United States had also failed to abide by WTO subsidies rules in supporting Boeing. Selected U.S.-EU Agricultural Trade Issues In January 2019, USTR announced its negotiating objectives for a U.S.-EU trade agreement, following a public comment period and a hearing involving several leading U.S. agricultural trade associations. These objectives include agricultural policies—both market access and non-tariff measures such as tariff rate quotas (TRQ) administration and other regulatory issues. Among regulatory issues, key U.S. objectives include harmonizing regulatory processes and standards to facilitate trade, including SPS standards, and establishing specific commitments for trade in products developed through agricultural biotechnologies. The U.S. objectives also include addressing GIs by protecting generic terms for common use. U.S. agricultural interests generally support including agriculture in a U.S.-EU trade agreement. The stated overarching goal for the U.S. side is addressing the U.S. trade deficit in agricultural products with the European Union. Early on, the EU indicated that it was planning for a more limited negotiation that does not include agricultural products and policies. The EU negotiating mandate, dated April 2019, states that a key EU goal is "a trade agreement limited to the elimination of tariffs for industrial goods only, excluding agricultural products." Several Members of Congress opposed the EU's decision to exclude agricultural policies in its negotiating mandate. A letter to USTR from a bipartisan group of 114 House members states that "an agreement with the EU that does not address trade in agriculture would be, in our eyes, unacceptable." Senate Finance Committee Chairman Chuck Grassley reiterated, "Bipartisan members of the Senate and House … have voiced their objections to a deal without agriculture, making it unlikely that such a deal would pass Congress." Then, in January 2020, public statements by U.S. and EU officials signaled the possibility that the U.S.-EU trade talks might include negotiation on SPS and regulatory barriers to agricultural trade. It is not clear, however, that both sides agree on which specific types of non-tariff trade barriers might actually be part of the U.S.-EU trade talks. As reported in the press, statements by some USDA officials have suggested that selected SPS barriers as well as GIs would need to be addressed by the trade talks. Meanwhile, other press reports indicate that some EU officials have downplayed the extent that certain non-tariff barriers—such as biotechnology product permits, approval of certain pathogen rinses for poultry, regulations on pesticides, or food standards—would be part of the talks; instead, regulatory barriers might be lowered for certain "non-controversial" foods. The United States continues to push for additional concessions from the EU. More formal discussions are expected in the spring of 2020—in an effort to ease trade tensions regarding the imposition of retaliatory tariffs. The EU has taken certain measures to avoid escalating agricultural trade tensions with the United States. For example, it has expanded the U.S.-specific quota for EU imports of hormone-free beef, increased imports of U.S. soybeans as a source of biofuels, approved a number of long-pending genetically engineered products for food and feed uses, and proposed to lift a ban on certain pest-resistant American grapes in EU wine production, and other trade-related measures. In a separate but indirectly related action, in August 2019, USTR asked the U.S. International Trade Commission (USITC) to conduct an investigation examining SPS barriers related to pesticide maximum residue levels (MRLs) across all U.S. markets, including Europe. Previously, during T-TIP negotiations, both market access and non-tariff barriers were part of the U.S. negotiating objectives. At that time, non-tariff barriers to agricultural trade—including SPS and TBT measures, and GIs—were among the agricultural issues actively debated. In addition, regulatory coherence and cooperation was part of USTR's stated objectives. Some of the same issues that proved to be challenging during the T-TIP talks may continue to challenge negotiators. Various studies at the time reported that removing tariff and non-tariff barriers in U.S.-EU trade would result in economic benefits to the U.S. and EU agricultural sectors. Another study by the European Parliament acknowledged that gains from tariff cuts would be limited unless regulatory and administrative barriers were also addressed. Market Access Market access issues are not slated to be discussed in the U.S.-EU trade talks. However, these issues remain important for U.S. agricultural exporters. This is especially true regarding the EU's use of restrictive tariff rate quotas (TRQs) on certain agricultural products. TRQs allow imports of fixed quantities of a product at a lower tariff. Once the quota is filled, a higher tariff is applied on additional imports. The EU allocates TRQs to importers using licenses issued by the member states' national authorities. Only companies established in the EU may apply for import licenses. For exports under a U.S.-specific TRQ, a certificate of origin must be supplied. The EU applies TRQs on many types of beef and poultry products, sheep and goat meat, dairy products, cereals, rice, sugar, and fruit and vegetables. Some products are heavily protected by both TRQs and non-tariff SPS measures. Import tariffs for agricultural products into Europe tends to be relatively high compared to tariffs for similar products into the United Sates. The WTO reports that the simple average most-favored-nation (MFN) tariff applied to agricultural products entering the United States is about 5%, compared to an average tariff of about 13% for products entering the EU. Including all products imported under an applied tariff or a TRQ, USDA reports that the calculated average rate across all U.S. agricultural imports is roughly 12%, well below the EU's average of 30%. By commodity group, EU tariffs average more than 40% for imported meat products, grains, and grain products and average at or above 20% for most fruit and vegetable products. For some products, EU tariffs are even greater, averaging more than 80% for imported dairy products, more that 50% for sugar cane and sweeteners, and nearly 350% for sugar beets. The EU has concluded preferential trade agreements with more than 35 non-EU countries and continues to negotiate agreements with several others. This preferential access provides U.S. export competitors an advantage over U.S. agricultural exporters, particularly in countries where the United States does not have a preferential agreement in place. Previously, during the T-TIP negotiations, Senate leadership sent a letter to USTR reiterating that a final agreement would need to include "a strong framework for agriculture," including "tariff elimination on all products—including beef, pork, poultry, rice, and fruits and vegetables" and that "liberalization in all sectors of agriculture" was a priority, if the agreement were to obtain the support of Congress. The letter also addressed the importance of "longstanding regulatory barriers," including the EU's import approval process of U.S. biotechnology products and GI protections promoted by the EU. Non-Tariff Barriers to Trade High tariff barriers are further exacerbated by additional non-tariff barriers that may limit U.S. agricultural exports, including SPS measures, and other types of non-tariff barriers. Non -t ariff m easures (NTMs) generally refer to policy measures other than tariffs that may have a negative economic effect on international trade. NTMs include both technical and nontechnical measures. Technical measures include both SPS and TBTs and pre-shipment formalities and related requirements that are intended to govern public health and food safety. Nontechnical measures include quotas, price control measures, rules of origin requirements, and government procurement restrictions. Non-tariff barriers affect agricultural trade in various ways, including delays in reviews of biotech products (creating barriers to U.S. exports of grain and oilseed products), prohibitions on growth hormones in beef production and certain antimicrobial and pathogen reduction treatments (creating barriers to U.S. meat and poultry exports), and burdensome and complex certification requirements (creating barriers to U.S. processed foods, animal products, and dairy products). Extensive EU regulations and difficulty finding up-to-date information are among the primary concerns of U.S. businesses, particularly for makers of processed foods. U.S. businesses report a lack of a science-based focus in establishing SPS measures, difficulty meeting food safety standards and obtaining product certification, differences across countries in food labeling requirements, and stringent testing requirements that are often applied inconsistently across EU member nations. Non-tariff barriers to agricultural trade—including SPS and TBT measures, and GIs—were among the agricultural issues actively debated in the T-TIP negotiation. Previous negotiations were complicated by longstanding trade disputes between the United States and EU involving food safety and product standards that are often embodied in laws and regulations in the United States and EU, as well as separate requirements that may be in force within individual EU member states. For example, the EU restricts some types of genetically engineered (GE) seed varieties and also prohibits the use of hormones in meat production and certain pathogen reduction treatments in poultry production. As these types of practices are commonplace in the United States, this tends to restrict U.S. agricultural exports to the EU. Other EU regulations and standards involve pesticide residues on foods, drug residues in animal production, and certain animal welfare requirements that may vary from those in the United States. The United States has also opposed the EU's GI protections that govern product labeling on products within the EU and within some countries that have a formal trade agreement with the EU. Such GI protections also tend to restrict U.S. agricultural exports to the EU and to some other countries where such protections have been put in place. As part of a trade negotiation, non-tariff barriers tend to be broadly grouped along with other issues related to regulatory coherence. The U.S. Chamber of Commerce defines regulatory coherence as "good regulatory practices, transparency, and stakeholder engagement in a domestic regulatory process" and regulatory cooperation as "the process of interaction between U.S. and EU regulators, founded on the benefits regulators can achieve through closer partnership and greater regulatory interoperability." Related terminology may refer interchangeably to regulatory convergence, cooperation, and/or harmonization. Trade negotiations involving regulatory and intellectual property rights issues have focused, in part, on the goals of ensuring greater transparency, harmonization, and coherence to improve cooperation and streamline the regulatory approval process among the trading partners. Previous USDA estimates calculated the ad valorem equivalent effects of EU non-tariff barriers to U.S. agricultural exports, which were estimated to range from 23% to 102% for some more heavily protected products, including meat products, fruits and vegetables, and some crops. In general, SPS and related regulatory issues tend to be addressed in free trade agreements (FTAs) within an agreement's agriculture chapter or chapter on regulatory coherence, while GIs tend to be addressed along with other types of intellectual property rights (IPR) issues, in an FTA's IPR chapter. The following section provides additional background on SPS and TBT measures, as well as GI protections. SPS/TBT Issues SPS measures are laws, regulations, standards, and procedures that governments employ as "necessary to protect human, animal or plant life or health" from the risks associated with the spread of pests, diseases, or disease-carrying and causing organisms, or from additives, toxins, or contaminants in food, beverages, or feedstuffs. Examples include product standards, requirements for products to be produced in disease-free areas, quarantine and inspection procedures, sampling and testing requirements, residue limits for pesticides and drugs in foods, and limits on food additives. TBT measures cover both food and non-food traded products. TBTs in agriculture include SPS measures, but also include other types of measures related to health and quality standards, testing, registration, and certification requirements, as well as packaging and labeling regulations. Both SPS and TBT measures regarding food safety and related public health protection are addressed in various multilateral trade agreements and are regularly notified to and debated within both the SPS Agreement and TBT Agreement within the WTO. In general, under the SPS and TBT agreements, WTO members agree to apply such measures, based on scientific evidence and information, only to the extent necessary to protect human, animal, or plant life and health and to not arbitrarily or unjustifiably discriminate between WTO members where identical standards prevail. Member countries are also encouraged to observe established and recognized international standards. Improper use of SPS and TBT measures can create substantial barriers to trade when they are disguised protectionist barriers, are not supported by scientific evidence, or are otherwise unwarranted. Bilateral and regional FTAs between the United States and other countries regularly address SPS and TBT matters. Provisions in most U.S. FTAs have generally reaffirmed rights and obligations of both parties under the WTO SPS and TBT agreements. Some FTAs have established standing bilateral committees to enhance understanding of each other's measures and to consult regularly on related matters. Other FTAs have included side letters or agreements for the parties to continue to cooperate on scientific and technical issues, which in some cases may be related to certain specific market access concerns. Most FTAs have not addressed specific non-tariff trade concerns directly. Differences in U.S. and EU Laws and Regulations Regulatory differences between the United States and EU have contributed to trade disputes regarding SPS and TBT rules between the two trading blocs. The United States has several formal WTO trade disputes regarding SPS and TBT measures with the EU. These include concerns regarding the EU's prohibitions on the use of growth-promoting hormones (and ractopamine ) in meat production, the EU's restrictions on chemical treatments ("pathogen reduction treatments" or "PRTs") on U.S. poultry, and the EU's approval process of biotechnology products. Other SPS concerns have involved regulations related to bovine spongiform encephalopathy (BSE, commonly known as mad cow disease) and regulations involving plant processing, chemical residues, endocrine-disrupting chemicals, antibiotics, and animal welfare. There are major differences in how the United States and the EU regulate food safety and related public health protection, including various administrative and technical review differences, which in turn influences how each applies various SPS and TBT measures. Such differences have often been central to SPS and TBT disputes, including those involving the use of hormones in meat production and pathogen reduction treatments in poultry processing. Other disputes invoking the SPS and TBT agreements between the U.S. and EU have included beef and poultry products, eggs, frozen bovine semen, milk products, animal byproducts, seafood, pesticide and animal drug residues, seeds, wheat, wine and spirits, and food packaging requirements. Differences are also evident in how the United States and EU regard biotechnology in agricultural production. In general, EU officials have been cautious in allowing genetically engineered crops—commonly referred to in Europe as genetically modified organisms (or GMOs)—to enter the EU market. As such, any GE-derived food and feed must be labeled accordingly. The EU's regulatory framework regarding biotechnology is generally regarded as one of the most stringent systems worldwide. During the T-TIP negotiations, U.S. agricultural and food groups actively called for changes to the EU's approach for approving and labeling biotechnology products. The EU has reported concerns about perceived U.S. SPS barriers to EU exports of sheep and goat meat, egg products, beef, certain dairy products, live bivalve mollusks, apples, and pears, along with difficulties protecting its own GIs on certain food and drinks. Other EU concerns have involved the use of "Buy American" restrictions in the United States governing public procurement. During the T-TIP negotiations, some expressed concern that including "Buy American" provisions could affect local food procurement, including restricting bidding contract preferences contained in U.S. and EU farm-to-school programs. The EU's application of the so-called precautionary principle remains central to the EU's risk management policy regarding food safety and animal and plant health and is often cited as the rationale behind the EU's more risk-averse approach. The precautionary principle was reportedly referenced as part of the 1992 Treaty on European Union that further integrated the EU, and its use was further outlined in a 2000 communication and then formally established in EU food legislation in 2002 (Regulation EC No 178/2002). The EU's 2000 communication further outlines guidelines for implementation, the basis for invoking the principle, and the general standards of application. Regarding international trade, under EU law, the precautionary principle provides for "rapid response" to address "possible danger to human, animal, or plant health, or to protect the environment" and can be used to "stop distribution or order withdrawal from the market of products likely to be hazardous." Although the principle may not be used as a pretext for protectionist measures, many countries have challenged some EU actions that invoke the precautionary principle as "protectionist." The EU, however, continues to invoke the precautionary principle to justify its policies regarding various regulatory issues and generally rejects arguments, on the grounds of risk management, that the lack of clear evidence of harm is not evidence of the absence of harm. No universally agreed-upon definition of the precautionary principle exists, and many differently worded or conflicting definitions can be found in international law. However, within the context of the WTO and the SPS agreement, the precautionary principle (or precautionary approach) allows a country to set higher standards and methods of inspecting products. It also allows countries to take "protective action"—including restricting trade of products or processes—if they believe that scientific evidence is inconclusive regarding their potential impacts on human health and the environment (provided the action is consistent and not arbitrary). The WTO has generally acknowledged that the need to take precautionary actions in the face of scientific uncertainty has long been widely accepted, particularly in the fields of food safety and plant and animal health protection. Examples might include a sudden outbreak of an animal disease that is suspected of being linked to imports, which may require a country to impose certain trade restrictions while the outbreak is assessed. Application of the precautionary principle by some countries remains an ongoing source of contention in international trade, particularly for the United States, and is often cited as a reason why some countries may restrict imports of some food products and processes. Addressing SPS and TBT Measures in FTA Negotiations In the lead up to the previous T-TIP and Trans-Pacific Partnership (TPP) negotiations, there were active efforts to "go beyond" the rules, rights, and obligations in the WTO SPS Agreement and TBT Agreement, as well as commitments in existing U.S. FTAs. These efforts were referred to as "WTO-Plus" rules or, alternatively, as "SPS-Plus" and "TBT-Plus" rules. Related efforts called for improvements in regulatory cooperation and coherence, along with enhanced partnerships and interactions among regulators in each country. Modernizing the rules governing the application of SPS and TBT measures in U.S.-EU trade by incorporating "SPS-Plus" and "TBT-Plus" rules as part of a trade agreement could represent a positive step for U.S. food and agricultural exporters. Changes regarding SPS and TBT measures agreed to in the U.S.-Mexico-Canada Agreement (USMCA) and the U.S.-China Phase One Trade Agreement incorporated policy changes regarding SPS and TBT measures consistent with previous "SPS-Plus" and "TBT-Plus" efforts. According to USITC, USMCA "goes further in requiring transparency and encouraging harmonization or equivalence of SPS measures" and incorporates all of the proposed enhanced TPP disciplines "in the areas of equivalence, science and risk analysis, transparency, and cooperative technical consultations." Some industry representatives claim that USMCA "goes beyond TPP in establishing deadlines for 'import checks,' by requiring importing parties to inform exporters or importers within five days of shipments being denied entry." Both agreements contain language that directly relates to the use of biotechnology. Alternative efforts to modify the EU's application of the precautionary principle could present more of a challenge for U.S. agricultural producers and exporters. Previously, during the T-TIP negotiations, some in the U.S. agriculture and food industry urged U.S. negotiators to address the EU's use and application of the precautionary principle. Many U.S. agricultural and food organizations contended that the EU's application of the precautionary principle undermines sound science and innovation and results in "unjustifiable restrictions" on U.S. exports, allowing the EU "to put in place restrictions on products or processes when they believe that scientific evidence on their potential impact on human health or the environment is inconclusive." Some asserted that application of the principle results in a bias against new technologies, such as biotechnology and nanotechnology. As a result, these groups said that "science-based decision making and not the precautionary principle must be the defining principle in setting up mechanisms and systems" to address SPS concerns. The U.S. Chamber of Commerce supported a "science-based approach to risk management, where risk is assessed based on scientifically sound and technically rigorous standards" and opposed "the domestic and international adoption of the precautionary principle as a basis for regulatory decision making." Many in Congress also called for "effective rules and enforceable rules to strengthen the role of science" to resolve international trade differences. More recently, the EU's SPS were among the issues that raised the most concerns during a WTO review of the EU's trade policies. Among the cited concerns were certain SPS measures that were viewed to be not based on science or on international standards, and that were also deemed to not allow for adequate opportunity to take into account for the views of third countries. Efforts to Resolve SPS and TBT Measures Outside FTA Negotiations Outside of the FTA negotiation process, various U.S. federal agencies regularly address trade concerns involving SPS and TBT measures as part of their day-to-day oversight and regulatory responsibilities. For example, USDA's Animal and Plant Health Inspection Service (APHIS) administers various regulatory and control programs pertaining to animal and plant health and quarantine, humane treatment of animals, and the control and eradication of pests and diseases. APHIS also oversees SPS certification requirements for imported and exported agricultural goods. This work is ongoing. The United States also maintains ongoing interagency processes and mechanisms to identify, review, analyze, and address foreign government standards-related measures that may be barriers to trade. These activities are coordinated through the USTR-led Trade Policy Staff Committee, which is composed of representatives from several federal agencies, including USDA, the Department of Commerce, and the State Department. USTR also chairs an interagency group (i.e., both USDA and non-USDA agencies with SPS and TBT responsibilities) that reviews SPS and TBT measures that are notified to the WTO, as required under the SPS and TBT agreements. These agency officials also work with their international counterparts on concerns involving SPS and TBT measures. USTR tracks issues related to such measures as part of its annual reports. Geographical Indications GIs are geographical names that act to protect the quality and reputation of a distinctive product originating in a certain region. The term GI is most often applied to wines, spirits, and agricultural products. GIs allow some food producers to differentiate their products in the marketplace. GIs may also be eligible for relief from acts of infringement or unfair competition. While GIs may protect consumers from deceptive or misleading labels, they can also impair trade when names that are considered common or generic in one market are protected in another. Examples of registered or established GIs include Parmigiano Reggiano cheese and Prosciutto di Parma ham from the Parma region of Italy, Toscano olive oil from the Tuscany region of Italy, Roquefort cheese from France, Champagne from the region of the same name in France, Irish whiskey, Darjeeling tea, Florida oranges, Idaho potatoes, Vidalia onions, Washington State apples, and Napa Valley wines. GIs are an example of IPR, along with patents, copyrights, trademarks, and trade secrets. The use of GIs has become a contentious international trade issue, particularly for U.S. wine, cheese, and sausage makers. In general, some consider GIs to be protected intellectual property, while others consider them to be generic or semi-generic terms. GIs are included among other IPR issues in the current U.S. trade agenda. GIs were an active area of debate during the T-TIP negotiations. Laws and regulations governing GIs differ markedly between the United States and EU, which further complicates this issue. GIs are protected by the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which sets binding minimum standards for intellectual property protection that are enforceable by the WTO's dispute settlement procedure. Under TRIPS, WTO members must recognize and protect GIs as intellectual property. Both the United States and the EU are signatories of TRIPS and therefore subject to its rights and obligations. Accordingly, under TRIPS, the United States and EU have committed to providing a minimum standard of protection for GIs (i.e., protecting GI products to avoid misleading the public and prevent unfair competition) and an "enhanced level of protection" to wines and spirits that carry a GI, subject to certain exceptions. TRIPS builds on treaties administered by the World Intellectual Property Organization, a specialized agency in the United Nations with the mission to "lead the development of a balanced and effective international intellectual property (IP) system." It also oversees the "International Register of Appellations of Origin" established in the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration. The agreement's multilateral register covers food products and beverages and related products, as well as non-food products. The EU's GI program remains a contentious issue for some U.S. producer groups, particularly among wine, cheese, and sausage makers. Some have long expressed their concerns about EU protections for GIs, which they claim are being misused to create market and trade barriers. Much of this debate involves certain terms used by cheesemakers, such as parmesan, asiago, and feta cheese, which the U.S. cheese sectors consider to be generic terms. For example, feta cheese produced in the United States may not be exported for sale in the EU, since only feta produced in countries or regions currently holding GI registrations may be sold commercially. A 2019 study commissioned by the U.S. dairy industry forecasts declining U.S. cheese exports due to expanding restrictions on parmesan, asiago, and feta cheese. Another study concluded that up to $15 million in cheese trade might need to be relabeled due to the restriction on certain GI terms, while other traded foods, such as oilseeds and vinegars, would experience little impact. Some U.S. industry groups, however, are trying to institute protections for U.S. products—similar to those in the EU GI system—to promote certain distinctive American agricultural products. The American Origin Products Association represents certain U.S. potato, maple syrup, ginseng, coffee, and chile pepper producers and certain U.S. winemakers, among other regional producer groups. It seeks to work with federal authorities to create "a list of qualified U.S. distinctive product names, which correspond to the GI definition." Differences in U.S. and EU Laws and Regulations Laws and regulations governing GIs differ markedly between the United States and EU. In the United States, GIs generally fall under the common law right of possession or "first in time, first in right" as trademarks or collective or certification marks under the purview of the existing trademark regime, administered by the U.S. Patent and Trademark Office (PTO) and protected under the U.S. Trademark Act. Trademarks are distinctive signs that companies use to identify themselves and their products or services to consumers and can take the form of a name, word, phrase, logo, symbol, design, image, or a combination of these elements. Trademarks do not refer to generic terms, nor do they refer exclusively to geographical terms. Trademarks may refer to geographical names to indicate the specific qualities of goods either as certification marks or as collective marks. PTO does not have a special database register for GIs in the United States. PTO's trademark register, the U.S. Trademark Electronic Search System, contains GIs registered as trademarks, certification marks, and collective marks. USTR says that EU farm products hold nearly 12,000 trademarks. These register entries are not designated with any special field (such as "geographical indications") and cannot be readily compiled into a complete list of registered GIs. In the United States, the Alcohol and Tobacco Tax and Trade Bureau (TTB) also plays a role overseeing the labeling of wine, malt beverages, beer, and distilled spirits. In the EU, a series of regulations governing GIs was initiated in the early 1990s covering agricultural and food products, wine, and spirits. Legislation adopted in 1992 covering agricultural products (not including wines and spirits) was replaced by changes enacted in 2006 following a WTO panel ruling that found some aspects of the EU's scheme inconsistent with WTO rules. The new rules came into force in January 2013. The EU laws and regulations provide product registration markers for the different quality schemes. The EU regulations establish provisions regarding products from a defined geographical area given linkages between the characteristics of products and their geographical origin. The EU defines a GI as "a distinctive sign used to identify a product as originating in the territory of a particular country, region or locality where its quality, reputation or other characteristic is linked to its geographical origin." EU registered products often fall under GI protections in certain third-country markets, and some EU GIs have been trademarked in some non-EU countries. This has become a concern for U.S. agricultural exporters following a series of trade agreements the EU has concluded with Canada, Japan, South Korea, South Africa, and other countries that in many cases are also trading partners of the United States. For example, Canada has agreed to recognize a list of 143 EU GIs in Canada, and Japan has agreed to recognize more than 200 EU GIs in Japan. These GI protections could limit U.S. sales of certain products to these countries. The EU is in the process of negotiating FTAs with several other U.S. trading partners, including Mexico, Australia, New Zealand, and the Mercosur states (Argentina, Brazil, Paraguay, and Uruguay). Each of these efforts includes a selected list of GIs that would become protected under an FTA between these countries and the European Union. In December 2019, the EU also entered into an agreement with China regarding GIs that would protect a reported 100 EU GIs in China. As of January 2020, 3,316 product names are registered and protected in the EU for foods, wine, and spirits originating in both EU member states and other countries. Addressing GI Barriers in FTA Negotiations GIs continue to be actively debated as part of the official U.S. trade agenda, involving concerns about their possible improper use as well as the lack of transparency and due process under some country GI systems. USTR is working "to advance U.S. market access interests in foreign markets and to ensure that GI-related trade initiatives of the EU, its Member States, like-minded countries, and international organizations, do not undercut such market access," and states that the EU's GI agenda "significantly undermines the scope of trademarks and other [IPR] held by U.S. producers and imposes barriers on market access for American-made goods that rely on the use of common names." Statements by USDA officials in early 2020 have signaled that this issue could resurface as part of the U.S.-EU trade talks. Previously, during T-TIP negotiations, U.S. officials indicated that the United States would likely not agree to EU demands to reserve certain food names for EU producers and have expressed concerns about the EU's system of protections for GIs. At the time, U.S. trade policy objectives regarding the EU's GI protections was to ensure that they "do not undercut U.S. industries' market access" and to defend the use of certain "common food names." In general, the United States is seeking protection for current U.S. owners of trademarks that overlap with EU-protected GIs, the ability to use U.S. trademarked names in third countries, and the ability to use U.S. trademarked names in the EU. In recent developments, according to USITC, USMCA "increases the transparency of applications, approvals, and cancellations" regarding GIs and "provides guidelines for determining whether a term is customary in common use." In addition, a side letter between the United States and Mexico commits Mexico to not restrict market access for a list of more than 30 cheeses. USITC says this could "help prevent future losses of U.S. market access for cheeses with common names" such as "blue" or "Swiss" cheese. The final U.S.-China Phase One Trade Agreement also addresses longstanding concerns regarding IPR, including GIs, building on previous commitments regarding IPR and GIs. The agreement is expected to require that China ensure that it will "not undermine market access for U.S. exports to China of goods" and will apply relevant factors when providing certain GI protections, as well as provide the United States with "necessary opportunities to raise disagreement" regarding GIs. GI provisions in these two recent U.S. FTAs, however, could prove to be incompatible with other EU agreements regarding GIs with these countries. For Mexico and Canada, these include GI protections that are likely to be part of the EU-Mexico Global Agreement, as well as existing GI protections in the EU-Canada Comprehensive Economic and Trade Agreement. For China, these include GI protections agreed to in the 2019 EU-China agreement protecting certain EU GIs in China. Next Steps The U.S.-EU Trade Agreement negotiations present Congress with the challenge of determining to what extent food and agriculture issues will be addressed in the trade talks, if at all. Although market access and tariff reductions may be off the table, addressing regulatory restrictions and other non-tariff barriers to U.S. agricultural trade are considered important for many U.S. producers. Some press reports indicate that certain non-tariff barriers and regulatory cooperation could become part of the new trade talks, while other press reports raise questions about the EU's willingness to address specific types of non-tariff barriers as part of the negotiation. Even if regulatory coherence and cooperation become part of the U.S.-EU trade talks, their resolution in a manner that benefits U.S. agricultural exporters is far from assured. Instead, some of the same non-tariff and regulatory barriers to U.S. trade that proved to be challenging during the T-TIP negotiation could prove to be equally intractable today. The UK's exit from the EU could also complicate future trade negotiations. The UK is a close ally of the United States and has been one of its strongest advocates among the EU bloc. In general, the regulatory framework and actions taken by the UK's Food Standards Agency are more aligned with those in the United States. Now that the UK is no longer part of the EU, the EU trade gains for U.S. agriculture could be reduced while its agricultural trade deficit may become more pronounced, given a more favorable trade situation with the UK.

The Office of the U.S. Trade Representative (USTR) officially notified the Congress of the Trump Administration's plans to enter into formal trade negotiations with the European Union (EU) in October 2018. In January 2019, USTR announced its negotiating objectives for a U.S.-EU trade agreement, which included agricultural policies—both market access and non-tariff measures. However, the EU's negotiating mandate, released in April 2019, stated that the trade talks would exclude agricultural products. U.S.-EU27 Agricultural Trade, 1990-201 9 Improving market access remains important to U.S. agricultural exporters, especially given the sizable and growing U.S. trade deficit with the EU in agricultural products (see figure). Some market access challenges stem in part from commercial and cultural practices that are often enshrined in EU laws and regulations and vary from those of the United States. For food and agricultural products, such differences are focused within certain non-tariff barriers to agricultural trade involving Sanitary and Phytosanitary (SPS) measures and Technical Barriers to Trade (TBTs), as well as Geographical Indications (GIs). SPS and TBT measures refer broadly to laws, regulations, standards, and procedures that governments employ as "necessary to protect human, animal or plant life or health" from the risks associated with the spread of pests and diseases, or from additives, toxins, or contaminants in food, beverages, or feedstuffs. SPS and TBT barriers have been central to some longstanding U.S.-EU trade disputes, including those involving EU prohibitions on hormones in meat production and pathogen reduction treatments in poultry processing, and EU restrictions on the use of biotechnology in agricultural production. As these types of practices are commonplace in the United States, this tends to restrict U.S. agricultural exports to the EU. GI protections refer to naming schemes that govern product labeling within the EU and within some countries that have a formal trade agreement with the EU. These protections tend to restrict U.S. exports to the EU and to other countries where such protections have been put in place. Plans for U.S.-EU trade negotiations come amid heightened U.S.-EU trade frictions. In March 2018, President Trump announced tariffs on steel and aluminum imports on most U.S. trading partners after a Section 232 investigation determined that these imports threaten U.S. national security. Effective June 2018, the EU began applying retaliatory tariffs of 25% on imports of selected U.S. agricultural and non-agricultural products. In October 2019, the United States imposed additional tariffs on imports of selected EU agricultural and non-agricultural products, as authorized by World Trade Organization (WTO) dispute settlement procedures in response to the longstanding Boeing-Airbus subsidy dispute. Public statements by U.S. and EU officials in January 2020, however, signaled that the U.S.-EU trade talks might include SPS and regulatory barriers to agricultural trade. Statements by U.S. Department of Agriculture (USDA) officials cited in the press call for certain SPS issues as well as GIs to be addressed in the trade talks. However, other press reports of statements by EU officials have downplayed the extent that specific non-tariff barriers would be part of the talks. More formal discussions are expected in the spring of 2020. Previous trade talks with the EU, as part of the Transatlantic Trade and Investment Partnership (T-TIP) negotiations during the Obama Administration, stalled in 2016 after 15 rounds. During those negotiations, certain regulatory and administrative differences between the United States and the EU on issues of food safety, public health, and product naming schemes for some types of food and agricultural products were areas of contention.

CRS_R46367

Overview On February 10, 2020, the Trump Administration proposed its FY2021 budget for the Department of State, Foreign Operations, and Related Programs (SFOPS) accounts, totaling $44.12 billion (including $158.90 million in mandatory retirement funds). SFOPS funding typically represents about 1% of the annual federal budget and supports a wide range of U.S. activities around the world, including the operations of U.S. embassies, diplomatic activities, educational and cultural exchanges, development, security, and humanitarian assistance, and U.S. participation in multilateral organizations. Figure 1 shows funding for different SFOPS components based on FY2020 budget authority estimates, relative to each other and to the broader federal budget. The Administration's request is about 3% higher than the FY2020 request for SFOPS accounts but nearly 23% below the FY2020 SFOPS funding level enacted by Congress, including supplemental funds to help combat the COVID-19 epidemic globally. The Trump Administration has consistently requested far less SFOPS funding than Congress has appropriated. This is a reversal from the Obama Administration, when Congress typically provided less total SFOPS funding than was requested, though the gap narrowed over time during Obama's terms ( Table 1 ). If enacted, the requested SFOPS funding level would be the lowest in over a decade ( Figure 2 ). The Budget Control Act and Overseas Contingency Operations Since FY2012, the appropriations process has been shaped by the discretionary spending caps put in place by the Budget Control Act of 2011 (BCA; P.L. 112-25 ). Congress has since sought ways to manage the constraints imposed by the BCA and has repeatedly amended the BCA to raise the caps, most recently by the Bipartisan Budget Act of 2019 (BBA 2019; P.L. 116-37 ). The BBA 2019 raised discretionary spending limits set by the BCA for FY2020 and FY2021, the final two years the BCA caps are in effect. In addition to raising the caps, Congress has worked around the BCA limits by using Overseas Contingency Operations (OCO) funding, which is excluded from BCA discretionary budget limits. Congress began appropriating OCO in the SFOPS budget in FY2012, having previously provided OCO funds for the Department of Defense (DOD). Originally used to support shorter-term, contingency-related programming in Afghanistan, Iraq, and Pakistan that was not considered part of the "base" or "core" budget, OCO's use expanded considerably in level and scope between FY2012 and FY2017. Global SFOPS OCO funding peaked at $20.80 billion in FY2017 (nearly 35% of SFOPS funds that year), at which point it was used to support 18 different SFOPS accounts, ranging from USAID operating expenses and the Office of Inspector General to International Disaster Assistance and Foreign Military Financing. This broad use has led many observers to question whether the OCO designation makes a meaningful distinction between core and contingency activities, with some describing OCO (in both SFOPS and Defense appropriations) as a slush fund. The Administration has not requested OCO funds for SFOPS since FY2018, though it has continued to request OCO funds in the DOD budget. Nevertheless, Congress designated $8.00 billion of enacted SFOPS funding in both FY2019 and FY2020 as OCO, continuing a downward trend in the use of OCO since the FY2017 peak. FY2020 SFOPS funding also included $2.37 billion in supplemental emergency funding to help combat the COVID-19 pandemic abroad. Like OCO-designated funding, emergency-designated funding does not count toward the BCA discretionary spending caps and may therefore be used as an alternative to the OCO designation. Before the use of OCO in SFOPS, funding for contingency activities was often provided through supplemental emergency appropriations. Congressional Action on FY2021 SFOPS Legislation Congressional action on SFOPS and other FY2021 appropriations has been delayed to an uncertain degree by disruption of congressional activity related to the Coronavirus Disease 2019 (COVID-19) pandemic. Congress held some hearings on the FY2021 budget request before all hearings were postponed in March 2020. Subcommittee allocations have not been formally established, nor has SFOPS legislation been introduced for FY2021. State Department Operations and Related Agency Highlights The FY2021 request would cut funding for the Department of State and Related Agency appropriations accounts to $14.03 billion, down 18.9% from an enacted FY2020 level of $17.31 billion (including $588 million in COVID-19 supplemental funds). The Administration's request does not include funds to support the State Department's response to the COVID-19 pandemic. To date, Congress has provided all State Department operations funding for COVID-19-related matters through two FY2020 supplemental appropriations acts ( P.L. 116-123 and P.L. 116-136 ). The Administration's stated priorities for funding provided via Department of State and Related Agency accounts in FY2021 include supporting the Indo-Pacific Strategy; countering Chinese, Russian, and Iranian malign influence; protecting U.S. government personnel, facilities, and data assets; and maintaining American leadership in international organizations while asking other nations to increase their support. Table 2 provides a comparative breakout of the Administration's State Department and Related Agency request, by account. Selected Programs and Priorities Consistent with its previous requests, the majority (87.1%) of the funding the Administration is requesting for the Department of State and Related Agency appropriations accounts is for diplomatic programs, diplomatic security and embassy construction, and contributions to international organizations and international peacekeeping activities. For FY2020, such programs composed approximately 88.1% of the Administration's request and 84.8% of the enacted appropriations Congress provided for these accounts. Some of the Administration's priorities within these areas, as identified by the Department of State in its Congressional Budget Justification, are detailed below. Diplomatic Programs The Diplomatic Programs account is the State Department's principal operating appropriation and serves as the source of funding for several key functions. These include most domestic and overseas State Department personnel salaries; foreign policy programs administered by State Department regional bureaus, the Bureau of Conflict and Stabilization Operations, and others; public diplomacy programs; and the operations of the department's strategic and managerial units, including the Bureaus of Administration, Budget and Planning, and Legislative Affairs as well as the Office of the Chief of Protocol. The Administration's FY2021 request for Diplomatic Programs totals $8.49 billion, around 12.6% less than the $9.71 billion Congress provided for this account in FY2020 (this amount includes $588 million Congress provided for Diplomatic Programs in FY2020 supplemental COVID-19 funds; see text box for more detail). The Administration's request seeks $138 million for the Global Engagement Center (GEC), which is responsible for leading interagency efforts to recognize, understand, expose, and counter foreign state and non-state propaganda and disinformation efforts aimed at undermining U.S. interests, including those carried out from Russia, China, and Iran. The Administration maintains that this request, which would constitute a $76 million increase in annual funding for the GEC provided through SFOPS, would alleviate the need for DOD to transfer funds for GEC operations. Some Members of Congress and other observers have expressed concern regarding past DOD transfers, arguing that DOD has not transferred funding to the State Department in an expeditious manner or at funding levels that reflect congressional intent. The Administration's request also includes a realignment of personnel and funding from the Bureau of Global Talent Management (formerly the Bureau of Human Resources); the Bureau of Arms Control, Verification, and Compliance; and the Office of the Coordinator for Cyber Issues to establish a new Bureau for Cyber Security and Emerging Technologies (CSET). The State Department first notified Congress of its intent to create this new bureau in June 2019. It will be responsible for supporting "foreign policies and initiatives to promote U.S. cyber and emerging technology policies and deter adversaries from malicious and destabilizing behavior in their use and application of such technologies." Some observers have expressed criticism over elements of the State Department's plan for CSET, arguing that additional cyber-related matters such as global internet governance should be included in the bureau's remit. However, it appears that this issue and related matters will instead remain under the purview of the Bureau of Economic and Business Affairs. Diplomatic Security For FY2021, the Administration requests around $5.38 billion for the State Department's key diplomatic security accounts: $3.70 billion for the Worldwide Security Protection (WSP) allocation within the Diplomatic Programs account and $1.68 billion for the Embassy Security, Construction, and Maintenance (ESCM) account. The Administration's request represents a decrease of 11.4% from the FY2020 enacted funding level (see Table 3 ). The Administration is proposing that Congress decouple WSP from Diplomatic Programs and establish a standalone WSP account (see text box). WSP funds the Bureau of Diplomatic Security (DS), which is responsible for implementing the department's security programs to protect U.S. embassies and other overseas posts, diplomatic residences, and domestic State Department offices. In addition, WSP supports many of the State Department's security and emergency response programs, including those pertaining to operational medicine and security and crisis management training. The ESCM account funds the Bureau of Overseas Building Operations (OBO), which is responsible for providing U.S. diplomatic and consular missions overseas with secure, functional, and resilient facilities and managing nonmilitary U.S. government property abroad. The Administration's WSP-funded priorities for FY2021 include the hiring of an additional 110 special agents at DS, which the Administration maintains is necessary to address critical overseas vacancies. In addition, the Administration intends to deploy High Definition Secure Video Systems (HDSVS) at overseas posts worldwide. The Administration has stated these systems will provide enhanced monitoring capabilities at overseas posts, including greater video resolution and enhanced nighttime visibility. At the same time, the Administration has proposed a cut of $109 million for DS operations in Afghanistan, which it says is consistent with the consolidation of DS-managed locations in the country and a corresponding reduction in costs for guard services and logistical support. The Administration's ESCM request includes $866.67 million for the State Department's share of the Capital Security Cost Sharing and Maintenance Cost Sharing Programs, which are the sources of funding for the planning, design, construction, and maintenance of the United States' overseas diplomatic posts. The Administration maintains that this request, when combined with funds contributed by other agencies with personnel at overseas posts and visa fee revenues, will fund these programs at the $2.20 billion level recommended by the Benghazi Accountability Review Board. Construction projects the Administration is seeking to fund through this request include a new embassy compound in Riyadh, Saudi Arabia, and new consulate compounds in Adana, Turkey, and Rio de Janeiro, Brazil. Assessed Contributions to International Organizations and Peacekeeping Missions The Contributions to International Organizations (CIO) account is the funding vehicle for the United States' payments of its assessed contributions (membership dues) to over 40 organizations. These include the United Nations (U.N.) and its specialized agencies (among them, the World Health Organization, or WHO), inter-American organizations such as the Organization of American States, and the North Atlantic Treaty Organization (NATO), among others. U.S. funding to international organizations is also provided through the various SFOPS multilateral assistance accounts, as described in the " Foreign Operations Highlights " section of this report. Separately, the United States pays its assessed contributions to most U.N. peacekeeping missions through the Contributions for International Peacekeeping Operations (CIPA) account. For FY2021, the Administration is requesting a combined $2.05 billion for these accounts. If enacted, this funding level would mark a 31.8% cut from that provided by Congress for FY2020. Table 4 shows recent funding levels for each account. Similar to previous budget requests, the Administration's CIO request prioritizes paying assessments to international organizations "whose missions substantially advance U.S. foreign policy interests" while proposing funding cuts to those organizations whose work it says either does not directly affect U.S. national security interests or renders unclear results. With these intentions in mind, the Administration proposed to eliminate funding to the Organization of Economic Cooperation and Development (OECD), while decreasing U.N. regular budget and specialized agency funding by more than one-third. The request intends to maintain near-recent-year levels of U.S. funding for other organizations, including the International Atomic Energy Agency (IAEA). For CIPA, the Administration's FY2021 request reflects its ongoing commitment to reduce costs for U.N. peacekeeping missions by reevaluating their respective mandates, design, and implementation. The Administration has stated that its request, when combined with the application of U.N. peacekeeping credits (excess funds from previous U.N. peacekeeping missions), would allow the United States to provide 25% of all assessed global funding for U.N. peacekeeping missions, which is equal to the statutory cap established by Congress. However, the current U.S. assessment for U.N. peacekeeping (last negotiated in 2018) is 27.9%, meaning that around $345 million of anticipated U.S. assessed funding would be carried over into arrears. This practice has resulted in the accumulation of over $900 million in U.S. peacekeeping arrearages since FY2017. Foreign Operations Highlights The foreign operations accounts in the SFOPS appropriation compose the majority of U.S. foreign assistance included in the international affairs budget; the remainder is enacted in the agriculture appropriation, which provides funding for the Food for Peace Act, Title II and McGovern-Dole International Food for Education and Child Nutrition programs. The Administration's FY2021 foreign operations request totals $30.09 billion, representing a 3.7% increase from the Administration's FY2020 request and a 25.7% decrease from FY2020-enacted levels. Total foreign assistance requested for FY2021, including the food assistance funds provided in the agriculture appropriation, would represent a 29.1% reduction from FY2020-enacted levels. The Administration's budget request articulates five primary goals for U.S. foreign assistance that are meant to align with both the National Security Strategy and the State-USAID Joint Strategic Plan: prioritize global strategic challenges, including countering Chinese, Russian, and Iranian influence; support strategic partners and allies, including Israel, Egypt, Jordan, Colombia, and Venezuela; enhance commitment to long-term development; strengthen key areas of U.S. leadership, to include global health and humanitarian assistance; and advance U.S. national security and economic interests. These goals are also meant to guide the Administration's regional thematic priorities (see " Country and Regional Assistance "), as well as how funds are allocated across assistance types. The Administration's FY2021 budget request proposes cuts in nearly all assistance types ( Table 5 ). The only exception is export promotion assistance, which would see a significant increase. This increase is largely due to proposed funding for the new U.S. Development Finance Corporation (DFC), which the Administration states represents an "expansion of the role of development finance in advancing U.S. interests around the world," and an estimated increase in offsetting collections from the Export-Import Bank. Key Sectors Consistent with prior year funding and the FY2020 enacted levels, proposed funding for global health programs, humanitarian assistance, and security assistance comprises approximately two-thirds of the $30.09 billion FY2021 foreign operations budget request ( Figure 3 ). Global Health Programs The total FY2021 request for the Global Health Programs (GHP) account is nearly $6.00 billion, representing a 5.4% reduction from the FY2020 budget request and a 37.5% reduction from the FY2020-enacted level, including supplemental appropriations. When compared with FY2020-enacted levels before enactment of supplemental funding for COVID-19, all but one GHP subaccount would be reduced under the budget proposal ( Table 6 ). Budget documents indicate that the increase to pandemic influenza funding (when compared with FY2020-enacted appropriations prior to the COVID-19 supplemental funding) would include a $25.00 million deposit of nonexpiring funds to replenish the Emergency Reserve Fund for rapid response to infectious disease outbreaks. Observers have expressed concern about the potential cessation of USAID's PREDICT-II pandemic preparedness program in March 2020. The Administration does not indicate in the budget request, nor has it specified in any public fora, whether PREDICT-II will be continued. However, the University of California, Davis—one of PREDICT-II's implementing organizations—has reportedly received additional funding from USAID to extend PREDICT-II and continue related work through the "One Health Workforce—Next Generation" project. Requested cuts to GHP subaccounts range from 8.0% for malaria programs to 100% for USAID's HIV/AIDS and vulnerable children subaccounts. The Administration asserts that despite its proposed reduction to HIV/AIDS funding, the requested level would be sufficient to maintain treatment for all current recipients. The proposal also reflects the Administration's effort to limit U.S. contributions to the Global Fund—an international financing mechanism for efforts to combat AIDS, tuberculosis, and malaria—to 25% of all donations, rather than the 33% limit that the United States has provided since the George W. Bush Administration. As noted above, the Administration's FY2021 request does not include funds for COVID-19, because the request was prepared prior to the outbreak. Congress enacted, and the President signed into law, three supplemental appropriations acts for COVID-19 preparedness and response in March ( P.L. 116-123 , P.L. 116-127 , and P.L. 116-136 ). As of this report's publishing, the Administration has not submitted a request for additional FY2021 funds to combat the virus. Humanitarian Assistance The FY2021 budget request for humanitarian assistance is nearly $6.27 billion, roughly equivalent to the FY2020 request but down 40.1% from the FY2020-enacted level of $10.46 billion. In successive years, the Administration has requested levels of humanitarian assistance far lower than those enacted the prior year, at times reflecting the fact that humanitarian assistance funds may be carried over from year to year and unobligated balances from prior years may still be available. On a bipartisan basis, for many years, Congress has consistently supported global humanitarian efforts through appropriation levels well above the budget request ( Figure 4 ). In addition to the proposed $6.27 billion in new funding for humanitarian assistance, the Administration's request assumes $2.80 billion in carryover funding from past-year humanitarian assistance. The Administration asserts that the FY2021 request, combined with the estimated carryover, totals close to $9.00 billion, which would allow the United States "to program well above the second highest level ever, and is sufficient to address the needs for Syria, Yemen, and other crisis areas." Proposed Humanitarian Account Consolidation For FY2021, as in FY2020, the Trump Administration proposes to fund all humanitarian assistance through a single International Humanitarian Assistance (IHA) account managed through USAID's new Bureau for Humanitarian Assistance (BHA). The Administration has justified the restructuring as necessary "to optimize humanitarian assistance, prioritize funding, and use funding as effectively and efficiently as possible." The proposal would effectively move the administration of overseas refugee and migration assistance funding—currently funded through the Migration and Refugee Assistance (MRA) and Emergency Refugee and Migration Assistance (ERMA) accounts—from the State Department to USAID. In FY2020, enacted funding for these accounts totaled $3.78 billion. The budget request would eliminate the ERMA account and significantly reduce funding to MRA, with none for overseas needs. Within USAID, the BHA is in the process of combining the functions of the Offices of U.S. Foreign Disaster Assistance and Food for Peace. The budget request would eliminate the International Disaster Assistance (IDA) account (FY2020-enacted funding totaled $4.95 billion), as well as Food for Peace Act, Title II emergency food assistance funding, the latter of which is currently appropriated through the agriculture appropriation but administered by USAID (FY2020-enacted funding totaled $1.73 billion). Funds previously requested in these accounts would be consolidated into the IHA account. Security Assistance The Administration is requesting $7.73 billion in international security assistance for FY2021, an increase of 4.3% from the FY2020 request and 14.3% below the FY2020-enacted level. The greatest cuts to security assistance accounts would be to Peacekeeping Operations (PKO, -36.6%) and International Military Education and Training (IMET, -27.4%) ( Figure 5 ). Consistent with prior year requests and appropriations, the majority of security assistance ($5.19 billion) would be for Foreign Military Financing (FMF) to the Middle East, including $3.30 billion in grants to Israel. As in the Trump Administration's past three budget proposals, the FY2021 request seeks flexibility to provide FMF assistance through a combination of grants and loans, including loan guarantees, rather than the current use of FMF on an almost exclusive grant basis. The Administration asserts that this authority would both "expand the tools available to the United States to help NATO and Major-Non NATO allies purchase more American-made defense equipment and related services" and "increase burden sharing by asking these partners to contribute more national funds to foreign military sales cases." Development Assistance and Export Promotion The remaining third of the FY2021 foreign operations request proposes to allocate funds to development sectors other than those related to global health, independent agencies, multilateral assistance, and export promotion agencies. Development Assistance The FY2021 budget request would reduce funding from FY2020-enacted levels in a number of development sectors ( Table 7 ). Environment-focused aid, for example, would be cut by 86.3%, while funding for education and water and sanitation would fall by 61.2%. As with the FY2020 request, the FY2021 request includes a significant increase from prior year-enacted levels to programming that seeks to promote women in developing economies, largely due to a proposed $200.00 million for the Women's Global Development and Prosperity Initiative (W-GDP). Proposed Economic Support and Development Fund Under the FY2021 request, most development accounts—Development Assistance (DA); Economic Support Fund (ESF); Assistance to Europe, Eurasia and Central Asia (AEECA); and the Democracy Fund (DF)—would be combined into a single new Economic Support and Development Fund (ESDF). The Administration asserts that this consolidated account would streamline the deployment of resources, increasing efficiency in foreign assistance. Because the consolidated account would incorporate what are now both core and shared USAID accounts, it remains unclear what portion of the new account USAID would manage or implement. The Administration made a similar request in the FY2018, FY2019, and FY2020 budget requests, but Congress did not enact the proposals. The FY2021 budget request nestles the Relief and Recovery Fund (RRF) and a proposed new Diplomatic Progress Fund (DPF)—both previously requested as separate budget items—under the proposed ESDF account. According to the justification, the DPF would "allow the State Department and USAID to respond to new opportunities arising from progress in diplomatic and peace efforts around the world." While Congress provided funds for the RRF in previous fiscal years, Congress has not accepted the Administration's proposal for the DPF. Independent Agencies The Administration's FY2021 request would reduce funding to the Peace Corps (-19.5%) and the Millennium Challenge Corporation (-11.6%). The request also proposes eliminating the Inter-American Foundation (IAF) and the U.S African Development Foundation (USADF), and incorporating staff and small grant activities of the two foundations into USAID's new Bureau for Development, Democracy, and Innovation. The Administration maintains that this consolidation would allow USAID to "capitalize on the existing expertise, capacity, relationships, and tools that USADF and IAF provide, including their regional and market segment emphases, in order to reinforce U.S. government bilateral development efforts." To implement the shuttering of the IAF and USADF, the Administration requests $3.85 million and $4.66 million, respectively. Multilateral Assistance SFOPS multilateral assistance accounts provide for U.S. payments to multilateral development banks and international organizations that pool funding from multiple donors to finance development activities. The Administration's FY2021 request would reduce these accounts by 28.9% from FY2020-enacted levels. As in the Trump Administration's three previous requests, the proposal would eliminate funding for the International Organizations and Programs (IO&P) account, which funds U.S. voluntary contributions to international organizations, primarily United Nations entities such as UNICEF. Congress appropriated $390.50 million for IO&P in FY2020. The Administration also proposes eliminating funds for the Global Environment Facility (GEF) and the International Fund for Agricultural Development (IFAD). For the GEF, the Administration asserts that carryover funds from FY2019 and FY2020 appropriations are sufficient to meet the U.S. pledge to the GEF's seventh replenishment. Export Promotion The FY2021 request includes an increased investment in the U.S. Development Finance Corporation (DFC), established in 2019 to implement the BUILD Act. However, the Administration would eliminate funding for the U.S. Trade and Development Agency—the request includes $12.11 million for the agency's "orderly closeout"—and an 8.3% reduction from FY2020-enacted levels for the Export-Import Bank of the United States' Operations account. As in previous years, the Administration assumes that all export promotion expenditures would be offset by collections. In the FY2021 request, the Administration assumes $711.20 million and $496.00 million in offsetting collections from the Export-Import Bank and the DFC, respectively. Country and Regional Assistance The Administration organizes much of its country and regional assistance into six thematic priorities ( Figure 6 ). These priorities are also meant to reflect the broader foreign operations goals outlined in " Foreign Operations Highlights ." Top country recipients under the FY2021 request remain consistent with prior year funding allocations. Israel, Egypt, and Jordan would remain the top three recipients of foreign assistance—though Egypt would move ahead of Jordan when compared with FY2019 actual funding—largely due to the proposed levels of military aid for those three countries. Other countries that the Administration maintains are strategically significant, including Afghanistan and Ukraine, also remain top country recipients in the FY2021 request, as do several African countries that would receive high levels of global health and development aid ( Table 8 ). Regionally, the Middle East and Africa would receive the largest shares of aid in the FY2021 request—together comprising about 71.5% of total aid allocated by country or region—consistent with FY2019 year actuals ( Figure 7 ). Proposed funding for Europe and Eurasia and, separately, the Indo-Pacific, come to 3.9% and 9.2%, respectively. Notably, the distribution of assistance within regions vary significantly. For example, Africa receives a majority of GHP funding (58.1% in FY2019 and a proposed 66.7% for FY2021), but accounts for a small proportion of INCLE funding (5.2% in FY2019 and a proposed 4.1% for FY2021). In comparison, the Western Hemisphere region accounts for a small percentage of GHP (2.5% in FY2019 and a proposed 2.2% for FY2021) and a large proportion of INCLE funds (37.7% in FY2019 and a proposed 44.8% for FY2021). Appendix A. SFOPS Funding, by Account Appendix B. International Affairs Budget The International Affairs budget, or Function 150, includes funding that is not in the Department of State, Foreign Operations, and Related Programs (SFOPS) appropriation; in particular, international food assistance programs (Food for Peace Act (FFPA), Title II and McGovern-Dole International Food for Education and Child Nutrition programs) are in the Agriculture Appropriations, and the Foreign Claim Settlement Commission and the International Trade Commission are in the Commerce, Justice, Science appropriations. In addition, the Department of State, Foreign Operations, and Related Programs appropriation measure includes funding for certain international commissions that are not part of the International Affairs Function 150 account. Appendix C. SFOPS Organization Chart

Each year, Congress considers 12 distinct appropriations measures to fund federal programs and activities. One of these is the Department of State, Foreign Operations, and Related Programs (SFOPS) bill, which includes funding for U.S. diplomatic activities, cultural exchanges, development and security assistance, and participation in multilateral organizations, among other international activities. On February 10, 2020, the Trump Administration submitted to Congress its SFOPS budget proposal for FY2021, totaling $44.12 billion (including $158.90 million in mandatory State Department retirement funds). Consistent with Administration requests since FY2018, none of the requested SFOPS funds were designated as Overseas Contingency Operations (OCO) funds; nevertheless, Congress has enacted OCO funds for SFOPS each year during this period. The Administration's FY2021 request is about 3% higher than its FY2020 request for SFOPS accounts but nearly 24% below the FY2020 SFOPS funding level enacted by Congress (including COVID-19 supplemental funds). Within these totals, funding is divided among two main components: Department of State and Related Agency accounts. These funds, provided in Title I of the SFOPS appropriation, primarily support Department of State diplomatic and security activities and would be reduced by 18.9% from FY2020-enacted levels. Noteworthy cuts are proposed for the Educational and Cultural Exchange Programs (-57.6%), International Organizations (-31.8%) accounts, and the Diplomatic Programs account (-12.6%), which funds many of the State Department's day-to-day operations. The Foreign Ope rations accounts, funded in Title II-VI of the SFOPS bill, fund most foreign assistance activities. These accounts would see a total reduction of 25.7%, with particularly steep cuts proposed for global health programs (-37.5%), peacekeeping operations (PKO, -36.6%), multilateral aid (-28.9%), and humanitarian assistance (-28.3%, not including food aid programs funded through the agriculture appropriation). This report provides an overview of the FY2021 SFOPS budget request, discusses trends in SFOPS funding, and highlights key policy issues. An account-by-account comparison of the FY2021 SFOPS request and enacted FY2020 SFOPS appropriations is presented in Appendix A . Appendix B provides a similar comparison, focused specifically on the International Affairs budget. Appendix C depicts the organization of the SFOPS appropriation. The report will be updated to reflect congressional action. This report is designed to track SFOPS appropriations, with a focus on comparing funding levels for accounts and purposes across enacted FY2020 SFOPS appropriations, FY2021 Administration requests, and FY2021 SFOPS legislation as it moves through the legislative process. It does not provide significant analysis of international affairs policy issues. For in-depth analysis and contextual information on international affairs issues, please consult the wide range of CRS reports on specific subjects, such as global health, diplomatic security, and U.S. participation in the United Nations.

CRS_R41184

Small Business Administration Loan Guaranty Programs The Small Business Administration (SBA) administers programs to support small businesses, including several loan guaranty programs designed to encourage lenders to provide loans to small businesses "that might not otherwise obtain financing on reasonable terms and conditions." The SBA's 504 Certified Development Company (504/CDC) loan guaranty program provides long-term fixed rate financing for major fixed assets, such as land, buildings, equipment, and machinery. Its name is derived from Section 504 of the Small Business Investment Act of 1958 (P.L. 85-699, as amended), which provides the most recent authorization in the act concerning the SBA's monthly sale of 20-year and 25-year 504/CDC debentures and bimonthly sale of 10-year 504/CDC debentures. The 504/CDC loan guaranty program is administered through nonprofit Certified Development Companies (CDCs). Of the total project costs, a third-party lender must provide at least 50% of the financing, the CDC provides up to 40% of the financing backed by a 100% SBA-guaranteed debenture, and the applicant provides at least 10% of the financing. The borrower makes two loan payments, one to the third-party lender and another to the CDC. The third-party loan, typically provided by a bank, can have a fixed or variable interest rate, is negotiated between the lender and the borrower, is subject to an interest rate cap, and must have at least a 7-year term for a 10-year debenture and at least 10-year term for a 20- or 25-year debenture. The CDC loan has a fixed interest rate that is determined when the SBA sells the debenture to fund the loan. The CDC loan's term is either 10 years (typically for machinery or equipment) or 20 years or 25 years (typically for real estate). The SBA's debenture is backed by the full faith and credit of the United States and is sold to underwriters that form debenture pools. Investors purchase interests in the debenture pools and receive Development Company Participation certificates (DCPC) representing ownership of all or part of the pool. DCPCs have a minimum value of $25,000 and can be sold on the secondary market. The SBA and CDCs use various agents to facilitate the sale and service of the certificates and the orderly flow of funds among the parties. After a 504/CDC loan is approved and disbursed, accounting for the loan is set up at the Central Servicing Agent (CSA, currently PricewaterhouseCoopers Public Sector LLP), not the SBA. The SBA guarantees the timely payment of the debenture. If the small business is behind in its loan payments, the SBA pays the difference to the investor on every semiannual due date. In FY2018, the SBA approved 5,874 504/CDC loans amounting to nearly $4.8 billion. At the end of FY2018, there were 56,601 504/CDC loans with an unpaid principal balance of about $25.8 billion. Historically, one of the justifications presented for funding the SBA's loan guaranty programs has been that small businesses can be at a disadvantage, compared with other businesses, when trying to obtain access to sufficient capital and credit. Congressional interest in small business access to capital, in general, and the 504/CDC program, in particular, has increased in recent years because of concern that small businesses might be prevented from accessing sufficient capital to enable them to grow and create jobs. Congress authorized several changes to the 504/CDC program during the 111 th Congress in an effort to increase the number and amount of 504/CDC loans. For example P.L. 111-5 , the American Recovery and Reinvestment Act of 2009 (ARRA), provided $375 million to temporarily reduce fees in the SBA's 7(a) and 504/CDC loan guaranty programs ($299 million) and to temporarily increase the 7(a) program's maximum loan guaranty percentage to 90% ($76 million). Congress subsequently appropriated another $265 million and authorized the SBA to reprogram another $40 million to extend those subsidies and the loan modification through May 31, 2010. ARRA also authorized the SBA to allow, under specified circumstances, the use of 504/CDC program funds to refinance existing debt for business expansion. P.L. 111-240 , the Small Business Jobs Act of 2010, increased the 504/CDC program's loan guaranty limits from $1.5 million to $5 million for "regular" borrowers, from $2 million to $5 million if the loan proceeds are directed toward one or more specified public policy goals, and from $4 million to $5.5 million for manufacturers. The act also temporarily expanded for two years after the date of enactment (or until September 27, 2012) the types of projects eligible for refinancing of existing debt under the 504/CDC program; provided $505 million (plus an additional $5 million for administrative expenses) to continue fee subsidies for the 7(a) loan guaranty program and the 504/CDC program through December 31, 2010; and established an alternative size standard that allows more companies to qualify for 504/CDC assistance. P.L. 111-322 , the Continuing Appropriations and Surface Transportation Extensions Act, 2011, authorized the SBA to continue the fee subsidies and the 7(a) program's 90% maximum loan guaranty percentage through March 4, 2011, or until funding provided for these purposes in P.L. 111-240 was exhausted (which occurred on January 3, 2011). During the 114 th Congress, P.L. 114-113 , the Consolidated Appropriations Act, 2016, reinstated the expansion of the types of projects eligible for refinancing under the 504/CDC loan guaranty program in any fiscal year in which the refinancing program and the 504/CDC program as a whole do not have credit subsidy costs. The act requires each CDC to limit its refinancing so that, during any fiscal year, the new refinancings do not exceed 50% of the dollars it loaned under the 504/CDC program during the previous fiscal year. This limitation may be waived if the SBA determines that the refinance loan is needed for good cause. An interim final rule implementing the new refinancing program was issued by the SBA on May 25, 2016, effective June 24, 2016. During the 115 th Congress, P.L. 115-371 , the Small Business Access to Capital and Efficiency (ACE) Act, amended the Small Business Investment Act of 1958 to increase the threshold amount for determining when a CDC is required to secure an independent real estate appraisal for a 504/CDC loan (from if the estimated value of the project property is greater than $250,000 to if the estimated value of the project property is greater than the federal banking regulator appraisal threshold, which was increased from $250,000 to $500,000 in 2018). In addition, the Trump Administration proposed in its FY2020 budget request that the maximum dollar amount for a 504 loan to a small manufacturer be increased to $6.5 million from $5.5 million. This report opens with a discussion of the rationale for the 504/CDC program and then examines the program's borrower and lender eligibility standards; program requirements; and program statistics, including loan volume, loss rates, proceeds usage, borrower satisfaction, and borrower demographics. Next, it surveys congressional action taken during recent Congresses to enhance small business access to capital, including ARRA, P.L. 111-240 , P.L. 114-113 , and P.L. 115-371 . This report also discusses issues raised concerning the SBA's administration of the program, including the oversight of 504/CDC lenders. Program Participants and Financing Contribution As shown in Table 1 , 504/CDC projects generally have three main participants: a third-party lender provides 50% or more of the financing; a CDC provides up to 40% of the financing through a 504/CDC debenture, which is 100% guaranteed by the SBA; and the borrower contributes at least 10% of the financing. The CDC's contribution, and the amount of the SBA's 100% guaranteed debenture, generally cannot exceed 40% of the financing for standard 504/CDC loans. It cannot exceed 35% of the financing for new businesses (defined as "a business that is two years old or less at the time the loan is approved") or if the loan is for either a limited-market property (defined as "a property with a unique physical design, special construction materials, or a layout that restricts its utility to the use for which it is designed") or a special purpose property. The SBA lists 27 limited and special purpose properties (e.g., dormitories, golf courses, hospitals, and bowling alleys). The CDC's contribution cannot exceed 30% of the financing when the borrower is a new business and the loan is for either a limited-market property or a special purpose property. Borrowers must contribute at least 10% of the financing for standard 504/CDC loans and at least 15% of the financing if the borrower is a new business or if the loan is for a limited-market property or a special purpose property. They must contribute at least 20% of the financing if the borrower is a new business and the loan is for either a limited-market property or a special purpose property. Borrower Eligibility Standards and Program Requirements Borrower Eligibility Standards To be eligible for a SBA business loan, a small business applicant must be located in the United States; be a for-profit operating business (except for loans to eligible passive companies); qualify as small; demonstrate a need for the desired credit and that the funds are not available from alternative sources, including personal resources of the principals; and be certified by a lender that the desired credit is unavailable to the applicant on reasonable terms and conditions from nonfederal sources without SBA assistance. Several types of businesses are prohibited from participating in the program. For example, financial businesses primarily engaged in the business of lending, such as banks and finance companies; life insurance companies; businesses located in a foreign country; businesses deriving more than one-third of their gross annual revenue from legal gambling activities; businesses that present live performances of a prurient sexual nature; and businesses with an associate who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral turpitude are ineligible. To qualify for a SBA business loan, applicants must be creditworthy and able to reasonably assure repayment. The SBA requires lenders to consider the applicant's character, reputation, and credit history; experience and depth of management; strength of the business; past earnings, projected cash flow, and future prospects; ability to repay the loan with earnings from the business; sufficient invested equity to operate on a sound financial basis; potential for long-term success; nature and value of collateral (although inadequate collateral will not be the sole reason for denial of a loan request); and affiliates' effect on the applicant's repayment ability. Borrower Program Requirements Use of Proceeds A 504/CDC loan can be used to purchase land and make necessary improvements to the land, such as adding streets, curbs, gutters, parking lots, utilities, and landscaping; purchase buildings and make improvements to the buildings, such as altering the building's facade and updating its heating and electrical systems, plumbing, and roofing; purchase, transport, dismantle, or install machinery and equipment, provided the machinery and equipment have a useful life of at least 10 years; purchase essential furniture and fixtures; pay professional fees that are directly attributable and essential to the project, such as title insurance, title searches and abstract costs, surveys, and zoning matters; finance short-term debt ( bridge financing ) for eligible expenses that are directly attributable to the project and the financing term is three years or less; pay interim financing costs, including points, fees, and interest; create a contingency fund, provided the fund does not exceed 10% of the project's construction costs; finance "do-it-yourself" construction expenses, including renovations and the installation of machinery and equipment; and finance permissible debt refinancing with or without business expansion. A 504/CDC loan cannot be used for working capital or inventory. Job Creation and Retention Requirement All 504/CDC borrowers must meet at least one of two specified economic development objectives. First, borrowers, other than small manufacturers, must create or retain at least one job for every $75,000 of project debenture within two years of project completion. Borrowers who are small manufacturers (defined as a small business with its primary North American Industry Classification System Code in Sectors 31, 32, and 33 and all of its production facilities located in the United States) must create or retain at least one job per $120,000 of project debenture within two years of project completion. Borrowers enter the number of jobs to be created or retained as a result of the project in their application for funds and the CDC verifies that the project meets the job creation or retention requirements. The jobs created do not have to be at the project facility, but 75% of the jobs must be created in the community in which the project is located. Using job retention to satisfy this requirement is allowed only if the CDC "can reasonably show that jobs would be lost to the community if the project was not done." If the borrower does not meet the job creation or retention requirement, the borrower can retain eligibility by meeting (1) any 1 of 5 community development goals, (2) any 1 of 10 public policy goals, or (3) any 1 of 3 energy reduction goals, provided that the CDC's overall portfolio of outstanding debentures meets or exceeds the job creation or retention criteria of at least 1 job opportunity created or retained for every $75,000 in project debenture (or for every $85,000 in project debenture for projects located in special geographic areas such as Alaska, Hawaii, state-designated enterprise zones, empowerment zones, enterprise communities, labor surplus areas, or opportunity zones). Loans to small manufacturers are excluded from the calculation of this average. The five community development goals are improving, diversifying, or stabilizing the economy of the locality; stimulating other business development; bringing new income into the community; assisting manufacturing firms; or assisting businesses in labor surplus areas as defined by the U.S. Department of Labor. The 10 public policy goals are revitalizing a business district of a community with a written revitalization or redevelopment plan; expanding exports; expanding the development of women-owned and -controlled small businesses; expanding small businesses owned and controlled by veterans (especially service-disabled veterans); expanding minority enterprise development; aiding rural development; increasing productivity and competitiveness (e.g., retooling, robotics, modernization, and competition with imports); modernizing or upgrading facilities to meet health, safety, and environmental requirements; assisting businesses in or moving to areas affected by federal budget reductions, including base closings, either because of the loss of federal contracts or the reduction in revenues in the area due to a decreased federal presence; or reducing unemployment rates in labor surplus areas, as defined by the U.S. Department of Labor. The three energy reduction goals are reducing existing energy consumption by at least 10%; increasing the use of sustainable designs, including designs that reduce the use of greenhouse gas-emitting fossil fuels or low-impact design to produce buildings that reduce the use of nonrenewable resources and minimize environmental impact; or upgrading plant, equipment, and processes involving renewable energy sources such as the small-scale production of energy for individual buildings' or communities' consumption, commonly known as micropower, or renewable fuel producers including biodiesel and ethanol producers. If the project cannot meet any of these guidelines, then the debenture amount must be reduced to meet the job creation or retention requirement. Loan Amounts The minimum 504/CDC debenture is $25,000. P.L. 111-240 increased the maximum gross debenture amount from $1.5 million to $5 million for regular 504/CDC loans; from $2 million to $5 million if the loan proceeds are directed toward one or more of the public policy goals described above; from $4 million to $5.5 million for small manufacturers; from $4 million to $5.5 million for projects that reduce the borrower's energy consumption by at least 10%; and from $4 million to $5.5 million for projects for plant, equipment, and process upgrades of renewable energy sources, such as the small-scale production of energy for individual buildings or communities consumption (commonly known as micropower), or renewable fuel producers, including biodiesel and ethanol producers. Loan Terms, Interest Rate, and Collateral Loan Terms The SBA determines the 504/CDC program's loan terms and publishes them in the Federal Register . The current maturity for a 504/CDC loan is generally 20 or 25 years for real estate; 10 years for machinery and equipment; and 10, 20, or 25 years based upon a weighted average of the useful life of the assets being financed. The maturities for the first mortgage issued by the third-party lender must be at least 7 years when the CDC/504 loan is for a term of 10 years and at least 10 years when the loan is for 20 or 25 years. Interest Rates As mentioned previously, 504/CDC borrowers make two loan payments, one to the third-party lender and one to the CDC. The third-party loan can have a fixed or variable interest rate, is negotiated between the lender and the borrower, and is subject to an interest rate cap. The third-party loan's interest rate "must be reasonable" and the interest rate cap is published by the SBA in the Federal Register . The current maximum interest rate that a third-party lender is allowed to charge for a commercial loan that funds any portion of the cost of a 504/CDC project is 6% greater than the New York prime rate or the maximum interest rate permitted in that state, whichever is less. Borrowers have a general sense of what their 504/CDC loan's interest rate will be when their completed loan application is submitted to the SBA for approval. However, the loan's exact interest rate is not known until after it is pooled with other 504/CDC loan requests and sold to private investors (typically large institutional investors such as pension funds, insurance companies, and large banks). Investors receive interest on the debt, called a debenture, semi-annually. Borrowers make monthly payments. The 504/CDC loan's interest rate has several components: the debenture interest rate (i.e., the rate that determines interest paid semi-annually to investors who purchase the debenture), the note rate (i.e., the monthly-pay equivalent of the debenture rate, which is typically four to eight basis points higher than the debenture interest rate depending on the length of the loan's term), and the effective rate (i.e., the note rate and the cost impact of ongoing fees). Effective rates are provided to CDCs on a full-term basis and in 5-year increments. The debenture interest rate is based on comparable market conditions for long-term government debt at the time of sale and pegged to an increment above the current market rate. The SBA's fiscal agent, currently Eagle Compliance, LLC, reaches an agreement with the underwriters on the sale price of the debentures and, after reaching this agreement, must obtain approvals from the SBA and Treasury before proceeding. In May 2019, the 10-year 504/CDC debenture rate was 2.66%, the comparable Treasury market rate was 2.22%, the note rate was 2.76%, and the effective full-term interest rate was 4.69%. In May 2019, the 20-year 504/CDC debenture rate was 2.88%, the comparable Treasury market rate was 2.43%, the note rate was 2.93%, and the effective full-term interest rate was 4.69%. For 25-year 504/CDC debentures sold in May 2019, the debenture rate was 3.07%, the comparable Treasury market rate was 2.43%, the note rate was 3.11%, and the effective full-term interest rate was 4.97%. Collateral The SBA usually takes a second lien position on the project property to secure the loan. The SBA's second lien position is considered adequate when the applicant meets all of the following criteria: strong, consistent cash flow that is sufficient to cover the debt; demonstrated, proven management; the business has been in operation for more than two years; and the proposed project is a logical extension of the applicant's current operations. If one or more of the above factors is not met, additional collateral or increased equity contributions may be required. All collateral must be insured against such hazards and risks as the SBA may require, with provisions for notice to the SBA and the CDC in the event of impending lapse of coverage. However, for 504/CDC loans, the applicant's cash flow is the primary source of repayment, not the liquidation of collateral. Thus, "if the lender's financial analysis demonstrates that the small business applicant lacks reasonable assurance of repayment in a timely manner from the cash flow of the business, the loan request must be declined, regardless of the collateral available or outside sources of cash." CDC Eligibility Standards, Operating Requirements, and Program Requirements CDC Eligibility Standards CDCs apply to the SBA for certification to participate in the 504/CDC program. A CDC must be a nonprofit corporation, and it must be in good standing in the state in which it is incorporated; be in compliance with all laws, including taxation requirements, in the state in which it is incorporated and any other state in which it conducts business; provide the SBA a copy of its IRS tax exempt status; indicate its area of operations, which is the state of the CDC's incorporation; and have a board of directors that fulfills specified requirements, such as having at least nine voting members, requiring a quorum of at least 50% of its voting membership to transact business, and meets at least quarterly. If approved by the SBA, newly certified CDCs are on probation for two years. At the end of this time, the CDC must petition for either permanent CDC status or a single, one-year extension of probation. To be considered for permanent CDC status or an extension of probation, the CDC must have satisfactory performance as determined by the SBA in its discretion. Examples of the factors that may be considered in determining satisfactory performance include the CDC's risk rating, on-site review and examination assessments, historical performance measures (like default rate, purchase rate, and loss rate), loan volume to the extent that it impacts performance measures, and other performance-related measurements and information (such as contribution toward SBA's mission). In FY2018, 194 CDCs provided at least one 504/CDC loan. CDC Operating Requirements The CDC's board of directors is allowed to establish a loan committee composed of members of the CDC who may or may not be on the CDC's board of directors. The loan committee reports to the board and must meet specified requirements, such as having at least two members with commercial lending experience satisfactory to the SBA, generally requiring all of its members to live or work in the area of operations of the state in which the 504/CDC project they are voting on is located, not allowing any CDC staff to serve on the loan committee, and requiring a quorum of at least five committee members authorized to vote to hold a meeting. In addition, multistate CDCs are required to have a separate loan committee "for each state into which the CDC expands." The SBA also has a number of requirements concerning CDC staff, such as requiring CDCs to "have qualified full-time professional staff to market, package, process, close and service loans" and "directly employ full-time professional management," typically including an executive director (or the equivalent) to manage daily operations. CDCs are also required to operate "in accordance with all SBA loan program requirements" and provide the SBA "current and accurate information about all certification and operational requirements." CDCs with 504/CDC loan portfolio balances of $20 million or more are required to submit financial statements audited in accordance with generally accepted accounting principles (GAAP) by an independent certified public accountant (CPA). CDCs with 504/CDC loan portfolio balances of less than $20 million must, at a minimum, submit a review of their loan portfolio balances by an independent CPA or independent accountant in accordance with GAAP. The auditor's opinion must state that the financial statements are in conformity with GAAP. CDC Program Requirements The Application Process CDCs must analyze each application in a commercially reasonable manner, consistent with prudent lending standards. The CDC's analysis must include a financial analysis of the applicant's pro forma balance sheet. The pro forma balance sheet must reflect the loan proceeds, use of the loan proceeds, and any other adjustments such as required equity injection or standby debt; a financial analysis of repayment ability based on historical income statements, tax returns (if an existing business), and projections, including the reasonableness of the supporting assumptions; a ratio analysis of the financial statements including comments on any trends and a comparison with industry averages; a discussion of the owners' and managers' relevant experience in the type of business, as well as their personal credit histories; an analysis of collateral adequacy, including an evaluation of the collateral and lien position offered as well as the liquidation value; a discussion of the applicant's credit experience, including a review of business credit reports and any experience the CDC may have with the applicant; and other relevant information (e.g., if the application involves a franchise and the success of the franchise). CDCs submit this information, using required SBA forms, to the Sacramento, CA, loan processing center. Accredited Lender Program Status In 1991, the SBA established the ALP on a pilot basis to provide CDCs that "have developed a good partnership with their SBA field office in promoting local economic development and have demonstrated a good track record in the submission of documentation needed for making and servicing of sound loans" an expedited process for approving loan applications and servicing actions. P.L. 103-403 , the Small Business Administration Reauthorization and Amendments Act of 1994, authorized the SBA to establish the ALP on a permanent basis. CDCs may apply to the SBA for ALP status. Selection is based on several factors, including the CDC's experience as a CDC, the number of 504/CDC loans approved, the size of the CDC's portfolio, its record of compliance with SBA loan program requirements, and its record of cooperation with all SBA offices. The SBA is able to process loan requests from ALP-CDCs more quickly than from regular CDCs because it relies on their credit analysis when making the decision to guarantee the debenture. About one-third of CDCs have ALP status (77 of 226) and they account for about 60% to 70% of all 504/CDC lending each year. Premier Certified Lenders Program Status P.L. 103-403 also authorized the SBA's Premier Certified Lenders Program (PCLP) on a pilot basis through October 1, 1997. The program's authorization was later extended through October 1, 2002, and given permanent statutory authorization by P.L. 106-554 , the Consolidated Appropriations Act, 2001 (§1: H.R. 5667 , the Small Business Reauthorization Act of 2000). ALP-CDCs must apply to the SBA for PCLP status. CDCs provided PCLP status have increased authority to process, close, service, and liquidate 504/CDC loans. The loans are subject to the same terms and conditions as other 504/CDC loans, but the SBA delegates to the PCLP-CDC all loan approval decisions, except eligibility. Selection is based on several factors, including all of the factors used to assess ALP status plus evidence that the CDC is "in compliance with its Loan Loss Reserve Fund (LLRF) requirements [described below], has established a PCLP processing goal of 50%, and has a demonstrated ability to process, close, service and liquidate 504 and/or PCLP loans." PCLP-CDCs are required to establish and maintain a LLRF for its financings under the program. The LLRF is used to reimburse the SBA for 10% of any loss sustained by the SBA resulting from a default in the payment of principal or interest on a PCLP debenture. Each LLRF must equal 1% of the original principal amount of each PCLP debenture. As of September 30, 2017, 15 CDCs had active PCLP status. In recent years, the number and amount of 504/CDC loans made through the PCLP program have declined. In FY2009, 373 PCLP loans amounting to $185.4 million were disbursed. In FY2018, 27 PCLP loans totaling $23.8 million were dispersed. Real Estate Appraisals As part of its analysis of each application, CDCs are required to have an independent appraisal conducted of the real estate if the estimated value of the project property is greater than the federal banking regulator appraisal threshold (currently $500,000). CDCs may be required to have an independent appraisal conducted of the real estate if the estimated value of the project property is equal to or less than the federal banking regulator appraisal threshold "and such appraisal is necessary for appropriate evaluation of creditworthiness." The appraiser must have no appearance of a conflict of interest and be either state licensed or state certified. When the project property's estimated value is more than $1 million, the appraiser must be state certified. Pre-Closing Interim Disbursements SBA-approved 504/CDC loans are not closed until after project-related construction is complete, which often takes one to two years. All loans must be disbursed within 48 months of approval. Prior to the sale of a debenture and the SBA's funding of the 504/CDC loan, the borrower may obtain interim financing from a third-party lender, usually the same lender that provided the loan covering 50% of the total 504 project financing. The proceeds from the debenture sale repay the interim lender for the amount of the 504/CDC project costs that it advanced on an interim basis. Closing The CDC closes the loan in time to meet a specific debenture funding date. At the time of closing, the project must be complete (except funds put into a construction escrow account to complete a minor portion of the project). The SBA's district counsel reviews the closing package and notifies the Central Servicing Agent (CSA, currently PricewaterhouseCoopers Public Sector LLP) and the CDC via email if the loan is approved for debenture funding. If the loan is approved, the CDC forwards specified documents needed for the debenture funding directly to the CSA using a transmittal letter or spreadsheet. As mentioned, because the 504/CDC program provides permanent or take-out financing, an interim lender (either the third-party lender or another lender) typically provides financing to cover the period between SBA approval of the project and the debenture sale. Proceeds from the debenture sale are used to repay the interim lender for the amount of the project costs that it advanced on an interim basis. Loan Guaranty and Servicing Fees Borrowers are currently charged fees amounting to about 3.5% of the net debenture proceeds plus annual servicing and guaranty fees of about 1% of the unpaid debenture balance. Some of these fees are charged by the SBA to the CDC and others are charged by the CDC directly to the borrower. SBA Fees The SBA is authorized to charge CDCs five fees to help recoup the SBA's expenses: a guaranty fee, servicing fee, funding fee, development company fee, and participation fee. Guaranty Fee The SBA is authorized to charge CDCs a one-time, up-front guaranty fee of 0.5% of the debenture. The SBA elected not to charge this fee in FY2009, FY2010, and FY2011, and in FY2016, FY2017, and FY2018. The SBA charged this fee in FY2012, FY2013, FY2014, and FY2015, and is charging this fee in FY2019. Servicing Fee The SBA is authorized to charge CDCs an ongoing servicing fee paid monthly by the borrower and adjusted annually based on the date the loan was approved. By statute, the fee is the lesser of the amount necessary to cover the estimated cost of purchasing and guaranteeing debentures under the 504/CDC program or 0.9375% per annum of the unpaid principal balance of the loan. The SBA's servicing fee for FY2019 is 0.368% of the unpaid principal balance for regular 504/CDC loans and 0.395% for 504 refinancing loans. Funding Fee The SBA charges CDCs a funding fee, not to exceed 0.25% of the debenture, to cover costs incurred by the trustee, fiscal agent, and transfer agent. Development Company Fee For SBA loans approved after September 30, 1996, the SBA charges CDCs an annual development company fee of 0.125% of the debenture's outstanding principal balance. The fee must be paid from the servicing fees collected by the CDC and cannot be paid from any additional fees imposed on the borrower. Participation Fee The SBA charges third-party lenders a one-time participation fee of 0.5% of the senior mortgage loan if in a senior lien position to the SBA and the loan was approved after September 30, 1996. The fee may be paid by the third-party lender, CDC, or borrower. CDC Fees CDCs are allowed to charge borrowers a processing (or packaging) fee, closing fee, servicing fee, late fee, assumption fee, CSA fee, other agent fees, and underwriters' fee. Processing (or Packaging) Fee The CDC is allowed to charge borrowers a processing (or packaging) fee of up to 1.5% of the net debenture proceeds. Two-thirds of this fee is considered earned and may be collected by the CDC when the SBA issues an Authorization for the Debenture. The portion of the processing fee paid by the borrower may be reimbursed from the debenture proceeds. Closing Fee The CDC is also allowed to charge "a reasonable closing fee sufficient to reimburse it for the expenses of its in-house or outside legal counsel, and other miscellaneous closing costs." Up to $2,500 in closing costs may be financed out of the debenture proceeds. Servicing Fee CDCs can also charge an annual servicing fee of at least 0.625% per annum and no more than 2% per annum on the unpaid balance of the loan as determined at five-year anniversary intervals. A servicing fee greater than 1.5% for rural areas and 1% elsewhere requires the SBA's prior written approval, based on evidence of substantial need. The servicing fee may be paid only from loan payments received. The fees may be accrued without interest and collected from the CSA when the payments are made. CSAs are entities that receive and disburse funds among the various parties involved in 504/CDC financing under a master servicing agent agreement with the SBA. Late Fee and Assumption Fee Loan payments received after the 15 th of each month may be subject to a late payment fee of 5% of the late payment or $100, whichever is greater. Late fees will be collected by the CSA on behalf of the CDC. Also, with the SBA's written approval, CDCs may charge an assumption fee not to exceed 1% of the outstanding principal balance of the loan being assumed. Central Servicing Agent Fee CSAs are allowed to charge an initiation fee on each loan and an ongoing monthly servicing fee under the terms of the master servicing agreement. The current ongoing CSA monthly servicing fee is 0.1% per annum of the loan amount. Also, "agent fees and charges necessary to market and service debentures and certificates may be assessed to the borrower or the investor." CDCs must review the agent's services and related fees "to determine if the fees are necessary and reasonable when there is an indication from a third party that an agent's fees might be excessive, or when an applicant complains about the fees charged by an agent." In cases in which fees appear to be unreasonable, CDCs "should contact" the SBA and if a SBA investigation determines that the fee is excessive, the agent "must reduce the fee to an amount SBA deems reasonable, refund any sum in excess of that amount to the applicant, and refrain from charging or collecting from the applicant any funds in excess of the amount SBA deems reasonable." Underwriters' Fee Borrowers are also charged an up-front underwriters' fee of 0.4% for 20-year loans and 0.375% for 10-year loans. The underwriters' fee is paid by the borrower to the underwriter. Underwriters are approved by the SBA to form debenture pools and arrange for the sale of certificates. Fee Subsidies As mentioned previously, the SBA was provided more than $1.1 billion in funding in 2009 and 2010 to subsidize the 504/CDC program's third-party participation fee and CDC processing fee, subsidize the SBA's 7(a) program's guaranty fee, and increase the 7(a) program's maximum loan guaranty percentage from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000 to 90% for all standard 7(a) loans. The last extension, P.L. 111-322 , the Continuing Appropriations and Surface Transportation Extensions Act, 2011, authorized the SBA to continue the fee subsidies and the 7(a) program's 90% maximum loan guaranty percentage through March 4, 2011, or until funding provided by the Small Business Jobs Act of 2010 for this purpose was exhausted (which occurred on January 3, 2011). The Obama Administration argued that additional funding for the SBA's loan guaranty programs, including the 504/CDC program's fee subsidies, improved the small business lending environment, increased both the number and amount of SBA guaranteed loans, and supported "the retention and creation of hundreds of thousands of jobs." Critics contended that small business tax reduction, reform of financial credit market regulation, and federal fiscal restraint are better means to assist small business economic growth and job creation. Program Statistics Loan Volume Table 2 shows the number and amount of 504/CDC loans that the SBA approved and the number and amount of 504/CDC loans after cancellations and other modifications are taken into account in FY2005-FY2018. Each year, 5% to 15% of SBA-approved 504/CDC loans are subsequently canceled for a variety of reasons, typically by the borrower (e.g., funds are no longer needed or there was a change in ownership). As the data indicate, the number and amount of 504/CDC loans declined in FY2008 and FY2009. The most likely causes for the decline were decreased small business demand for capital during the recession; difficulties in secondary credit markets, especially from October 2008 to February 2009; and a tightening of small business credit lending standards. The number and amount of 50 4/CDC loans increased during FY2010 and FY2011 and reached prerecession levels in FY2012. The SBA attributed the increase in FY2010 and FY2011 to the continuation of 504/CDC fee subsidies, which were in place through most of FY2010 and the first quarter of FY2011. The continuing economic recovery, which contributed to increased demand for small business loans generally, and the temporary two-year expansion of the types of projects eligible for 504/CDC program refinancing of existing commercial debt (through September 27, 2012) under P.L. 111-240 , the Small Business Jobs Act of 2010, most likely also contributed to the program's increased loan volume in FY2011 and FY2012. For example, the SBA approved 307 loans amounting to $255.3 million in 504/CDC refinancing under the temporary expansion in FY2011 and 2,424 loans amounting to $2.26 billion in 504/CDC refinancing under the temporary expansion in FY2012 (see Table 3 ). As expected, given the expiration of the temporary refinancing expansion, 504/CDC loan volume declined in FY2013 and FY2014. The program's loan volume has generally increased somewhat since then. Appropriations for Subsidy Costs The SBA's goal is to achieve a zero subsidy rate for its loan guaranty programs. A zero subsidy rate occurs when the SBA's loan guaranty programs generate sufficient revenue through fees and recoveries of collateral on purchased (defaulted) loans to not require appropriations to issue new loan guarantees. As indicated in Table 4 , fees and recoveries did not generate enough revenue to cover 7(a) loan losses from FY2010 through FY2013, and 504/CDC loan losses from FY2012 through FY2015. Appropriations were provided to address the shortfalls. Use of Proceeds and Borrower Satisfaction In FY2016, borrowers used 504/CDC loan proceeds to purchase land and existing building (51.56%), building (construction, remodeling, improvements, etc.) (21.10%), machinery and equipment (purchase, installation, etc.) (7.09%), make renovations to a building (4.90%), purchase land (5.18%), other expenses (eligible contingency expenses, interim interest, etc.) (2.84%), purchase improvements (2.30%), debt to be refinanced (1.51%), professional fees (appraiser, architect, legal, etc.) (1.41%), add an addition to a building (1.04%), purchase or install fixtures (0.55%), or make leasehold improvements to a building (0.52%). In 2008, the Urban Institute surveyed 504/CDC borrowers and found that two-thirds of the respondents rated their overall satisfaction with their 504/CDC loan and loan terms as either excellent (21%) or good (45%). About one out of every four borrowers (23%) rated their overall satisfaction with their loan and loan terms as fair, 8% rated their overall satisfaction as poor, and 4% reported that they did not know or did not respond. In addition, 87% of the survey's respondents reported that the 504/CDC loan was either very important (53%) or somewhat important (34%) to their business success (4% reported that it was somewhat unimportant, 4% reported very unimportant, and 6% reported that they did not know or did not respond). In March 2014, the Government Accountability Office (GAO) released a report examining the 504/CDC program. GAO reported that from FY2003 through March 31, 2013, the top four types of small businesses funded by 504/CDC loans were hotels (12%), restaurants (5%), doctor's offices (4%), and dentist's offices (3%). GAO also reported that 85% of approved 504/CDC loans and dollars went to existing small businesses and 15% went to new small businesses. Borrower Demographics In 2008, the Urban Institute found that about 9.9% of private-sector small business loans were issued to minority-owned small businesses and about 16% of those loans were issued to women-owned businesses. In FY2018, 28.7% of the total amount of 504/CDC approved loans went to minority-owned businesses (20.5% Asian, 6.6% Hispanic, 1.4% African American, and 0.1% Native American) and 10.6% went to women-owned businesses. Based on its comparative analysis of private-sector small business loans and the SBA's loan guaranty programs, the Urban Institute concluded that Overall, loans under the 7(a) and 504 programs were more likely to be made to minority-owned, women-owned, and start-up businesses (firms that have historically faced capital gaps) as compared to conventional small business loans. Moreover, the average amounts for loans made under the 7(a) and 504 programs to these types of firms were substantially greater than conventional small business loans to such firms. These findings suggest that the 7(a) and 504 programs are being used by lenders in a manner that is consistent with SBA's objective of making credit available to firms that face a capital opportunity gap. Congressional Issues Fee Subsidies and the 7(a) Program's 90% Maximum Loan Guaranty Percentage As mentioned previously, the SBA was provided more than $1.1 billion in funding in 2009 and 2010 to subsidize the 504/CDC program's third-party participation fee and CDC processing fee, subsidize the SBA's 7(a) program's guaranty fee, and increase the 7(a) program's maximum loan guaranty percentage from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000 to 90% for all standard 7(a) loans. The Obama Administration argued that this additional funding improved the small business lending environment, increased both the number and amount of SBA guaranteed loans, and supported "the retention and creation of hundreds of thousands of jobs." Critics argued that small business tax reduction, reform of financial credit market regulation, and federal fiscal restraint are a better means to assist small business economic growth and job creation. Program Administration The SBA's Office of Inspector General (OIG) and the GAO have independently reviewed the administration of SBA's loan guaranty programs. Both agencies have reported deficiencies that they argued needed to be addressed, including issues involving the oversight of 504/CDC lenders. On March 23, 2010, the SBA's OIG released the results of an audit of "25 of 100 statistically selected CDC/504 loans approved under Premier Certified Lender (PCL) authority that were disbursed during fiscal year (FY) 2008." The loans "had been approved by 3 of the most active of the 24 PCLs" operating in 2008. The audit was initiated "based on concerns that PCLs were engaging in risky underwriting practices and that five PCLs were paying their executives excessive compensation." The OIG determined that PCLs may not have used prudent practices in approving and disbursing 68% of the sampled loans, totaling nearly $8.9 million, due to poor loan underwriting, and eligibility or loan closing issues. Specifically, 40% of the loans had faulty underwriting repayment analyses, and 52% of the loans had eligibility and/or loan closing issues.... Projecting our sample results to the universe of CDC/504 loans disbursed in 2008 by these three PCLs, we estimate with 90% confidence that at least 572 loans, totaling nearly $254.9 million in CDC/504 loan proceeds, had weaknesses in the underwriting process, eligibility determinations or loan closing. Of this amount, we estimate that a minimum of 183 loans, totaling $56.4 million or more, were made to borrowers based on faulty repayment analyses. We also estimate that lenders disbursed $209 million or more to borrowers who had eligibility and/or loan closing issues. In terms of dollars paid for CDC executive compensation, the OIG found that 4 of the 5 CDCs reviewed were among the top 10 highest for executive compensation.... In terms of percentage of gross receipts spent on executive compensation, 3 of the 5 questioned CDCs ranked among the top 10 highest of the 56 CDCs that had gross receipts over $1 million. The OIG made several recommendations to address these issues, including changing the SBA's Standard Operating Procedures (SOP) to require lenders to use (1) the actual cash flow method to determine borrower repayment ability for businesses using accrual accounting, (2) historical salary levels to estimate salaries of the borrower's officers, and (3) historical sales data to make sales projections. It also recommended that the SBA develop a process "to ensure that corrective actions are taken in response to the Agency's onsite reviews to ensure these conditions do not continue, and/or guidance for these reviews should be modified, as appropriate, to ensure that reviewers properly assess lender determination of borrower repayment ability and eligibility." The OIG reported that the SBA disagreed that SOP 50 10 should be revised to strengthen lender repayment analyses by requiring the use of the actual cash flow method and historical salary and sales data. The Agency also did not believe an additional process was needed to ensure that corrective actions are taken to improve lender performance, but acknowledged that better use of onsite review results are needed to make more informed lender decisions and programmatic determinations. In 2009, GAO released an analysis of the SBA's oversight of the lending and risk management activities of lenders that extend 7(a) and 504/CDC loans to small businesses. GAO recommended that the SBA strengthen its oversight of these lenders and argued that although the SBA's "lender risk rating system has enabled the agency to conduct some off-site monitoring of lenders, the agency does not use the system to target lenders for on-site reviews or to inform the scope of the reviews." GAO also noted that the SBA targets for review those lenders with the largest SBA-guaranteed loan portfolios. As a result of this approach, 97% of the lenders that SBA's risk rating system identified as high risk in 2008 were not reviewed. Further, GAO found that the scope of the on-site reviews that SBA performs is not informed by the lenders' risk ratings, and the reviews do not include an assessment of lenders' credit decisions. GAO argued that although the SBA "has made improvements to its off-site monitoring of lenders, the agency will not be able to substantially improve its lender oversight efforts unless it improves its on-site review process." As mentioned previously, in recent years, both the number and amount of 504/CDC loans made through the PCLP has declined. In FY2009, 373 PCLP loans amounting to $185.4 million were disbursed. In FY2018, 27 PCLP loans totaling $23.8 million were dispersed. In addition, the SBA's Office of Credit Risk Management (OCRM) created new metrics in 2015 for monitoring 504/CDC lender loan performance called SMART (measuring the lender's solvency and financial condition, management and governance, asset quality and servicing, regulatory compliance, and technical issues and mission) and updated those metrics in 2016. SMART is designed to "assist OCRM in identifying high risk lenders and ensuring that lender oversight drives meaningful review activities, findings, and corrective actions that reduce risk to the SBA." OCRM also created a "detailed bench-marking analysis project that will serve to establish quantitative performance metrics and indicators of quality (Preferred, Acceptable and Less than Acceptable) to be incorporated into each area of risk assessment identified in the ... SMART protocol measurement attributes." Legislative Activity During the 111th Congress As mentioned previously, Congress approved legislation in 2009 (ARRA) that provided the SBA an additional $730 million, including $299 million to temporarily reduce fees in the SBA's 504/CDC loan guaranty and 7(a) programs and $76 million to temporarily increase the 7(a) program's loan guaranty from up to 85% of loans of $150,000 or less and up to 75% of loans exceeding $150,000. Congress approved legislation in 2010 ( P.L. 111-240 , the Small Business Jobs Act of 2010) that was designed to enhance small business access to capital. Among other provisions, the act provided $510 million to extend the 504/CDC and 7(a) loan guaranty programs' fee subsidies and the 7(a) program's 90% maximum loan guaranty percentage through December 31, 2010 (later extended to March 4, 2011) or until available funding was exhausted (which occurred on January 3, 2011); increased the 504/CDC program's loan limits from $1.5 million to $5 million for regular 504/CDC loans; from $2 million to $5 million if the loan proceeds are directed toward one or more of the program's specified public policy goals; from $4 million to $5.5 million for small manufacturers; from $4 million to $5.5 million for projects that reduce the borrower's energy consumption by at least 10%; and from $4 million to $5.5 million for projects for plant, equipment, and process upgrades of renewable energy sources, such as the small-scale production of energy for individual buildings or communities consumption (commonly known as micropower), or renewable fuel producers, including biodiesel and ethanol producers; temporarily expanded, for two years after enactment (through September 27, 2012), the types of projects eligible for 504/CDC program refinancing of existing commercial debt; and authorized the SBA to establish an alternative size standard for the 7(a) and 504/CDC programs that uses maximum tangible net worth and average net income as an alternative to the use of industry standards and established an interim size standard of a maximum tangible net worth of not more than $15 million and an average net income after federal taxes (excluding any carryover losses) for the preceding two fiscal years of not more than $5 million. The Obama Administration argued that increasing maximum loan limit for SBA programs (including the 504/CDC program) would allow the SBA to "support larger projects," which would "allow the SBA to help America's small businesses drive long-term economic growth and the creation of jobs in communities across the country." The Administration also argued that increasing the maximum loan limits for these programs will be "budget neutral" over the long run and "help improve the availability of smaller loans." Critics of increasing the SBA's maximum loan limits argued that doing so might increase the risk of defaults, resulting in higher guaranty fees or the need to provide the SBA additional funding. Others advocated a more modest increase in the maximum loan limits to ensure that the 7(a) program "remains focused on startup and early-stage small firms, businesses that have historically encountered the greatest difficulties in accessing credit" and "avoids making small borrowers carry a disproportionate share of the risk associated with larger loans." Others contended that creating a small business direct lending program within the SBA would reduce paperwork requirements and be more efficient in providing small businesses access to capital than modifying existing SBA programs that rely on private lenders to determine if they will issue the loans. Also, as mentioned previously, others argued that providing additional resources to the SBA or modifying the SBA's loan programs as a means to augment small businesses' access to capital is ill-advised. In their view, the SBA has limited impact on small businesses' access to capital. They argued that the best means to assist small business economic growth and job creation is to focus on small business tax reduction, reform of financial credit market regulation, and federal fiscal restraint. Legislative Activity During the 112th Congress As mentioned previously, Congress did not approve any changes to the 504/CDC program during the 112 th Congress. However, legislation was introduced during the 112 th Congress to change the program, including several proposals to extend the now-expired two-year temporary expansion of the eligibility of 504/CDC refinancing projects not involving expansions. Proponents of extending the 504/CDC refinancing expansion provision, initially enacted as part of P.L. 111-240 , the Small Business Jobs Act of 2010, argued that it would create jobs by enabling small business owners to lower their monthly payments "at no cost to taxpayers" and "is one of many things that we should be doing to put more capital in the hands of America's job creators." Opponents worried that the provision may require funding to cover loan losses in the future, arguing that "commercial refinancing may pose an undue risk … at a time of significant budgetary constraints." Others opposed the expansion of 504/CDC refinancing on economic or ideological grounds, arguing that federal fiscal restraint, business tax reduction, and business regulatory relief would provide greater assistance to small businesses than expanding an existing SBA spending program. H.R. 2950 , the Small Business Administration 504 Loan Refinancing Extension Act of 2011, was introduced on September 15, 2011, and referred to the House Committee on Small Business. The bill would have allowed 504/CDC loans to be used to refinance projects not involving expansions as long as the financing did not exceed 90% of the value of the collateral for the financing for an additional year beyond the two years from the date of enactment that was authorized by the Small Business Jobs Act of 2010. S.Amdt. 1833 , the INVEST in America Act of 2012—an amendment in the nature of a substitute for H.R. 3606 , the Jumpstart Our Business Startups Act—was introduced on March 15, 2012. It would have allowed 504/CDC loans to be used to refinance projects not involving expansions for an additional year beyond the two years from the date of enactment authorized by the Small Business Jobs Act of 2010. The amendment was ruled nongermane by the chair on March 21, 2012, and was not included in the final version of the bill that was approved by the Senate the following day. S. 3572 , the Restoring Tax and Regulatory Certainty to Small Businesses Act of 2012, was introduced on September 19, 2012, and referred to the Senate Committee on Small Business and Entrepreneurship and the Senate Committee on Finance. It would have allowed 504/CDC loans to be used to refinance projects not involving expansions for an additional year and a half beyond the two years from the date of enactment authorized by the Small Business Jobs Act of 2010. S. 1828 , a bill to increase small business lending, and for other purposes, was introduced on November 8, 2011, and referred to the Senate Committee on Small Business and Entrepreneurship. The bill would have reinstated for a year following the date of its enactment the fee subsidies for the 504/CDC and 7(a) loan guaranty programs and the 90% loan guaranty percentage for the 7(a) program that were originally funded by ARRA. Legislative Activity During the 113th Congress Two bills were introduced during the 113 th Congress to reinstate the temporary two-year expansion of projects eligible for 504/CDC program refinancing of existing debt, which expired on September 27, 2012. H.R. 1240 , the Commercial Real Estate and Economic Development (CREED) Act of 2013, would have reinstated the temporary expansion of the projects eligible for 504/CDC program refinancing of existing debt for five years following the bill's enactment. It was referred to the House Committee on Small Business on March 18, 2013. Its companion bill in the Senate ( S. 289 ) was referred to the Senate Committee on Small Business and Entrepreneurship on February 12, 2013, and was ordered to be reported favorably, with an amendment, on June 17, 2013. As amended, S. 289 would have reinstated the temporary expansion of the projects eligible for 504/CDC program refinancing of existing debt during any fiscal year in which the 504/CDC program is operating at zero subsidy. In addition, H.R. 4652 , the Increasing Small Business Lending Act, would have authorized fee waivers for the 7(a) and 504/CDC programs. Legislative Activity During the 114th Congress As mentioned previously, P.L. 114-113 , the Consolidated Appropriations Act, 2016, reinstated the expansion of the types of projects eligible for refinancing under the 504/CDC loan guaranty program in any fiscal year in which the refinancing program and the 504/CDC program as a whole do not have credit subsidy costs. The act requires each CDC to limit its refinancing so that, during any fiscal year, the new refinancings do not exceed 50% of the dollars it loaned under the 504/CDC program during the previous fiscal year. This limitation may be waived if the SBA determines that the refinance loan is needed for good cause. An interim final rule implementing the new refinancing program was issued by the SBA on May 25, 2016, effective June 24, 2016. The act also eliminated an alternative job retention goal provision that allowed borrowers that do not meet the 504/CDC program's job creation and retention goals to participate in the expanded refinancing program, but limited that participation to "not more than the product obtained by multiplying the number of employees of the borrower by $65,000." Previously, H.R. 2266 , the Commercial Real Estate and Economic Development Act of 2015, would have reinstated the temporary expansion of projects eligible for 504/CDC program refinancing of existing debt for five years following enactment. Its companion bill in the Senate ( S. 966 ), as amended in committee, would have reinstated the temporary expansion of the refinancing program during any fiscal year in which the 504/CDC program is operating at zero subsidy. Also, the Obama Administration had requested in its FY2016 budget request authority to reinstate the 504/CDC refinancing program (without a business expansion requirement) in FY2016 to support up to $7.5 billion in lending. Legislative Activity During the 115th Congress As mentioned previously, P.L. 115-371 , the Small Business Access to Capital and Efficiency (ACE) Act, increased the threshold amount for determining when a CDC is required to secure an independent real estate appraisal for a 504/CDC loan (from if the estimated value of the project property is greater than $250,000 to if the estimated value of the project property is greater than the federal banking regulator appraisal threshold, which was recently increased from $250,000 to $500,000). The act also increased the threshold amount for determining when a CDC may be required to secure an independent real estate appraisal for a 504/CDC loan (from if the estimated value of the project property is equal to or less than $250,000 and such appraisal is necessary for appropriate evaluation of creditworthiness to if the estimated value of the project property is equal to or less than the federal banking regulator appraisal threshold and such appraisal is necessary for appropriate evaluation of creditworthiness). The change was designed to "remove the uncertainty lenders now have juggling two different real estate appraisal thresholds." In addition, S. 347 , the Investing in America's Small Manufacturers Act, among other provisions, would have allowed CDCs to provide up to 50% of project costs instead of up to 40% if the borrower is a small manufacturer and the 504/CDC loan guarantee program's subsidy cost for that current fiscal year is not above zero. Concluding Observations During the 111 th Congress, congressional debate concerning proposed changes to the SBA's loan guaranty programs, including the 504/CDC program, centered on the likely impact the changes would have on small business access to capital, job retention, and job creation. As a general proposition, some, including President Obama, argued that economic conditions made it imperative that the SBA be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations, and create jobs. Others worried about the long-term adverse economic effects of spending programs that increase the federal deficit and advocated business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small business economic growth and job creation. In terms of specific program changes, continuing the 504/CDC program's temporary fee subsidies, increasing its loan limits, temporarily (and later permanently) expanding its refinancing options, and authorizing the SBA to establish an alternative size standard were designed to achieve the same goal: to enhance job creation and retention by increasing the ability of 504/CDC borrowers to obtain credit at affordable rates. Critics argued that these actions might increase the risk of defaults and result in higher guaranty fees or the need to provide the SBA additional funding to cover loan subsidy costs. Others advocated a more modest increase in the maximum loan limits to ensure that the programs focus on start-ups and early-stage small firms, "businesses that have historically encountered the greatest difficulties in accessing credit," and that they avoid "making small borrowers carry a disproportionate share of the risk associated with larger loans." During the 112 th -115 th Congresses, congressional oversight focused on the SBA's administration of the program changes enacted during the 111 th Congress, the impact of those changes on the SBA's lending, and ways to address and minimize increased costs associated with loan losses. Although there continues to be widespread congressional support for providing assistance to small businesses, federal fiscal constraints may impede efforts to further expand the 504/CDC program in the near future. Given existing fiscal constraints, it is likely that congressional oversight during the 116 th Congress will continue to focus on (1) the SBA's administration of the 504/CDC program to ensure that the program is as efficient as possible; and (2) the program's efficacy in job retention and creation.

The Small Business Administration (SBA) administers programs to support small businesses, including several loan guaranty programs designed to encourage lenders to provide loans to small businesses "that might not otherwise obtain financing on reasonable terms and conditions." The SBA's 504 Certified Development Company (504/CDC) loan guaranty program is administered through nonprofit Certified Development Companies (CDCs). It provides long-term fixed rate financing for major fixed assets, such as land, buildings, equipment, and machinery. Of the total project costs, a third-party lender must provide at least 50% of the financing, the CDC provides up to 40% of the financing through a 100% SBA-guaranteed debenture, and the applicant provides at least 10% of the financing. Its name is derived from Section 504 of the Small Business Investment Act of 1958 (P.L. 85-699, as amended), which provides the most recent authorization for the SBA's sale of 504/CDC debentures. In FY2018, the SBA approved 5,874 504/CDC loans amounting to nearly $4.8 billion. Congressional interest in the SBA's 504/CDC program has increased in recent years because of concern that small businesses might be prevented from accessing sufficient capital to enable them to grow and create jobs. For example, during the 111th Congress, P.L. 111-240, the Small Business Jobs Act of 2010 increased the 504/CDC program's loan guaranty limits from $1.5 million to $5 million for "regular" borrowers, from $2 million to $5 million if the loan proceeds are directed toward one or more specified public policy goals, and from $4 million to $5.5 million for manufacturers; temporarily expanded, for two years, the types of projects eligible for 504/CDC program refinancing of existing debt; created an alternative 504/CDC size standard to increase the number of businesses eligible for assistance; and provided $505 million (plus an additional $5 million for administrative expenses) to extend temporary fee subsidies for the 504/CDC and 7(a) loan guaranty programs and a temporary increase in the 7(a) program's maximum loan guaranty percentage to 90%. The temporary fee subsidies and 90% loan guaranty percentage ended on January 3, 2011, and the temporary expansion of the projects eligible for 504/CDC program refinancing of existing debt expired on September 27, 2012. During the 114th Congress, P.L. 114-113, the Consolidated Appropriations Act, 2016, reinstated the expansion of the types of projects eligible for refinancing under the 504/CDC loan guaranty program in any fiscal year in which the refinancing program and the 504/CDC program as a whole do not have credit subsidy costs. The act requires each CDC to limit its refinancing so that, during any fiscal year, the new refinancings do not exceed 50% of the dollars it loaned under the 504/CDC program during the previous fiscal year. This report examines the rationale provided for the 504/CDC program; its borrower and lender eligibility standards; operating requirements; and performance statistics, including loan volume, loss rates, proceeds usage, borrower satisfaction, and borrower demographics. This report also examines congressional action taken to help small businesses gain greater access to capital, including enactment of P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA); P.L. 111-240; P.L. 114-113; and issues related to the SBA's oversight of 504/CDC lenders.

GAO_GAO-19-246

Secret Service has Processes to Vet Individuals Based on Their Expected Proximity to the President The Secret Service has processes to vet individuals differently depending on the person’s expected proximity to the President, using a combination of physical screening and background checks, as illustrated in figure 1. According to Secret Service officials, physical screening includes the use of equipment such as wands and magnetometers to secure the property. Background checks assess in part whether an individual has a history of criminal activity. In some cases, enhanced background checks identify other types of threats. The Secret Service develops and executes a security plan to ensure that the outer, middle, and inner layers at the travel location are secure. Officials from the Secret Service confirmed that agency policies aim to provide comprehensive planning guidance for their agents’ activities but are not meant to be all inclusive. Outer Layer: The Secret Service uses physical screening measures to establish a layer of security around the Mar-a-Lago property. According to Secret Service officials, state and local law enforcement and the U.S. Coast Guard may monitor entry onto the property or perform visual checks of individuals entering the property and surrounding waterways. Depending on where the President is, guests may be required to pass through a physical security checkpoint that employs magnetometers, wands, and visual checks to assess physical threats. Middle Layer: Officials from the Secret Service said that they use physical screening measures for individuals and any rooms that the President may access during his visit. Officials told us that if they are notified of the President’s planned arrival to a specific room, they will secure that room. Inner Layer: In advance of the President’s arrival, the Secret Service has a process requiring vetting of individuals who are expected to be within close proximity to the President for a planned purpose or in certain secure areas. According to Secret Service officials, individuals who need access to secure areas but who are not expected to interact directly with the President, such as wait staff and other workers, are to undergo a background check in addition to physical screening. Individuals who are expected to meet the President are to undergo a background check and an enhanced background check. Officials from the Secret Service said that they are responsible for collecting the findings from these checks and making recommendations to the Executive Office of the President on whether individuals with derogatory findings should be allowed to access a space. According to officials from the Secret Service, staff at Mar-a-Lago routinely undergo background checks. In order to conduct the background check, the Secret Service is to use personally identifiable information for each individual, and those Individuals’ names may be checked against indexes maintained by the Secret Service and other federal, state, and local law enforcement organizations. The Secret Service’s guidance notes that submission of the requested information to run a background check is based on individuals voluntarily providing the needed information. In order to conduct an enhanced background check, the Secret Service collaborates with the Federal Bureau of Investigation and other federal agency partners. According to officials from the Secret Service, the Executive Office of the President is responsible for identifying individuals who are expected to meet with the President and providing the Secret Service with the names and the personally identifiable information needed to complete these checks. According to Secret Service guidance, White House staff is expected to submit all names to the Secret Service at least 72 hours in advance of the President’s arrival. Advance agents are also responsible for setting deadlines for completing background checks. Officials from the Secret Service said that, based on the information received from these checks, the Secret Service will make a recommendation to the Executive Office of the President on whether an individual should be granted access to the President. According to these officials, the Executive Office of the President ultimately determines whether or not an individual will have access. However, the Secret Service is responsible for ensuring that the area is safe and that the individual is physically screened. DOD and the Secret Service Provide Secure Areas for the Handling of Classified Information When the President Travels to Mar-a-Lago DOD’s White House Communications Agency and the Secret Service each have specific responsibilities for establishing secure communications and secure areas for handling classified information when the President travels to domestic locations, such as Mar-a-Lago. DOD’s White House Communications Agency: This organization is an information technology unit within DOD that supports the President and his staff during presidential trips. This organization’s mission is to provide information services to the President, Vice President, National Security Staff, Secret Service, and others when directed. According to agency guidance and officials, the White House Communications Agency is responsible for installing secure communications equipment that enables the exchange of classified information in areas that may be used by these entities. Secret Service: According to officials from the Secret Service, they send an advance team that coordinates with the White House Communications Agency to set up a conference center for the President where classified information may be exchanged, among other things. These officials stated that they provide security at the entrance of this conference center and perform security sweeps to ensure that it is safe and secure. DOD and the Secret Service coordinate to establish and secure several areas that are available for handling classified information when the President travels to locations such as Mar-a-Lago, as shown in figure 2. These areas include a conference center, spaces used by staff of the National Security Council and Executive Office of the President, and presidential transportation vehicles. Details associated with these areas and facilities are sensitive and have been omitted from this report. Regulations and Processes Governing Secret Service and DOD Expenditures on Employee Per Diem Expenses for Travel and Operational Space in Support of the President The Secret Service and DOD are subject to regulations governing reimbursements to employees for official travel. Processes exist to review these travel-related expenses when personnel from these agencies travel. These processes are the same when personnel accompany the President to Mar-a-Lago. Federal Regulations Govern Agencies’ Policies for Paying Or Reimbursing Employees’ Official Duty Travel Expenses Two regulations implement statutory requirements and executive branch policies for travel, allowing agencies to pay for or reimburse their employees’ per diem expenses (lodging, meals and incidental expenses) and other travel-related expenses: The Federal Travel Regulation (FTR), issued by the General Services Administration applies to the Secret Service’s personnel. The Joint Travel Regulations (JTR), issued by the Department of Defense apply to DOD personnel. Both regulations allow agencies to pay for employees’ daily expenses when they are traveling within the continental United States, based on allowances set by the General Services Administration for the applicable location and date (per diem rates) or the actual expense of travel. Under the Federal Travel Regulation, the maximum amount that a civilian employee may be reimbursed is 300 percent of the applicable per diem rate. The Joint Travel Regulations allow uniformed service members to be reimbursed up to 300 percent of the per diem rate when they are traveling in the continental United States, but they can be reimbursed more than 300 percent of the per diem rate for lodging when traveling outside the continental United States. The Secret Service Has a Standard Process for Overseeing Costs for Lodging, Meals and Incidental Expenses, and Operational Space during Presidential Travel Officials from the Secret Service stated that they apply the same cost oversight processes for all presidential travel. Expenses for lodging and operational space are centrally billed to the agency, and employee meals and incidental expenses are reimbursed to the traveler. In accordance with policy, the Secret Service tries to acquire lodging at the General Services Administration’s per diem lodging rate and must submit a waiver request for any room that exceeds this designated rate by any amount. The Secret Service field office closest to the travel destination is responsible for arranging for these spaces, negotiating rates, and if necessary submitting a waiver request to officials in the Secret Service’s Logistics Resource Center. The Logistics Resource Center is to review the waiver request, determine whether a more cost effective method exists to meet the need, and approve or reject the request. In some cases, the Secret Service may not be able to acquire rooms at the per diem lodging rate, or agents may need rooms for operational purposes that exceed 300 percent of the per diem rate, which is more than is allowed for lodging under the Federal Travel Regulation. For example, the Secret Service may use a room for operational purposes or reserve rooms adjacent to the President to better protect him. In addition, to meet operational demands, the Secret Service may require a certain number of agents to stay at the hotel in which the President is staying, so that they are within a certain proximity of the President at all times. Furthermore, officials from the Secret Service said that members of the Secret Service canine teams must stay at hotels that allow animals, and rooms at these hotels may exceed the General Services Administration lodging rate. The authorities the Secret Service has relied on to pay for hotel rooms needed to meet its operational requirements do not limit how much the agency can pay. Further, Congress passed a law in May of 2017 excepting the Secret Service from regulatory caps on room rentals, regardless of room purpose. Nevertheless, consistent with the Secret Service waiver process, personnel are still required to submit waiver requests for operational spaces to justify the need to book rooms during the President’s trips to Mar-a-Lago at prices higher than the General Service Administration lodging rates. We confirmed that a blanket waiver request was submitted and approved for all rooms at Mar-a-Lago that exceeded the General Services Administration per diem lodging rate during the President’s trips to Mar-a-Lago that are covered by this review. Additionally, we reviewed Secret Service documentation and confirmed that Secret Service personnel did not exceed the 300 percent threshold for lodging. For meals and incidental expenses, the Secret Service’s employees who are on official duty are to submit a claim for reimbursement electronically or by paper and receipts, as applicable, at the conclusion of the trip. Approving officials are to approve (or deny) expenses, and the Secret Service’s Financial Management Division authorizes reimbursement for approved travel. DOD Has a Standard Process to Oversee Costs for Lodging, Meals and Incidental Expenses, and Operational Space during Presidential Travel To Mar- A-Lago DOD personnel use the same processes for travel to Mar-a-Lago as they do for other Presidential trips to oversee costs for lodging, meals, and incidental expenses. According to officials from DOD’s Defense Travel Management Office, their office establishes travel policy that applies to the four organizations that travel in support of the President’s trips. DOD personnel use the Defense Travel System to submit travel documents, including vouchers and receipts, as applicable. According to officials, lodging may be booked and reimbursed on an individual basis or centrally billed if a block of rooms is needed over the same period. Meals and incidental expenses are reimbursed to the traveler. Like Secret Service’s personnel, DOD personnel must obtain approval from an authorizing official prior to the trip to exceed the General Services Administration per diem lodging rate, consistent with the Federal Travel Regulation and Joint Travel Regulations. According to officials from the Defense Travel Management Office, DOD typically would not reimburse expenses above the approved lodging rate if lodging at the approved rate was available within the region. However, officials from the Defense Finance and Accounting Service indicated that presidential trips may require such a deviation. These approvals are to be tracked in the Defense Travel System. The White House Military Office, which includes the White House Communications Agency, also sends personnel with the President when he travels. White House Communications Agency officials told us that its lodging and operational space for these personnel are typically coordinated by the White House Travel Office and that DOD personnel pay for the associated costs and seek reimbursement from DOD after the trip is complete. According to officials from the White House Communications Agency, some personnel are required to remain at, or near, the Mar-a-Lago property. If they are not required to stay at or near the property, they will try to obtain lodging at hotels in the area at the General Services Administration’s per diem rate for lodging. DOD officials told us that according to the Joint Travel Regulations, DOD is not authorized to pay or reimburse daily expenses above the 300 percent ceiling. In connection with the President’s travel to Mar-a-Lago between February 3, 2017 and March 5, 2017, DOD personnel exceeded the General Services Administration per diem rate but did not exceed the 300 percent threshold. According to officials from the Defense Travel Management Office, operational space used for official business is governed by the Federal Acquisition Regulation. White House Communications Agency officials told us that they have generally used space near the Mar-a-Lago property but leased property, effective September 2017, near Mar-a-Lago to reduce the cost of supporting the President’s trips to the property. Payments Received by the U.S. Treasury Department from The Trump Organization through Treasury’s Donation Processes Treasury has regular processes for receiving payments designated as gifts to the United States and gifts to reduce the public debt. Treasury officials stated that any payments received from The Trump Organization or the President that are designated as gifts would be handled using these processes. Under federal law, Treasury may receive general gifts to the U.S. Government and may also receive gifts to reduce the public debt. Treasury has developed processes to accept these types of payments, as shown in figure 3. Treasury officials said there are three accounts available to receive payments as gifts—a general gift account, a general fund receipts account, and an account for gifts to reduce the public debt. Any of these accounts could receive payments designated as gifts by the President or The Trump Organization. Treasury officials told us they would deposit such payments into the account for gifts to the U.S. Government unless the payment source specified that the funds should be used to reduce the public debt. Treasury received one payment from The Trump Organization, for $151,470 that was submitted through Treasury’s processes on February 22, 2018. In May 2017, The Trump Organization issued a policy addressing profits generated from foreign government patronage at its businesses. The Trump Organization’s policy states that it will make a single lump-sum payment annually after the end of its fiscal year, which ends on December 31st. We did not identify any other payments that Treasury received from The Trump Organization or the President between January 21, 2017, and August 1, 2018. In September 2018, an attorney for The Trump Organization confirmed that the organization had not made any payments since February 22, 2018. Agency Comments and Our Evaluation We provided copies of this draft report to DOD, DHS, the Department of Justice, the General Services Administration, the Department of Treasury, and the Executive Office of the President for comment. We also provided a section to the Trump Organization for comment. DHS provided written comments, which are reprinted in their entirety in appendix I. DHS, DOD, the Department of Treasury and the Department of Justice also provided technical comments, which we incorporated into this report as appropriate. The Executive Office of the President and the Trump Organization provided no comments. As agreed with your offices, unless you publicly release this report earlier, we will not issue the report until 30 days from the report date. At that time, we will also provide copies to the Secretary of Defense, the Director of the Secret Service, the Secretary of Homeland Security, the Attorney General, the Director of the Federal Bureau of Investigation, the Administrator of the General Services Administration, and the Secretary of the Treasury. In addition, this report will be available at no charge on the GAO website at www.gao.gov. If you or your staff have any questions about this report, please contact Joseph (Joe) Kirschbaum at (202) 512-9971 or at KirschbaumJ@gao.gov or Diana Maurer at (202) 512-9627 or at MaurerD@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 II. Appendix I: Comments from the Department of Homeland Security Appendix II: GAO Contacts and Staff Acknowledgments Staff Acknowledgments: In addition to the contacts named above, Gina R. Hoffman, Assistant Director; Joseph P. Cruz, Assistant Director; Tracy Barnes, Nicholas Benne, Jennifer Kamara, Joanne Landesman, Amie Lesser, Thomas Lombardi, Carol Petersen, Michael Silver, Janet Temko-Blinder, Christopher Turner, Kayli Westling, and Alex Winograd made key contributions to this report.

The President has made numerous trips to the Mar-a-Lago property in Palm Beach, Florida, during which he met with foreign leaders and conducted presidential activities. GAO was asked to review the establishment of secure areas for use by the President at Mar-a-Lago. This report provides information on, among other things, (1) vetting of individuals expected to be near the President; (2) efforts to establish secure areas for handling classified information; and (3) regulations and processes for agency expenditures on employees who travel with the President. This is a public version of a sensitive report that GAO issued in October 2018. Information that the Secret Service and DOD deemed sensitive has been omitted. GAO analyzed laws, regulations, policies, and procedures; reviewed agreements between federal agencies and trip after-action reports; and interviewed DOD and Secret Service officials. GAO also reviewed vouchers from the four presidential trips to Mar-a-Lago from February 3, 2017 through March 5, 2017.GAO also reviewed documentation and descriptions of specific security practices with DOD and Secret Service officials. The Executive Office of the President has not responded to requests regarding its role in assisting DOD and the Secret Service in carrying out their responsibilities. The U.S. Secret Service (Secret Service) vets individuals differently depending on the person's expected proximity to the President when he travels, including during his visits to Mar-a-Lago. According to Secret Service officials, vetting may include using physical screening (measures to detect physical threats to the president and secure the property) and background checks intended to identify individuals who have prior criminal activity or present other types of threats. Individuals at Mar-a-Lago who are not expected to meet with the President or enter spaces the President may visit pass through an outer layer of security consisting of physical screening checkpoints surrounding the property. The Secret Service physically screens all individuals who will access areas where the President will be present, such as a dining room. According to Secret Service officials, individuals who have a meeting with the President generally undergo both physical screening and enhanced background checks. The Department of Defense (DOD) and the Secret Service coordinate to establish and secure several areas that are suitable for handling classified information when the President travels to Mar-a-Lago. These areas include a conference center, spaces used by staff of the National Security Council and the Executive Office of the President, and presidential transportation vehicles. Details associated with these areas and facilities are sensitive and have been omitted from this report. The Secret Service and DOD are subject to regulations that govern the reimbursement of employees for official travel expenses. Both organizations have processes to review these travel-related expenses when their personnel travel with the President and try to acquire lodging at the General Services Administration's per diem lodging rate. When the Secret Service is not able to acquire rooms at the per diem lodging rate, including when it needs rooms for operational purposes that exceed 300 percent of the per diem rate (a threshold set by the General Services Administration), employees must submit a waiver request. DOD personnel must also obtain approval when costs exceed the General Services Administration's lodging rate. Our review of DOD vouchers and Secret Service documentation confirmed that personnel did not exceed the 300 percent threshold for lodging during the Mar-a-Lago trips examined in this review. We assessed the costs of Presidential travel in a separate report.

GAO_GAO-19-485

Background NVRA Overview In passing the NVRA in 1993, Congress found that unfair registration laws and procedures can have a direct and damaging effect on voter participation in federal elections. The NVRA was intended, in part, to establish procedures to increase the number of eligible citizens who register to vote in federal elections, as well as to protect the integrity of the electoral process and ensure accurate and current voter registration rolls. As such, the NVRA includes provisions focusing on both increasing opportunities for voter registration and improving voter registration list maintenance. Table 1 below includes a summary of these provisions. The Help America Vote Act of 2002 (HAVA), which amended the NVRA, requires states to implement an interactive computerized statewide voter registration list and perform regular list maintenance. HAVA requires states to perform regular list maintenance by comparing their voter registration lists against state records on felons and deaths. HAVA also established the Election Assistance Commission to assist the states regarding HAVA compliance and to serve as a national clearinghouse of election administration information, among other purposes. DOJ Role in NVRA and Election Fraud Enforcement In the United States, the authority to regulate elections is shared by federal, state, and local officials. DOJ is responsible for (1) civil investigations and enforcement under federal voting rights laws, such as the NVRA, and (2) criminal investigations and prosecutions under federal election crime statutes, such as those prohibiting double voting or voting by noncitizens. With regard to enforcement of NVRA provisions: the Civil Rights Division’s Voting Section (Voting Section), within DOJ, enforces the civil provisions of federal laws that protect the right to vote, including provisions of the NVRA, as well as HAVA, the Voting Rights Act of 1965, and the Uniformed and Overseas Citizens Absentee Voting Act, among others. In addition to DOJ’s role in enforcing the NVRA, the law also allows a private party (a person or organization) who is aggrieved by a violation of the NVRA to bring a civil action against the state or local agency responsible for voter registration. With regard to enforcement of federal election crime statutes: the Criminal Division’s Public Integrity Section supervises DOJ’s nationwide response to election crimes, such as voter fraud and campaign finance offenses, and reviews all major investigations and criminal charges proposed by U.S. Attorneys’ Offices relating to election crime. Public Integrity Section attorneys investigate and prosecute selected cases involving alleged corruption (including election crimes) by federal, state, or local government officials. U.S. Attorneys’ Offices investigate and prosecute a wide range of criminal activities, including federal election fraud, within their respective federal judicial districts. Each U.S. Attorney exercises wide discretion in the use of his or her resources to further the priorities of the local jurisdictions and needs of their communities. DOJ’s civil and criminal enforcement actions are recorded in case management systems which differentiate between matters and cases. A matter is defined as an activity, such as an investigation of an allegation, that has not yet resulted in the filing of a complaint, indictment, or information in court. A matter may eventually become a case, or may be closed without further action. A case is defined as an activity that has resulted in the filing of a complaint, indictment, or information in court. Cases typically start as matters. The process for initiating matters and filing cases varies across the three DOJ components we reviewed. For example, within the Criminal Division, staff are to open a matter when they have worked on an investigation for a minimum of 30 minutes. State and Local List Maintenance Roles and Responsibilities Under the NVRA States are responsible for the administration of state and federal elections, and states regulate various aspects of elections including, for example, registration procedures, absentee and early voting requirements, and Election Day procedures. Within each state, responsibility for managing, planning, and conducting elections is largely a local process, residing with about 10,500 local election jurisdictions nationwide. Under the NVRA and HAVA, states are required to have a voter registration list maintenance program, and state and local election jurisdictions are responsible for ensuring that the registration lists are accurate, and that ineligible voters are lawfully removed. The NVRA specifies certain categories under which jurisdictions may remove registrants from voter registration lists, including: if a registrant has moved outside of a jurisdiction and either (1) confirmed the move in writing or (2) failed to respond to address confirmation mailings and failed to vote in two consecutive federal general elections subsequent to the mailing; death of the registrant; criminal conviction of the registrant, as provided for in state law; and mental incapacity of the registrant, as provided for in state law. State and local election officials can only remove registrants from the voter registration list after meeting certain requirements outlined in the act. Specifically, the NVRA stipulates that list maintenance activities must be uniform, non-discriminatory, and in compliance with the Voting Rights Act; and that programs to systematically remove ineligible voters must not be undertaken within 90 days of a federal election, except under certain circumstances. As noted above, election officials may remove a registrant from the voter registration list for change of residence if the registrant confirms the move in writing, or fails to respond to an address confirmation notice and fails to vote in two subsequent federal general elections following the mailing of the address confirmation notice. While state procedures differ, states generally designate registrants who are sent an address confirmation notice or fail to respond to the address confirmation notice in a timely manner as “inactive.” The “inactive” status generally indicates that the election officials may need to receive information from the registrant or other sources to confirm the registrant’s address. See figure 1 for an illustration of the NVRA confirmation and removal process for registrants who may have moved outside of the jurisdiction. States and local jurisdictions use different data sources and different processes and procedures to obtain information under the NVRA removal categories and to maintain accurate voter registration lists. For example, election offices in some states collaborate with their state’s motor vehicles agencies—such as a Department of Motor Vehicles—to acquire information on changes to registrants’ addresses or other identifying information. Some states also participate in interstate exchanges—such as the Electronic Registration Information Center (ERIC) and Crosscheck—to compare information from their voter registration lists and other state and local sources. States may also use national databases— such as the U.S. Postal Service’s NCOA database or the Social Security Administration’s public DMF—to identify registrants who have moved to another jurisdiction or state, or who have died. Multiple factors such as state laws, costs, the security of voter registration information, and related privacy considerations play a role in election officials’ list maintenance activities and procedures. In some states, the state maintains the responsibility for matching some data sources (such as data on deaths and moves) against the voter registration list and removing certain ineligible voters; whereas in other states, local jurisdictions have a larger role in the list maintenance process. DOJ Engaged in Various Efforts to Enforce the NVRA and Address Election Fraud from Fiscal Years 2001 through 2017 DOJ’s Voting Section Initiated Matters, Participated in Cases, and Engaged in Other Efforts to Enforce the NVRA’s Registration Opportunity and List Maintenance Requirements Within DOJ, the Voting Section has the authority to initiate a matter or pursue a case under the NVRA, among the other voting laws for which it is responsible. According to Section officials, the Section identifies potential NVRA violations through several means, including reviewing publically available federal elections and other data, reviewing publically available federal and third party reports, receiving complaints, and conducting compliance investigations that may include visits to state and local offices. Officials stated that after initiating and conducting an investigation (or matter), the Section makes a recommendation to the head of the Civil Rights Division who then decides which action to take, such as pursuing litigation by filing a case against a state or local election jurisdiction. The Voting Section categorizes its NVRA-related matters and cases as related to providing registration opportunities for voters (registration opportunities), or related to the rules regarding maintenance of voter registration lists under specified conditions, which includes both wrongful removals of eligible voters and failure to remove ineligible voters (list maintenance). In addition to enforcing the NVRA through initiating matters and filing cases, the Voting Section participated in NVRA cases as an amicus curiae or “friend of the court,” entered into settlement agreements with states to address issues related to NVRA provisions, and engaged in other efforts to assess compliance with NVRA requirements. More NVRA Registration Opportunity Matters than List Maintenance Matters Initiated According to Civil Rights Division data we analyzed, the Voting Section initiated 1,295 matters from fiscal years 2001 through 2017 to investigate issues related to provisions of statutes such as the NVRA, HAVA, and the Voting Rights Act. Of these 1,295 matters, 99 involved allegations under the NVRA. As shown in figure 2, the Section initiated the largest number of NVRA matters during this period in fiscal years 2008 (15) and 2011 (25). In initiating matters under the NVRA, the Voting Section investigated issues related to state and local jurisdiction efforts to provide registration opportunities for voters and issues related to list maintenance. Specifically, of the 99 NVRA matters the Voting Section initiated, 58 matters involved registration opportunity issues, 17 involved list maintenance issues, and 5 involved both registration opportunity and list maintenance issues. As shown in figure 3, the Section initiated registration opportunity matters in each year except fiscal year 2007. The Section initiated the most registration opportunity matters in fiscal years 2008 (13), 2011 (10), and 2013 (7). The Section did not initiate any list maintenance matters in some years, and initiated between one and four in other years. From fiscal years 2001 through 2017, the Voting Section participated in 234 cases, including those with claims brought under statutes such as the NVRA, HAVA, and the Voting Rights Act. Of the 234 total cases, 23 involved claims brought under the NVRA. Figure 4 shows the total number of cases, and the number of NVRA related cases, in which the Section participated, by fiscal year. In contrast to matters, the Voting Section filed more cases related to list maintenance allegations under the NVRA than cases related to registration opportunities. Of the 23 cases where the Section took action to enforce the NVRA, the Section was the plaintiff or plaintiff intervenor in 14 cases. As shown in figure 5, eight of the 14 NVRA cases the Section filed as the plaintiff or plaintiff intervenor involved allegations under the law’s list maintenance provisions, and two involved allegations under both the list maintenance and registration opportunity provisions. The remaining four cases involved allegations under the law’s registration opportunity provisions. Of the 10 total cases involving list maintenance allegations, eight were filed between fiscal years 2002 and 2007. See appendix II for a summary of each NVRA related case the Section filed from fiscal years 2001 through 2017. With regard to list maintenance cases, as shown in figure 5, the Voting Section filed 10 such cases from fiscal years 2001 through 2017. NVRA list maintenance cases may involve two types of allegations: (1) in conducting a required program to remove ineligible voters from the voter registration list, a state or local jurisdiction did not incorporate certain safeguards, thus unlawfully removing eligible voters; and (2) a state or local jurisdiction did not have an adequate program to remove ineligible voters from the voter registration list. We reviewed the allegations in each of the 10 cases involving NVRA list maintenance claims and found that: Four of the 10 cases (filed in fiscal years 2002, 2007, 2012, and 2017) involved claims that the state or local jurisdiction unlawfully removed voters from registration lists. For example, in one case the Section alleged that the state systematically removed voters from its voter registration rolls within 90 days of a federal election, in violation of the NVRA, among other claims. Four of the 10 cases (filed in fiscal years 2006 and 2007) involved claims that the state or local jurisdiction did not have an adequate program to remove ineligible voters from registration lists. For example, in one case the Section alleged that a state failed to conduct a program that makes a reasonable effort to identify and remove ineligible voters from the state’s registration list, and that, as a result, the state had counties with excessively high registration totals compared to the voting age population. Two of the 10 cases (filed in fiscal years 2004 and 2006) involved both types of claims. For example, in one case the Section alleged that a number of local jurisdictions in one state did not regularly remove persons who died from their voter registration lists, resulting in ineligible voters remaining on the lists. The Section further alleged that local jurisdictions in the state did not always follow NVRA notice and timing requirements with respect to voters who may have moved, resulting in the unlawful removal of voters from voter registration lists. With regard to registration opportunities, the Voting Section filed six cases involving allegations under the NVRA’s registration opportunities provisions from fiscal years 2001 through 2017. We reviewed the allegations in each of these six cases and found that: Three of the six cases involved claims that the state failed to offer voter registration opportunities in public assistance offices and offices that provide state-funded programs primarily serving persons with disabilities. For example, in one case the Section alleged that employees in state offices that provide public assistance, and employees in state-funded programs serving persons with disabilities, failed to distribute voter registration applications. The Section also alleged that such offices failed to train and monitor their employees to ensure that they distribute voter registration applications to clients and transmit completed applications to the state and local election offices. One of the six cases involved claims that the state failed to offer voter registration opportunities in both motor vehicle and public assistance offices. Specifically, the Section alleged that the state did not provide a voter registration form with the state’s driver’s license application form. The Section further alleged that employees in state offices that provide public assistance, and employees in state-funded programs serving persons with disabilities, failed to distribute voter registration applications, among other claims. Two of the six cases involved claims that local election jurisdictions failed to process and register voter registration applicants. For example, in one case the Section alleged that a local election office did not process voter registration applications submitted by applicants at least 30 days before an election in a timely manner, which resulted in eligible applicants not being able to vote in their appropriate precincts in that election. DOJ officials have provided various perspectives on the department’s NVRA enforcement efforts. For example, in October 2009, we reported that the Assistant Attorney General for the Civil Rights Division prioritized NVRA list maintenance cases from fiscal years 2001 through 2007. Specifically, we reported that, according to Voting Section officials, the department focused during this period on both ensuring states had a list maintenance program and ensuring that such programs incorporated required safeguards. In a 2013 report, the DOJ Office of Inspector General reported that Civil Rights Division leadership initiated an effort to enforce the NVRA’s list maintenance provisions in late 2004. The report further noted that Civil Rights Division leadership placed a higher priority on the enforcement of the NVRA’s ballot access, or registration, provisions between 2009 and 2012. Section officials we interviewed for this review did not identify any overall Section-wide priorities between fiscal year 2010 and fiscal year 2017 that focused specifically on either list maintenance or registration. These officials explained that the Section cycles through the various NVRA provisions over time, but provided limited details and did not directly attribute any increase in matters or cases over time to Section initiatives or priorities. Officials further noted that the Section pursued fewer NVRA related cases after 2010 in part due to resource limitations and other priorities within the Section. For example, officials stated that the Section handled a number of Voting Rights Act cases during this time, which required a significant amount of staff time and resources. NVRA Amicus Participation Increased Since Fiscal Year 2012 In addition to initiating matters, and filing NVRA cases as a plaintiff, the Voting Section engaged in efforts to enforce the NVRA’s registration opportunity and list maintenance provisions by participating as an amicus curiae or “friend of the court” in eight NVRA cases from fiscal year 2001 through fiscal year 2017. The Section participated in seven of these eight cases between fiscal years 2012 and 2017. Four of the eight cases involved registration opportunity complaints and four involved list maintenance complaints. According to Voting Section officials, amicus participation increased in these years in part because it was a way for the Section to participate in cases in a manner which did not require a significant amount of resources. Specifically, officials stated that filing an amicus brief takes considerably less time and fewer staff resources than litigating a case. Out-of-Court Settlement Agreements with States Addressed NVRA Registration Opportunities The Voting Section entered into five out-of-court settlement agreements with states (in lieu of filing a case) to address allegations of NVRA non- compliance between fiscal years 2008 and 2017. All five of the agreements were related to the law’s registration opportunity provisions. For example, in one settlement agreement, a state agreed to make modifications to its internet site and the forms, procedures, and electronic system used at its motor vehicle offices in order to meet the requirements of section 5 of the NVRA, which stipulates that states offer voter registration opportunities at state motor vehicle agencies. The state further agreed to produce a compliance plan to meet these goals and to develop and implement a mandatory NVRA training program, among other things. The agreement included monitoring procedures, such as requiring the state to provide DOJ with quarterly reports of the number of in-person driver’s license applications received and completed voter registration forms accepted and transmitted to county boards of elections. According to Voting Section officials, the determination of the appropriate type of enforcement action in a matter, such as a settlement agreement or court order, can depend on a range of factors. For example, officials stated that relevant factors can include the nature, scope, and length of the violation, the level of cooperation by relevant actors regarding remedies, and the authority of relevant officials under state law to take remedial actions. The NVRA settlement agreements we reviewed are all multi-year agreements and Section officials noted that they try to collaborate with the state or jurisdiction regarding the appropriate steps (e.g., generating monthly, quarterly or biannual reports) for measuring and monitoring compliance during the period of the agreement. Section attorneys monitor settlement agreements by reviewing each required report and conferring with managers about progress towards compliance. Efforts to Assess Compliance with NVRA Requirements According to Voting Section officials, the Section engaged in various efforts to assess state and local jurisdiction compliance with NVRA registration opportunity and list maintenance requirements, including conducting reviews of federal election administration and other data, and compliance investigations. Specifically, Section officials said that they conduct periodic reviews of the U S. Election Assistance Commission’s biennial Election Administration and Voting Survey (EAVS) to assess compliance with different NVRA provisions. For example, officials noted they may review EAVS data summarizing states’ motor vehicle agency driver license and voter registration transactions to help determine whether states are following NVRA section 5. In addition to using EAVS data, officials said they review publically available third party reports, which often include state specific registration data and other qualitative information about state processes. Section officials said this information can help them identify states that are potentially not in compliance with the NVRA. Officials also said that Section investigators have conducted observations at motor vehicle agencies and social services agencies as part of their efforts to assess and enforce NVRA compliance. Section officials noted that these efforts are not conducted on a regular schedule; rather, they are conducted periodically, on an intermittent, rolling basis. These officials said such efforts may lead them to request additional information from states, conduct compliance investigations, and initiate enforcement actions if necessary. For example: The DOJ Office of Inspector General reported that, in 2004, the Voting Section reviewed census and voter registration data for all 50 states to determine which states had more people registered to vote than the voting-age population. The Inspector General further reported that, based on the results of the research, the Section sent letters to 12 states requesting information on their efforts to remove ineligible voters from their registration lists, and ultimately filed two cases as a result of this enforcement initiative. In June 2017, the Voting Section sent letters to the 44 states subject to the NVRA requesting information related to states’ compliance with the law’s list maintenance provisions. Section officials stated that, as of March 2019, two actions have resulted from this effort: (1) the Section became a plaintiff-intervenor in a June 2018 case against Kentucky for having an inadequate list maintenance program; and (2) the Section entered into a February 2019 memorandum of understanding with the state of Connecticut regarding its efforts to identify registered voters who have died. Officials noted that the effort begun in 2017 does not have any specific time frames, goals, or objectives but that the Section is reviewing the data states provided and focusing detailed reviews on states whose data suggest possible non-compliance. Section officials said that in general, assessing compliance with NVRA section 8 (list maintenance) is more challenging than for the other sections, such as section 5 (voter registration opportunities at motor vehicles agencies). For registration opportunity provisions, they can send an investigator to the agency to observe whether the agency is offering people the opportunity to register as part of their standard transactions. However, officials noted there is no observation they can conduct to determine if list maintenance is occurring as required. As such, officials stated that DOJ is uniquely dependent on information and data from the states and local jurisdictions to indicate whether list maintenance efforts are taking place and what type. Officials further noted that they may have reduced time to analyze data or otherwise pursue more general enforcement efforts in time periods where the Section is overseeing a high number of defensive cases (ones in which the U.S. government is the defendant). DOJ’s Public Integrity Section and U.S. Attorneys’ Offices Initiated Matters and Filed Cases to Address Potential Election Fraud Federal, state, and local authorities share responsibility for addressing allegations of election fraud. Within the federal government, DOJ has jurisdiction over election fraud investigations and prosecutions in elections where a federal candidate is on the ballot. In the absence of a federal candidate on the ballot, DOJ may have jurisdiction where facts exist to support the application of federal criminal laws that potentially apply to both federal and non-federal elections. According to DOJ officials, federal authorities would ordinarily defer to state and local authorities in deciding who would pursue an election fraud investigation or case because of states’ primary authority over the election process. DOJ’s Federal Prosecution of Election Offenses states that election fraud usually involves the corruption of one of three processes: the obtaining and marking of ballots, the counting and certification of election results, or the registration of voters. Within DOJ, the Public Integrity Section and U.S. Attorneys’ Offices maintain certain data on the election fraud matters and cases they initiate and prosecute. Within their respective databases, DOJ attorneys select a program category for each matter and case, which helps define the type of criminal act being investigated or prosecuted, for example, election fraud or health care fraud. U.S. Attorneys’ Offices use the program category “election fraud” for all election related charges; attorneys in the Public Integrity Section use either “election fraud” or “election crime other.” According to DOJ officials, categorization of matters and cases as election fraud (or any other category) is at the discretion of the investigating or prosecuting attorney based upon an examination of the facts. We refer to matters and cases that were either categorized as election fraud or election crime other, or included individual charges we identified as “election fraud related.” Election fraud related matters and cases in the DOJ databases we reviewed included charges brought under a wide variety of statutes, including those related to providing false information in registering or voting and vote buying (52 U.S.C. § 10307(c)) and voting by noncitizens (18 U.S.C. § 611), as well as more general charges such as the general federal conspiracy charge (18 U.S.C. § 371). The Public Integrity Section Initiated 33 Matters and Filed 19 Cases Related to Election Fraud from Fiscal Years 2001 through 2017 From fiscal years 2001 through 2017, the Public Integrity Section initiated 1,408 matters, of which 33 were election fraud related, or about two percent of its overall matters. As shown in figure 6, the Section initiated 10 of the 33 election fraud related matters in fiscal year 2011, six in fiscal year 2013, four in fiscal year 2003, and four in fiscal year 2012. From fiscal years 2001 through 2017, the Public Integrity Section filed 695 cases; of which 19 were election fraud related, or about three percent of its overall caseload. As shown in figure 7, the Section filed election fraud related cases in five of those fiscal years, with seven of the 19 cases filed in fiscal year 2003 and five filed in fiscal year 2014. Public Integrity Section officials stated that the Section’s involvement in election fraud related matters and cases may vary over time depending on a variety of factors, including the number of complaints received and staffing levels within the Section. Officials stated that the Section allocates attorneys to work on election related matters and cases as needed, if resources allow. U.S. Attorneys’ Offices are required to consult with the Public Integrity Section with regard to all federal criminal matters that focus on corruption of the election process, in addition to federal patronage and campaign finance-related crimes. The Section reviews this information and consults with U.S. Attorneys’ Offices on their elections related work. U.S. Attorneys’ Offices may also request assistance with a case if they lack sufficient resources to prosecute a complex case, or if the office needs to recuse itself. If the Section does not have sufficient staff available, officials stated that they may not have the ability to offer assistance in investigating matters and prosecuting cases. In these circumstances, officials said that the U.S. Attorney’s Office would likely proceed with the case without the Section’s assistance, except in recusal cases. The Public Integrity Section initiated at least one election fraud related matter in 11 of 12 regional federal circuits as shown in figure 8. The Section initiated the most matters in the Sixth Circuit (10 of 33) and the Fifth Circuit (seven of 33). The Public Integrity Section filed election fraud related cases in four of the 94 federal judicial districts nationwide. These four districts are located in three states: Kentucky, Texas, and Massachusetts. Specifically, the Section filed 11 of its 19 cases in the Eastern District of Kentucky; five cases in the Southern District of Texas; two cases in the Western District of Kentucky; and one case in the District of Massachusetts. The Public Integrity Section prosecuted election fraud related cases with charges under six statutes. As shown in table 2, the Section most frequently brought charges under 52 U.S.C. § 10307(c) which was charged in 17 of the 19 cases the Section filed. This statutory provision prohibits giving false information for purposes of registering or voting, vote buying, and conspiring to vote illegally. Public Integrity Section officials stated the Section did not focus its efforts on particular types of election fraud, but vote buying (generally charged under 52 U.S.C. § 10307(c)) was the most frequent type of election fraud related crime the Section prosecuted during the period of our review. Officials said vote buying is the most common type of election fraud related crime that has come to their attention in recent decades and noted that it tends to occur in communities that are more insular and isolated and have higher levels of poverty. For example, officials observed that in rural communities with high levels of poverty, some residents may be more vulnerable to vote-buying efforts due to their difficult circumstances or the power of local officials who seek to buy votes to provide or cut off needed services. Officials stated that matters and cases tend to be geographically concentrated because, while the Section does not have any formal initiatives in particular circuits or districts, they are in close contact with U.S. Attorney’s Offices nationwide and can offer additional assistance in those areas that may be more vulnerable to recurring or frequent election fraud. Example of Public Integrity Section Election Fraud Prosecutions Seven cases filed in the Eastern District of Kentucky in fiscal year 2003, in which 10 defendants were charged, concerned the 1998 primary election for multiple Knott County government positions and candidates, including county judge executive (the county executive) and county clerk. The 1998 primary election also included a contest for federal office (U.S. Senator). The presence of a candidate for federal office on a ballot is sufficient to establish federal jurisdiction under most election fraud related statutes as the federal candidate’s election could be, or could appear to be, tainted by the fraud. U.S. Attorneys’ Offices Initiated 525 Matters and Filed 185 Cases Related to Election Fraud from Fiscal Years 2001 through 2017 From fiscal years 2001 through 2017, U.S. Attorneys’ Offices initiated more than 2.2 million criminal matters (i.e., investigations), of which 525 were election fraud related, or 0.02 percent of their overall matters. As shown in figure 9, U.S. Attorney’s Offices initiated between 11 and 65 election fraud related matters each year during this time period. U.S. Attorneys’ Offices initiated the most election fraud related matters in fiscal years 2003 (44), 2004 (53), 2005 (65), and 2011 (46). The percentage of election fraud related matters of all matters initiated ranged from 0.01 percent to 0.06 percent. From fiscal years 2001 through 2017, U.S. Attorneys’ Offices filed just over 1 million criminal cases. Of these, 185 cases were election fraud related, or 0.02 percent of their overall caseload. According to officials from EOUSA, which provides guidance, direction, and oversight to the U.S. Attorneys’ Offices, election fraud was one of the least frequent crimes addressed by U.S. Attorneys’ Offices. In fiscal year 2017, the most frequent felony cases filed by U.S. Attorneys’ Offices were for immigration, drugs, and violent crime offenses. Officials further noted that election fraud related cases were taken seriously and thoroughly investigated when facts supporting such charges were uncovered. As shown in figure 10, U.S. Attorneys’ Offices filed the most election fraud related cases in fiscal years 2003 through 2005, and in fiscal years 2007 and 2017, with 15 or more cases filed each fiscal year. U.S. Attorneys’ Offices filed fewer than five election fraud related cases during fiscal years 2001, 2002, and 2015. The percentage of election fraud related cases of all cases filed ranged from less than 0.01 percent to 0.03 percent. From fiscal years 2001 through 2017 U.S. Attorneys’ Offices initiated at least one election fraud related matter in 85 of the 94 federal judicial districts. As shown in figure 11, three districts cumulatively accounted for 145 out of 525 matters, or approximately 28 percent of all election fraud related matters initiated. Of these three, two judicial districts, the Southern District of Florida and the Eastern District of Kentucky accounted for nearly one quarter of all election fraud related matters U.S. Attorneys’ Offices initiated. About half of the 185 election fraud related cases filed by U.S. Attorneys’ Offices occurred in three of the 94 federal judicial districts. As shown in figure 12, the Southern District of Florida filed 42 cases (23 percent), the Eastern District of Kentucky filed 36 cases (19 percent), and the Eastern District of Wisconsin filed 15 cases (eight percent). U.S. Attorneys’ Offices filed the remaining cases (92 cases, or 50 percent) in 42 federal judicial districts; of these, 20 districts had only one election fraud related case during the time period. EOUSA officials said that there could be a number of reasons why cases occurred more frequently in some districts than others. These officials noted that individual U.S. Attorneys utilizing their prosecutorial discretion may have taken an interest in election fraud or encountered evidence of a series of election fraud related crimes that generated a number of matters or cases. For example, according to the respective U.S. Attorneys’ Offices: In the Southern District of Florida, a 2004 case involving allegations of noncitizen voting resulted in the U.S. Citizenship and Immigration Services referring a series of additional similar investigations to the U.S. Attorney’s Office; In the Eastern District of Kentucky, a drug investigation in 2003 revealed evidence of vote buying that led to a series of vote buying cases; and In the Eastern District of Wisconsin, 14 of the 15 cases filed were uncovered in a joint investigation regarding the results of the 2004 presidential election, which showed a discrepancy between the number of ballots counted and individuals voting in one Wisconsin county. That investigation ultimately determined the discrepancy was caused by clerical error, but also uncovered 10 individuals who voted despite being ineligible due to their felon status and four who voted more than once. U.S. Attorneys’ Offices utilized approximately 100 different statutes in bringing charges in election fraud related cases. Table 3 shows the statutes charged in 15 or more election fraud related cases filed by U.S. Attorneys’ Offices. The most frequently charged statute was 52 U.S.C. § 10307 (prohibited voting acts), charged in 52 cases, with subsection (c) (false information in registering or voting and vote buying) charged in 38 of those cases. The next three statutes of 18 U.S.C. § 371 (conspiracy), 18 U.S.C. § 1001 (false statements), and 18 U.S.C. § 611 (voting by noncitizens) were each charged in 38 or more cases. EOUSA officials explained that U.S. Attorneys’ Offices select charges based on the specific facts and circumstances of a case. These officials noted that the offices may use some statutes, such as 18 U.S.C. § 371 and 18 U.S.C. § 1001, more frequently in cases due to their generality, which makes them widely applicable to different types of criminal conduct. Selected Data Sources on Moves, Deaths, and Convictions Used to Maintain Voter Registration Lists, and Their Reported Benefits and Limitations Each of the selected data sources we reviewed is one tool election officials may use to maintain their voter registration lists. These selected data sources are used to identify (1) registrants who move—U.S. Postal Service National Change of Address (NCOA), Interstate Voter Registration Crosscheck Program (Crosscheck), and returned mail; (2) deceased registrants—the public version of the Social Security Administration Death Master File (DMF) and state vital records; and (3) registrants with disqualifying felony convictions—U.S. Attorneys’ records on felony convictions. State and local election officials may use a variety of other databases or lists (data sources) to identify ineligible registrants who should be removed from voter registration lists, and state policies and procedures for using various data sources to identify and remove registrants from voter lists vary. Despite variations, election officials with whom we spoke stated that list maintenance—including the use of the selected data sources—provides benefits such as cost savings, smoother Election Day processes, reductions in administrative burden, and fewer opportunities for election fraud. Moreover, election officials told us that each of the selected data sources helps improve voter registration list accuracy, despite some limitations. For example, officials identified benefits from using these data sources, such as helping reduce the number of address errors on voter registration lists and helping identify and remove registrants who have moved outside of the election jurisdiction, are deceased, or have a disqualifying criminal conviction from voter registration lists. Officials also identified limitations with using these selected sources. In particular, three of the six selected data sources consist of administrative records collected for purposes other than voter registration, which can present some challenges when election officials use these sources to maintain their voter registration lists. For example, election officials noted that such data sources may inaccurately indicate that registrants moved unless election officials conduct additional work to verify the information. In addition, these data sources may not include the records for some registrants who are deceased and should be removed from the voter registration lists. Appendix III includes a description of a range of data sources states may use to maintain their voter registration lists. With regard to possible election fraud, state officials from all five selected states we visited noted that list maintenance activities in general help to identify or prevent election fraud because accurate and complete voter registration lists make it more difficult for individuals to commit fraud. Specifically, duplicate registrations—more than one registration for the same person across election jurisdictions—and ineligible registrations, such as those for deceased individuals, if present in voter registration lists, may provide opportunities for a person to vote more than once or vote using someone else’s identity. Thus, registration lists that contain one registration for each eligible registrant with accurate and current identifying information help to prevent election fraud from occurring. The majority of election officials we interviewed did not specify any one data source used to identify election fraud; however, state officials from Michigan and Oregon noted that the limited instances of election fraud in their states, in their view, is in part the result of their strong voter registration list maintenance efforts which have helped to reduce opportunities for fraud. In using data sources as a tool for maintaining voter registration lists, state and local election offices utilize data-matching procedures by which attributes of one registration record are compared to attributes of another record from another database or list to identify registrants who should be removed from voter registration lists under the NVRA’s removal categories. States are required to have computerized statewide voter registration lists, which allow election officials to conduct electronic data matching of their voter registration list to other databases or lists. These other databases or lists may include federal or state administrative records, interstate databases, and local lists or other information. Information on Data Matching Procedures Procedures for determining that a voter registration record is a “match” to another record may vary across states, local election offices, and interstate data matching programs. In general, a “match” should accurately identify the same individual across the two data sources being matched. However, data matching may result in improper indications of a match when a non-match should be indicated (false positives). False positive matches pose risks that election officials may improperly remove registrants from voter registration lists. Data matching can also result in improper indications of a non-match when a match should be indicated (false negatives), posing risks that election officials may fail to remove ineligible registrants from voter registration lists. According to a National Academy of Sciences report, the quality of the underlying data (from either the voter registration list or other data sources used for matching) may contribute to false positive or false negative matches. National Academy of Sciences, Improving State Voter Registration Databases, The National Academies Press, 2010. Further, matching procedures may differ with regards to how data in specific data fields are compared across databases to determine a match. For example, some procedures may require that the name from the voter registration list exactly match the name from the other data source (e.g. each letter, hyphen, space, or apostrophe must match). An exact match requirement would not accept as a match the name entries “Mary Jones-Smith” and “Mary Jones Smith”, even if all other data fields match across data sources and the entries represent the same individual, thus resulting in a false negative match. Below we discuss in detail the selected data sources and their benefits and challenges, as identified by literature we reviewed and election officials with whom we spoke. Data Sources Used to Identify Registrants Who Move According to reports we reviewed, registrants who move from one election jurisdiction to another jurisdiction within the state or to another state account for the majority of ineligible registrants and duplicate registrations on voter registration lists. When individuals register to vote, their voter registrations are linked to their residential address. This connection between a voter’s registration and residence is intended to ensure reliable and accurate voter registration lists, and to ensure that voters only vote for races and ballot questions that affect the communities in which they live. According to the 2016 Election Administration and Voting Survey (EAVS), the most common reason for a registrant’s removal from the rolls was cross-jurisdiction change of address (31.1 percent of removals), followed by registrants failing to respond to a confirmation notice sent as part of the NVRA process and subsequently not voting in the following two federal elections (26.1 percent of removals). As previously discussed, under the NVRA, data that indicate a registrant’s change of address and a potential move can be used to start the address confirmation notice process, but cannot, on their own, result in the automatic removal of registrants from voter registration lists. U.S. Postal Service National Change of Address (NCOA) The NCOA database comprises change-of-address records with the names and addresses of individuals, families, and businesses who filed a change of address with the U.S. Postal Service. Election officials can access the NCOA data by obtaining a license to directly receive the data from the U.S. Postal Service or having their voter registration list processed by a licensed third-party service provider. Election officials in the five states we visited compare selected records or the entire voter registration list against the NCOA database at the state or local level and at varying frequency to identify registrants who have potentially moved and to start the address confirmation and registrant removal process. For example Nebraska, Oregon, and Virginia state election officials said that they compare their statewide voter registration lists to NCOA on a bi-annual, monthly, and annual basis, respectively, to identify registrants who have potentially moved. In contrast, Florida and Michigan officials said they do not use NCOA data at the state level, though state laws provide local election officials the option of comparing their local jurisdiction’s voter registration list to NCOA when they conduct list maintenance activities related to changes in address. Although initial data comparisons of NCOA with the voter registration lists can be conducted at either the state or local level, in all of the states we visited when the results of the NCOA data-matching indicated a potential move, local election officials managed the results of the confirmation notices that were sent to registrants to confirm their address. Local election officials subsequently updated addresses on the voter registration lists with responses they received from the confirmation notices, or flagged registrants for potential removal if the registrants did not respond to the confirmation notice or the notice was returned undeliverable. State election officials from Nebraska, Oregon, and Virginia, and local officials from five of the jurisdictions we visited, reported that the primary benefit to using NCOA data is that it helps them to maintain accurate voter registration lists by (1) providing current and accurate addresses for their registrants, and (2) identifying registrants who have potentially moved and no longer reside in the voting jurisdiction. For example, local officials in one jurisdiction reported that they mailed approximately 60 percent fewer confirmation notices in 2017 compared to 2010 due to improvements in the accuracy of address information in their voter registration lists after using NCOA data during this period. Local officials in another jurisdiction reported they used the NCOA data as part of a one- time list maintenance effort, which generated over 100,000 confirmation mailings and resulted in the removal of a number of ineligible voters who no longer resided in the jurisdiction. Election officials also noted that using NCOA data to update voter registration lists may result in administrative efficiencies such as a more efficient election administration process and cost savings. For example, state officials from Oregon, a vote-by-mail state, said that NCOA data help them to maintain clean voter registration lists by providing current and accurate addresses for their registrants, which reduces mailing costs incurred from sending ballots to individuals who have moved out of the state. Further, local officials from one jurisdiction said that using NCOA data helped to reduce the number of address errors in the poll books and, as a result, decrease the number of registrants voting by provisional ballots on Election Day. A report we reviewed and election officials we interviewed cited a number of limitations to using NCOA data for voter registration list maintenance purposes. Specifically, in 2015 the U.S. Postal Service Office of the Inspector General reported that the NCOA data do not capture all change of address information because people do not always notify the U.S. Postal Service when they move. As a result, election officials may not be able to identify registrants who do not report changes of address to the U.S. Postal Service. Another limitation election officials cited is that an indication of a change in address in NCOA data does not necessarily reflect a change in residence, which is what determines the eligibility of a registrant to vote in a given election jurisdiction. According to U.S. Postal Service officials, the main purpose of the NCOA database is to maintain current and updated addresses for mail delivery and a change of address form may reflect a change in mailing address rather than a permanent change in residence. Nebraska, Oregon, and Virginia state officials and officials from three local jurisdictions reported that they have difficulty determining whether a registrant’s change in address as indicated in the NCOA data is a permanent change in residence or a change in mailing address due to a temporary move or other mailing needs. For example, military personnel may prefer to maintain their voter registration at their home of record. Upon assignment to another duty location they may file a change of address with postal authorities for mailing purposes, even if it is not a change of residence for voting purposes. Officials from two local jurisdictions reported similar issues for individuals who retain residency in the jurisdiction while attending college outside the jurisdiction. Further, registrants who had vacation homes outside the jurisdiction in the summer or winter months could be identified as registrants who potentially changed residences on a permanent basis using the NCOA data, according to Nebraska election officials. As a result of the potential difference between mailing and residential addresses, Virginia state election officials and election officials from two local jurisdictions reported that registrants may be inaccurately flagged for confirmation mailings. They told us that registrants would not be automatically removed after being flagged for confirmation mailings; however, they would be required to respond to the mailing or vote in one of the next two federal elections, as prescribed by the NVRA, to stay on the voter registration list. Officials also told us that they may have to take additional steps to use NCOA data to identify registrants who potentially moved and to update voter registration lists. For example, officials from one local jurisdiction that matches its county voter registration list to NCOA data noted that it can take a significant amount of time and resources to standardize their voter registration data to the NCOA format and to calibrate their data matching procedures to avoid false positive matches. Such false positive matches would inaccurately indicate an address change. These local officials said that they take steps to ensure that they do not get an indication of a change in address based on the standardization of an address (e.g. a “Street” to “ST” difference in address between the two data sources). Oregon state election officials and officials from one local jurisdiction further noted that they may have to do additional work to determine the appropriate election jurisdiction to which the address in the NCOA data should be assigned. Officials explained that some street addresses or buildings, like apartment complexes, cross election jurisdiction boundaries, which makes it difficult to determine within which election jurisdiction an address or a specific unit of an apartment complex falls. Oregon state officials said that local tax assessor data may help election officials reconcile these jurisdictional boundary issues. Interstate Voter Registration Crosscheck Program (Crosscheck) Crosscheck is an interstate data sharing program that compares participating states’ voter registration lists against one another to identify registrants who are registered in more than one state, which may indicate a move, and to identify individuals who may have voted in more than one state. The Crosscheck program began in 2005 with four participating states—Kansas, Iowa, Missouri, and Nebraska—and had grown to include 31 participating states by 2016. To participate in the Crosscheck program, each state signs a memorandum of understanding upon joining the program. Then, in January of each year, member states provide information such as full name, date of birth, and address for registered voters, as well as turnout data for the previous calendar year to Crosscheck program administrators—the Kansas Secretary of State’s office—in a prescribed format. Using the information provided by member states, Crosscheck program administrators return to each participating state a list of registrations in that state that share the same first name, last name, and date of birth, with a registration in another participating state. Crosscheck results also include other identifying information that varies depending on whether the member states provided the data. There are no membership or annual fees associated with joining or participating in Crosscheck. Of the states we visited, Michigan, Nebraska, and Virginia participated in the Crosscheck program for multiple years, while Oregon and Florida each participated once in 2012 and 2013, respectively. Oregon and Florida state officials explained that they did not use the Crosscheck data they received to conduct any voter registration list maintenance activities. Michigan, Nebraska, and Virginia state officials said that they received and processed Crosscheck data at the state level before sending a subset of results to the local jurisdictions to conduct additional verification and list maintenance activities. According to some state and local election officials we interviewed, Crosscheck data can be beneficial as one of the data sources used to identify registrants who may have moved out of state or whose moves are not captured by other data sources. Specifically, officials from four local jurisdictions told us that using Crosscheck data in conjunction with other data sources, such as the NCOA, helps keep voter registration lists accurate. Further, state election officials from Virginia and election officials from one jurisdiction reported that the fact that neighboring states participate in the Crosscheck program is particularly beneficial to them because their residents are more likely to move to neighboring states and the Crosscheck data may capture the change in residence if these residents also registered to vote in the neighboring states. Nebraska state officials also noted that Crosscheck data complement the NCOA change of address data. In particular, Crosscheck data can provide information on registrants who did not record change of address information under NCOA, who had not responded to a notice sent as a result of NCOA data and had moved a second time, or whose moves were not recent and may not be captured in the most recent change of address information provided by NCOA. Nebraska state officials noted that the Crosscheck data were particularly helpful in this manner the first year that Nebraska participated in Crosscheck and whenever a new state joined the program. In addition, election officials from Nebraska and state officials from Michigan identified Crosscheck data on possible instances of double voting as a source which could potentially help determine whether an individual might have voted in two or more states. For example, officials from two local jurisdictions said that they identified a few potential instances of double voting using Crosscheck data. They referred these instances of potential double voting to their Secretary of State. According to reports we reviewed and state officials we interviewed in all five states we visited, Crosscheck data contain numerous matches when a non-match should be indicated (false-positive matches) because the program uses matching criteria that rely on data elements, such as names and birth dates, that may be shared by more than one person. Specifically, the Crosscheck program matches participating states’ voter registration information by comparing registrants’ first name, last name, and date of birth. However, according to reports we reviewed, the odds are sufficiently high that two registrants could have the same name and birth date in groups as large as statewide (or multistate) voter registration lists. Nebraska state officials noted that when there were four participating Crosscheck states in 2005, a match indicating a duplicate registration was more likely to be a valid match (rather than a false positive); however as the number of participating states increased, the quality of the matched results has dropped substantially. Oregon state officials told us that they submitted data to the Crosscheck program in 2012 and that many of the resulting 20,000 potential duplicate registration matches were false-positive matches. Florida state officials also expressed concern about the reliability and quality of the matching criteria, in addition to the number of false positive matches in the data they received. In addition, a study on double voting found that Crosscheck data may not provide enough information for election officials to determine whether a match indicating potential duplicate registrations or double voting is valid. As previously discussed, Crosscheck results for potential duplicate registrations are based on a match of the first name, last name, and date of birth. Crosscheck results provided to participating states may also include additional information—such as registrants’ middle name, suffixes, registration address, and the last four digits of a registrant’s Social Security number, if available—which election officials can use to help determine whether a match is a valid indication of a duplicate registration. In particular, the last four digits of the Social Security number can help distinguish between two distinct individuals who happen to share the same first name, last name, and date of birth. Using Crosscheck data returned to Iowa in 2012 and 2014, the study found that two-thirds of potential duplicate registrations identified by Crosscheck data did not include the last four digits of the Social Security number associated with at least one of the registration records in the match. Thus, the study concluded that more often than not, an election administrator would not have enough information to distinguish which matches are valid indications of duplicate registrations. Further, Nebraska state officials noted that the reliability of the data provided by participating states can affect the reliability of Crosscheck information on double voting. For example, Nebraska state officials reported that one state incorrectly sent Crosscheck its 2014 voting history data the year participating states were to provide their 2016 data to the Crosscheck program. These officials noted that the incorrect voter history data made it appear as though many people had double voted. Nebraska officials said that once they identified this issue, they omitted any matched results involving the state that had provided the 2014 data from their review of registrants who potentially double voted. According to the Crosscheck 2014 Participation Guide, processing the duplicate registrations and researching possible double votes require a commitment of time from state and local officials. State election officials from Michigan, Nebraska, Oregon, and Virginia and officials from two local jurisdictions told us that they have spent a significant amount of time and staff resources to review the Crosscheck data and determine which matched records represent valid matches. State officials from the three states that participated in Crosscheck for multiple years (Michigan, Nebraska, and Virginia) said they implemented additional criteria to refine the Crosscheck data they received in order to identify valid matches of potentially duplicate registrations and send confirmation notices, according to the NVRA requirements. For example, Michigan state officials said that they further filter the Crosscheck results they receive to determine valid potential matches of duplicate registrations. Specifically, they filter Crosscheck results to include duplicate registrations where the registrants’ first names, middle initials, last names, dates of birth, and last four digits of Social Security numbers are an exact match. In addition, state election officials review the registration dates provided in the Crosscheck results to confirm that the registrant’s most recent voter registration activity occurred outside of Michigan before providing a refined list of valid potential matches to responsible local officials who conduct the address confirmation process. In its June 2017 Annual List Maintenance Report, Virginia state officials reported that they also review whether the last four digits of the Social Security number on Crosscheck results they receive match, to determine valid potential matches of duplicate registrations. While election officials from two jurisdictions we visited identified Crosscheck as a source which helped them identify potential instances of election fraud, such as instances of double voting, Nebraska state officials also noted the data were not generally reliable for these purposes without additional investigation. According to one study we reviewed, Crosscheck data on both double voting and duplicate registrations yield a high number of false-positive matches. Additionally, in another report, the New Hampshire Department of State found that of approximately 90,000 match records of duplicate registrations New Hampshire received from Crosscheck in 2017, only a small portion of the records were considered potential instances of double voting. Election officials can use the returned mail from targeted list maintenance mailing efforts and returned “undeliverable” mail from other mailings to registrants to send address confirmation notices to registrants who have potentially moved outside the election jurisdiction. These confirmation notices are subsequently used to update addresses on the voter registration lists with results of the confirmation mailing or flag registrants for potential removal. Specifically, targeted list maintenance mailing efforts may include sending a notice to all or a group of registrants in order to determine whether the registrant may have moved from the address on record. For example, Florida law states that local election officials can send notices to registrants who have not voted in the last 2 years and who have not made a written request that their registration be updated during the two year period. Targeted list maintenance mailing efforts may result in either a response from the registrants or returned undeliverable mail. Returned undeliverable mail occurs when the U.S. Postal Service cannot deliver mail to the address specified on the label, indicating a potential change in the registrant’s address and therefore residence. In addition to targeted list maintenance mailings, election offices may send other notices—such as sample ballots, or information about changes in polling locations—which may also generate returned undeliverable mail. See figure 13 for an example of other voter registration notices (not part of a targeted list maintenance effort) that may be returned to election officials as undeliverable and therefore indicate a potential move. Election officials from all five states we visited use returned mail from targeted list maintenance mailing efforts, or from other mailings to voters, to update registrants’ addresses or to send a notice to the registrants to confirm their address. According to Nebraska state election officials, returned undeliverable mail is a valuable tool for identifying registrants who may have moved. Local election officials we spoke with also said that returned undeliverable mail can provide them with a timely indication that a registrant has potentially moved. Furthermore, election officials told us that because mailings can be conducted on a periodic basis, processing returned mail at the time of receipt can help election officials distribute the list maintenance workload throughout the year. Specifically, election officials from four local jurisdictions said that returned undeliverable mail from voter notices sent to registrants periodically throughout the year is usually a more recent indicator of registrants’ changes in address compared to largescale list maintenance activities such as an annual mailing based on NCOA data. Further, officials from one local jurisdiction also noted that staying on top of returned undeliverable mail throughout the year helps reduce the workload during the state’s annual NCOA confirmation mailing, which would otherwise be too big to manage if the jurisdiction only processed address changes once a year. According to reports we reviewed as well as officials we interviewed, returned undeliverable mail may not be a reliable indicator that a person has moved, which can result in an inflation of the number of registrants who are flagged as inactive. For example, in 2015, the U.S. Postal Service Office of the Inspector General reported that approximately 60 percent of returned undeliverable mail is a result of the mail not getting delivered by postal service employees or insufficient address information on the mail, as opposed to the registrant having moved without notifying the U.S. Postal Service. Further, according to one report we reviewed, a registrant may not have received the mailing, or the mailing may be returned undeliverable for a number of reasons, including that the registrant may be temporarily away from his/her permanent residence; may not be listed on the mailbox of the residential address such as when the registrant shares an address with roommates or family members; or may live in a non-traditional residence such as homeless shelter or government building that will not accept mail for residents. In addition, Virginia state officials noted that using returned undeliverable mail can inflate the number of registrants who are flagged as inactive and can also result in additional costs. Specifically, these state election officials told us that they usually have a low response rate from registrants for mailings, including targeted mailings for list maintenance purposes or confirmation mailings. Registrants who are sent a confirmation notice or do not respond to confirmation mailings are then generally flagged as inactive. Nebraska state officials said that having inactive registrants on the registration lists has resulted in costs to local jurisdictions in the past because local officials were formerly required to mail a ballot to all registered voters, including those that were on the inactive list, when a special election was conducted by mail. Further, local election officials in one state said that inflated numbers of inactive registrants on voter registrations lists may result in fewer than needed voting precincts, to the extent that election officials determine the number of precincts based only on the number of active registrants on the lists. Data Sources Used to Identify Deceased Registrants The NVRA provides for states to remove deceased registrants from registration lists by reason of death. This may be carried out by the state’s department of elections, local election jurisdictions, or a combination of the two, as provided by state law. According to the 2016 EAVS, states removed over 4 million registrants due to death from November 2014 through November 2016, which accounted for 24.6 percent of the total number or registrants removed from voter registration lists. According to a National Association of Secretaries of State 2017 report, in most states, information on deceased registrants is provided by a state office of vital statistics, the state department of health, or a similar state-level entity. Additionally, the report notes that a number of states permit election officials to remove a deceased registrant using information from sources such as obituary notices, copies of death certificates, and notification from close relatives. Social Security Administration’s Public Death Master File (DMF) The public version of the DMF contains nearly 101 million records of deaths reported to the Social Security Administration from 1936 through March 1, 2019. It is a subset of the Social Security Administration’s full death file; it does not include state-reported death data, but includes other death data reported by family members, funeral directors, post offices, financial institutions, and other federal agencies such as the Department of Veterans Affairs and Centers for Medicare & Medicaid Services. The public DMF accounts for about 19 percent fewer death records than the full death file. The Social Security Act limits the sharing of the full death file to federal benefit-paying agencies, and other specifically enumerated purposes. Generally, DMF records include the Social Security number, full name, date of birth, and date of death of deceased individuals. Agencies or other entities, including election administrators, having a legitimate business purpose for the information can purchase the DMF from the National Technical Information Service of the U.S. Department of Commerce, which is authorized to distribute the DMF. Subscribers to the DMF are required to purchase monthly or weekly updates to the DMF to ensure that the records are up-to-date. Of the five states we visited, Florida, Michigan, Oregon, and Virginia compare their statewide voter registration list against DMF data on a regular basis, and Nebraska used the data once in 2014, to identify and remove registrants who had died. Specifically, Florida and Michigan directly receive the DMF data and conduct data-matching with their state’s voter registration list to identify deceased registrants on a weekly basis. Oregon and Virginia use DMF data through their participation in the Electronic Registration Information Center (ERIC) program. On a monthly basis, ERIC provides Oregon and Virginia state election officials a report on their deceased registrants based on matches of DMF data with these states’ voter registration lists. States’ procedures for removing deceased registrants from the voter registration list vary, depending on requirements outlined in state law. For example, Virginia state law provides that local election officials have the authority to determine the qualification of an applicant for registration. Further, the Virginia law requires election officials to send a cancellation notice once a voter registration record is cancelled due to death. As a result, Virginia state officials forward all valid matches of potentially deceased registrants to the responsible local official who reviews the match, marks the registrant as deceased in the voter registration database, cancels the registration, and sends a cancellation notice. In contrast, Michigan law allows either state or local officials to cancel a voter registration upon receipt of reliable information that the registrant is deceased. In addition, according to Michigan state election officials we met with, there is no legal requirement for officials to send notices of cancellation due to death. Michigan state election officials told us that they cancel voter registrations based on data-matching with DMF data at the state level. State election officials from all five selected states and officials from one local jurisdiction reported that they have found DMF data to be useful for identifying registrants who have died. Further, state election officials from four selected states stated that the DMF data are accurate and reliable. For example, officials said that they have experienced very few instances where they have had to reverse cancelled registrations because a registrant was incorrectly identified as deceased based on DMF data. Nebraska and Oregon state officials also noted that DMF data are particularly useful for identifying registrants who died out of state. Officials said that out-of-state death information would not be captured by other data sources they use, such as state vital records data. In addition, Michigan state officials noted that historically they would receive notification of a person’s death closer to the date of death when using DMF data than when using death data from the state vital records office. We previously reported that state-reported deaths, which the DMF does not include, are expected to account for a larger proportion of all Social Security Administration death records over time. As a result, we reported that agencies that purchase the DMF, including election offices, will likely continue to access fewer records over time as compared with those government agencies that obtain the Social Security Administration’s full death file. We also reported that because the deaths reported by states are generally more accurate than other death information reported to the Social Security Administration by post offices, financial institutions, and other government agencies, it is likely that agencies using the DMF could encounter more errors than agencies using the Social Security Administration’s full death file. According to Social Security Administration officials, Social Security death data are accurate when used to administer the Social Security Administration benefit programs, which includes removing deceased individuals from the beneficiary rolls and informing surviving spouses and children of their eligibility for benefits. Virginia state officials further noted that DMF death information can be less timely in identifying an individual as deceased when compared to state death records because state records are collected during the death certification process while the Social Security Administration relies on the transmission of information after the death certification from other entities, such as other government agencies, to identify an individual as deceased. State Vital Records Election officials can also use state vital records to identify and remove registrants who are deceased from their voter registration lists. Due to the federal requirement for state election officials to coordinate with the designated state agency responsible for compiling records of deaths, most states receive state level information on deceased registrants from their state office of vital statistics. State death records are collected electronically by most states, and maintained in each state’s Electronic Death Registration System. As of December 2018, 46 states, the District of Columbia, and Puerto Rico used an Electronic Death Registration System to collect and maintain death data within their jurisdiction. All five states we visited receive data on deceased individuals at varying intervals from their state vital records office and match these records to the statewide voter registration list to identify and remove deceased registrants. For example, on a daily basis, Florida state election officials receive state death data electronically from the Florida Bureau of Vital Statistics. They use the information to identify potentially deceased registrants and provide a list of these individuals to local election officials. Nebraska state election officials receive state death data from their state department of health on a weekly basis, Oregon and Virginia receive death information from their respective state departments of health on a monthly basis, and Michigan officials said they receive the information periodically, on either a weekly or bi-weekly basis. According to state election officials from Florida, Nebraska, Oregon, and Virginia and local election officials from four of the jurisdictions we visited, state vital records on deceased individuals are generally accurate and reliable, in part because state vital records data are reviewed and validated. Specifically, state vital records data on deceased individuals are linked to information on the death certificate which is validated by authorized persons, such as physicians and funeral directors, during the death certification process. Virginia state officials said that in comparison, other sources such as the Social Security DMF data may include reported deaths that are not directly linked to the death certification, from entities such as post offices and financial institutions. Additionally, officials from one jurisdiction told us that state death records are helpful in identifying people who died in another jurisdiction in the state. Further, officials from this jurisdiction noted that in the past they reviewed obituaries to identify deceased registrants, but that they have seen a decline in the use of obituaries to announce deaths and state death records help fill the information gap previously provided by obituaries. Nebraska state officials also noted that state death records can help prevent fraudulent registrations because state officials are able to check new registrations against death records received from the state health department. Nebraska state officials and officials from two local jurisdictions said that one limitation of state death records is that they generally only include information on deaths that have occurred in the state, and as a result election officials lack death records for residents who died out of state. From our interviews with the state vital records officials in the states we visited and information we reviewed on national death sources, we learned that, in some states, state death records may include information on deaths that occurred out of state, through the state’s participation in interstate data exchanges. Additionally, while some state officials found state death records timely for updating voter registration lists, Michigan state officials said their state death records were not as timely as DMF data. Specifically, Michigan state election officials said they used to receive notification approximately six months after a person’s death when using state death records, compared to within two weeks of death using DMF data. Officials explained that the lag in the death notification when using the state death records was due to low participation rates in the state’s Electronic Death Registration System when the system was first implemented. Michigan state election officials noted that state death records have improved and are timelier as the participation rate in the state Electronic Death Registration System has increased in recent years. Oregon state officials also noted that state death records may be less timely than the data counties receive from their local health departments, and thus local election officials may have received notice of an individual’s death from the county health department prior to receiving the state vital records data. Data Source Used to Identify Registrants with Disqualifying Felony Convictions State laws regarding the voting eligibility of individuals with a felony conviction vary. In some states, individuals who were previously convicted of a felony are not permitted to vote unless they are pardoned, or their voting rights are specifically restored by the government; in other states, the right to vote is reinstated automatically at the end of the individual’s sentence or after a designated period of time following the end of the sentence. Additionally, in some states, individuals with felony convictions may vote if they are on probation or have been granted parole; and, in two states, felons are allowed to vote even while incarcerated. Election officials are generally required to remove registrants with a felony conviction from voter registration lists, in accordance with state law. U.S. Attorneys’ Records on Felony Convictions U.S. Attorneys are required by law to notify the states’ chief election officials of felony convictions in federal court. The notices must contain a person’s name, age, residence address, date of entry of the judgment, a description of the offenses of which the individual was convicted, and the sentence imposed by the court. Election officials from all five states we visited said that they receive records from U.S. Attorneys on residents who are convicted of a federal felony. Florida, Nebraska, and Virginia use this information to remove registrants from their voter registration lists given the nature of their state laws, which restrict voting eligibility after a felony conviction until rights are restored or for a period after completion of the sentence. Michigan and Oregon prohibit individuals from voting while serving their sentences after conviction, but voting rights are automatically reinstated once a person is released from prison. As such, state officials from Michigan told us that they do not use U.S. Attorneys’ records to remove voters from their voter registration lists. Oregon officials noted they use U.S. Attorneys’ records on federal felony convictions to change a registrant’s status to “inactive.” Election officials from three states in our review that use U.S. Attorneys’ felony conviction records to remove registrants from voter registration lists said that this information was valuable, as they would not be able to acquire information about federal convictions from state sources. While federal conviction information can be helpful to election officials, an official from one local jurisdiction said that it can be difficult to determine whether the individual identified by a U.S. Attorney’s Office as having a federal conviction is the same person as the registrant. This is because criminals may have used aliases or provided incorrect Social Security numbers when registering to vote, which results in a less confident match. In addition, the information state and local officials receive on federal convictions is not required to include an individual’s projected date of release or date of sentence completion, which state and local officials from Florida and Nebraska said could help them determine whether the registrant is ineligible to vote and thus should be removed from voter registration lists. This makes it difficult for election officials to determine if the registrant’s sentence was already completed by the time they receive the information. In Nebraska, where voting rights are reinstated two years after a sentence is completed, election officials said it is initially difficult to know whether the individual’s voter registration is valid without the date of release or sentence completion. To mitigate limitations related to the lack of a projected release date or sentence completion date, Florida election officials said that they review case judgments which provide the details of the case, including date of sentence completion, to determine if the registrant’s sentence was completed and then check if the registrant’s rights were restored. Nebraska state election officials said they review court records and also noted that they would contact the local U.S. Attorney’s Office to obtain the federal release date for a particular registrant. Agency and Third Party Comments We provided a draft of this report to DOJ, the U.S. Postal Service, the Social Security Administration, the Election Assistance Commission, the Crosscheck program, and election offices in the five states and ten local jurisdictions we visited. DOJ, the U.S. Postal Service, the Election Assistance Commission, and the Crosscheck program did not provide written comments. The Social Security Administration submitted a letter noting that it did not have any substantive comments, which is reproduced in appendix IV. We incorporated technical comments from DOJ, the U.S. Postal Service, the Social Security Administration, Crosscheck, and state and local officials as appropriate. We are sending copies of this report to the Attorney General, the Postmaster General, the Social Security Administration, the Election Assistance Commission, election offices in the five selected states and ten local jurisdictions that participated in our research, appropriate congressional committees and members, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8777 or gamblerr@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 significant contributions to this report are listed in appendix V. Appendix I: National Voter Registration Act of 1993 Cases Filed by Private Parties In addition to the Department of Justice’s (DOJ) role in enforcing the National Voter Registration Act of 1993 (NVRA), the law allows a private party (a person or organization) who is aggrieved by a violation of NVRA provisions to bring a civil action against a state or local agency responsible for voter registration. In some cases, DOJ may participate in these private party cases by intervening on behalf of the plaintiff (as a plaintiff intervenor) or defendant, or by filing an amicus brief. The NVRA includes provisions that focus on both increasing opportunities for voter registration and improving voter registration list maintenance. Table 4 includes a summary of these provisions. Methodology To identify cases filed by private parties that included a claim under the NVRA, we searched an online legal database (Lexis Advance) for U.S. Circuit Courts of Appeals decisions from fiscal years 2008 through 2018 that contained the term “National Voter Registration Act.” We reviewed the decisions and also obtained and reviewed related case documents, including district court decisions, dockets, and complaints, to determine whether a claim had been filed under the NVRA and the nature of the claim, among other case information. We focused on cases that reached the federal appellate level because decisions issued by the U.S. Circuit Courts of Appeals create binding precedent for all of the districts in that circuit, among other considerations. Summary of NVRA Cases Filed by Private Parties that Reached the U.S. Circuit Courts of Appeals from Fiscal Year 2008 through Fiscal Year 2018 We identified 19 cases that were filed by private parties with claims under the NVRA that reached the U.S. Circuit Courts of Appeals (federal appellate level) from fiscal years 2008 through 2018. Eleven of the 19 cases included claims that were related to NVRA provisions that require states to provide registration opportunities. Six cases included claims related to the NVRA requirement to remove voters from registration lists under specified conditions (list maintenance). Registration Opportunity Cases Private parties filed 11 cases involving claims under the NVRA’s registration opportunity provisions that reached the U.S. Circuit Courts of Appeals. We reviewed the claims in each of the 11 cases and found that: five of the 11 cases involved a claim under section 5 related to voter registration opportunities at motor vehicle offices; four of the 11 cases involved a claim under section 7 related to registration opportunities at public assistance offices; two of the 11 cases involved a claim under section 6 related to mail-in registration application forms; and one of the 11 cases involved claims under section 8 related to the requirement that states register voters whose applications are received at least 30 days before an election. List Maintenance Cases Private parties filed six cases involving list maintenance claims under the NVRA that reached the U.S. Circuit Courts of Appeals. NVRA list maintenance cases may involve two types of allegations under section 8: (1) in conducting a required program to remove ineligible voters from the voter registration list, a state or local jurisdiction did not incorporate certain safeguards, with the potential effect of unlawfully removing eligible voters; and (2) a state or local jurisdiction did not have an adequate program to remove ineligible voters from the voter registration list. Five of the six cases included a claim under section 8 related to the potential unlawful removal of voters from voter registration lists. The sixth case included a claim under section 8 related to the inadequate removal of ineligible voters from voter registration lists. DOJ Participated in Nearly Half of All NVRA Private Party Cases that Reached the U.S. Circuit Courts of Appeals from Fiscal Years 2008 through 2018 DOJ submitted an amicus brief or statement of interest in nine of the 19 NVRA cases filed by private parties that reached the U.S. Circuit Courts of Appeals between fiscal years 2008 through 2018. Five of the nine cases in which DOJ participated involved issues related to registration opportunities: DOJ participated in all four of the cases that included a claim under section 7 related to registration issues involving public assistance offices. For example, in one case, plaintiffs alleged that the state of New Mexico failed to provide voter registration forms to applicants for public assistance who did not decline, in writing, to register to vote. DOJ submitted a brief in support of the plaintiffs. DOJ participated in one case that included a claim under section 6 related to mail-in voter registration application forms. DOJ also participated in one case under section 8 that related to the public disclosure of records concerning voter registration list maintenance activities. The remaining three cases involved issues related to list maintenance, specifically allegations that an election jurisdiction’s list maintenance program did not have appropriate safeguards to protect against the unlawful removal of eligible voters. For example, in one case, plaintiffs alleged that the state of Ohio violated the NVRA by using failure to vote as the sole trigger to start the confirmation process for removing voters from registration rolls based on a change of residence. In 2016, DOJ filed an amicus brief in support of the plaintiffs. In 2017, the case was appealed to the U.S. Supreme Court and the department reversed its original position and filed a brief supporting the state’s list maintenance practices. In June 2018, the Supreme Court upheld Ohio’s process for removing voters on change-of-residence grounds and ruled that failure to vote could serve as evidence that a registrant had moved. Appendix II: Cases with National Voter Registration Act of 1993 Claims Filed by the Department of Justice, Voting Section Within the Department of Justice (DOJ), the Civil Rights Division’s Voting Section enforces the civil provisions of federal laws that protect the right to vote, including the National Voter Registration Act of 1993 (NVRA), the Help America Vote Act, the Voting Rights Act of 1965, and the Uniformed and Overseas Citizens Absentee Voting Act, among others. From fiscal years 2001 through 2017, the Voting Section participated in 234 cases, including 14 cases involving NVRA claims in which the Section was the plaintiff or the plaintiff intervenor. Cases with NVRA claims included allegations related to providing registration opportunities for voters, and allegations related to the requirement to remove voters from registration lists under specified conditions (list maintenance). Table 5 below provides a brief summary of the allegations in each case. Appendix III: Data Sources and Site Selection Methods To address how selected data sources are used at the state and local level and to obtain perspectives on how these sources help maintain voter registration lists, we selected and reviewed six commonly received data sources that may be used to remove ineligible voters who have moved, died, or committed a disqualifying criminal conviction. We also selected state and local election offices in five states and conducted interviews with election officials to obtain information on policies and procedures for using selected data sources, and perspectives on their benefits and limitations. This appendix describes our data source and site selection methodologies, and additional information on the data sources and sites we selected. Data Source Selection To determine which data sources to include in our review, in June 2018 we sent a structured questionnaire to state election directors for each of the 49 states and the District of Columbia with voter registration requirements to identify commonly received data sources which states can potentially use to conduct voter registration list maintenance. The National Voter Registration Act of 1993 (NVRA) specifies certain categories under which election officials may remove registrants from voter registration lists including: 1. if a registrant has moved outside of a jurisdiction and either (a) confirmed the move in writing or (b) failed to respond to an address confirmation mailing and failed to vote in two consecutive federal general elections subsequent to the mailing; 2. death of the registrant; 3. criminal conviction of the registrant, as provided for in state law; and 4. mental incapacity of the registrant, as provided for in state law. We asked state election directors to identify the sources from which data were received at either the state or local level at any point between January 2017 and May 2018. We summarized responses from election directors in 35 states and the District of Columbia to identify commonly received data sources. Table 6 provides a summary of responses to the structured questionnaire, with the data sources organized according to the NVRA categories that may be used to remove registrants from voter lists. From the list of commonly received sources above, we then selected six data sources that can be used to address the following NVRA categories for removing registrants—move outside election jurisdiction, death, and, disqualifying criminal conviction. These categories each account for more than 1 percent of total removals from voter registration lists nationwide, based on the most recent data reported to the U.S. Election Assistance Commission. We did not select any data source that addresses the “disqualifying mental incapacity” NVRA removal category since it accounted for less than 1 percent of total removals nationwide for this time period. Specifically, we selected three sources that address moves, two sources that address deceased registrants, and one source that addresses disqualifying criminal convictions, to generally reflect recent data reported on the distribution of registrant removals, by removal category, from voter registration lists nationwide. We also selected (a) at least one nationwide source that captures data from all states; (b) at least one source that only includes data specific to the particular state or local jurisdiction that receives data from the source; and (c) one interstate data exchange that involves the sharing of data between multiple states. We selected sources from each of these categories in order to identify potential issues that may arise when election officials match their voter registration data with various other types of data sources. Table 7 presents the data sources we selected for further review. State and Local Jurisdiction Selection To obtain information on policies and procedures for using selected data sources for voter registration list maintenance, and election officials’ perceptions on the benefits and limitations of using them, we selected five states that indicated in their responses to our questionnaire that they have received data from at least five of the six selected data sources between January 2017 and May 2018. We also considered variation in states’ population size, when possible, and geographic diversity in order to capture possible regional differences in election administration practices. See table 8 for a list of the states we selected and a summary of the selected data sources received by each state. For each of the five selected states, we selected two local election jurisdictions (counties or cities/towns)–one with a larger population and one with a smaller population–based on the recommendation of the state election officials, population size, and other factors. See table 9 for demographic information on the states and local jurisdictions we visited. Appendix IV: Comments from the Social Security Administration Appendix V: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Tom Jessor (Assistant Director), David Alexander, Justine Augeri, Colleen Candrl, Jamarla Edwards, Jonathan Ferguson, Alana Finley, Eric Hauswirth, Richard Hung, Amanda Miller, Heidi Nielson, Kevin Reeves, Christine San, Janet Temko-Blinder, Jeff Tessin, and Sarah Turpin made key contributions to this report.

The NVRA was intended to increase the number of eligible citizens who register to vote in federal elections, protect the integrity of the electoral process, and ensure that accurate and current voter registration rolls are maintained. GAO was asked to examine issues related to the NVRA's voter registration and voter registration list maintenance requirements, as well as issues related to election fraud. This report addresses (1) DOJ's efforts to ensure states and localities comply with NVRA requirements to offer registration opportunities and administer voter registration list maintenance programs, and address potential instances of election fraud; and (2) how selected data sources are used at the state and local level to help maintain voter registration lists, and perspectives on how these data sources help ensure list accuracy and address potential voter eligibility and fraud issues. GAO analyzed data on DOJ's efforts to ensure NVRA compliance and address election fraud–as measured by matters initiated and cases filed--for fiscal years 2001 through 2017 (the last full year of data available when requested from DOJ). This period covered eight federal elections. GAO also interviewed DOJ officials. GAO selected six commonly received data sources that may be used in list maintenance efforts. GAO reviewed literature and interviewed state and local election officials in five states for perspectives on how the data sources are used and any benefits and limitations. These states used at least five of the data sources and provided geographic diversity. The results from these five states are not generalizable, but provide insight into state and local perspectives on list maintenance. From fiscal years 2001 through 2017, the Department of Justice's (DOJ) Voting Section (which enforces the civil provisions of voting rights laws) initiated matters (e.g., investigations), filed cases against state or local governments in federal court, and engaged in other efforts to enforce provisions of the National Voter Registration Act of 1993 (NVRA). Specifically, the Voting Section: initiated 99 matters involving allegations of NVRA violations related to voter registration opportunities and list maintenance; filed 14 cases involving allegations of NVRA violations; eight included list maintenance allegations; four included registration opportunities allegations; and two included both types of allegations; and DOJ's Public Integrity Section (which supervises nationwide election law enforcement and prosecutes selected cases involving alleged corruption by government officials), and U.S. Attorneys' Offices (which enforce criminal laws within their districts) engaged in efforts to address election fraud from fiscal years 2001 through 2017, including filing cases against individuals in federal court. For example: The Section initiated 33 matters and filed 19 cases related to election fraud, accounting for about three percent of its overall caseload. Of these cases,17 involved vote buying and false information charges. U.S. Attorneys' Offices initiated 525 matters and filed 185 cases related to election fraud, accounting for about .02 percent of their overall caseload. Of these cases, 52 involved charges such as vote buying and voting more than once, and 49 involved conspiracy. GAO reviewed six data sources election officials may use to maintain voter registration lists and remove voters who become ineligible due to a move, death, or disqualifying criminal conviction: (1) the U.S. Postal Service's National Change of Address (NCOA), (2) the Interstate Voter Registration Crosscheck Program, (3) returned mail, (4) the public version of the Social Security Administration's Death Master File, (5) state vital records, and (6) U.S. Attorneys' records on felony convictions. Election officials GAO interviewed and literature reviewed reported benefits and limitations associated with each source. According to officials, each source helps improve list accuracy, despite some limitations, and list maintenance efforts in general help reduce opportunities for election fraud. For example, officials said that NCOA data helped them maintain accurate lists by identifying registrants who moved outside the election jurisdiction; however, they also noted that NCOA data may not capture all address changes because people do not always notify the U.S. Postal Service when they move. GAO incorporated technical comments provided by federal agencies and state and local election officials as appropriate.

CRS_R45937

Introduction Funding for new border barrier construction became the focal point of a partial government shutdown that began on December 22, 2018, and lasted 34 days, the longest on record. Congress ultimately did not accept President Donald Trump's demand for $5.7 billion in new funding for the construction of a proposed border wall, providing instead $1.375 billion for additional pedestrian fencing as part of the Consolidated Appropriations Act of 2019 (CAA). Unsatisfied with the negotiated agreement, the Trump Administration issued a Presidential Proclamation on February 15, 2019, declaring a national emergency at the southern border of the United States, a move that, among other things, allowed the President to invoke special authorities for redirecting military construction appropriations. Concurrently, the White House released a plan for reprogramming or transferring $6.7 billion to southwest border barrier projects, of which $6.1 billion would come from unobligated Department of Defense (DOD or Department) appropriations. Congress, noting the President's attempt to secure more funding than provided in the CAA, and concerned over a potential violation of its constitutional prerogatives to manage appropriations, acted quickly in an attempt to terminate the national emergency declaration. A joint resolution, H.J.Res. 46 , Relating to a national emergency declared by the President on February 15, 2019 , was passed by both houses on March 14, 2019, but was subsequently vetoed by the President one day later. On March 26, 2019, an attempt to override the veto fell short of the required two-thirds majority in the House by a vote of 248-181. In September 2019, Congress again attempted to terminate the state of national emergency with a joint resolution ( S.J.Res. 54 ) passed by both chambers. The legislation has yet to be considered by the President. The national emergency remains in effect. This report outlines the Administration's FY2020 border barrier funding plans using defense funds, describes the various authorities involved, details the process for each budgetary action, indicates the status of appropriated funds, identifies recent congressional actions, and identifies potential issues for Congress. The report does not include a comprehensive overview of DHS funding for border barriers, or describe that agency's FY2020 request for related projects. It also does not address the deployment and concomitant expense of mobilizing active and reserve military personnel for service on the border. The Trump Administration's FY2020 Funding Plan On February 15, 2019, President Trump issued a proclamation declaring a national emergency at the southern border that required use of the Armed Forces. Concurrent with the announcement, the White House released a Fact Sheet entitled, President Donald J. Trump's Border Security Victory (hereafter referred to as the border security factsheet ) that described steps the Administration intended to take in order to provide $6.7 billion in appropriations outside of the regular legislative process for new border barrier projects. Drawing on both emergency and nonemergency authorities, the Administration outlined a number of steps it stated would be "used sequentially and as needed." In March 2019, the Administration delivered its annual budget to Congress. The FY2020 proposal included an additional $7.2 billion in Army Overseas Contingency Operations (OCO) military construction funding, half of which ($3.6 billion) would replenish accounts affected by the Administration's b order security factsheet plan. The remainder, $3.6 billion, would fund future border barrier projects. According to Deputy Under Secretary of Defense (Comptroller) Elaine McCusker: We have $3.6 billion -- up to $3.6 billion to backfill any MILCON projects that we end up having to fund in '20 instead of '19. And then we also have $3.6 billion for potential new construction for the border, and the reason we've done this is to reflect the fact that we have a presidential priority that has a macro funding level and we want to help get to that funding level. Overall, funding actions the Administration described between February and March 2019 included a complex mixture of realigned DOD program savings and unobligated military construction funds from past years ($6.1 billion), as well as a request for new defense appropriations in FY2020 ($7.2 billion). In its b order security factsheet plan, the Administration cited an additional $2 billion in non-DOD appropriations; $1.375 billion in previously enacted FY2019 Department of Homeland Security (DHS) appropriations (included in the CAA), and $601 million in contributions from a Treasury Forfeiture Fund (TFF) that manages seized assets. Altogether, these defense and non-defense funds would total $15.3 billion, of which 87% would be DOD funds. The Table 1 indicates all such actions. Status of Funds Of the $601 million in FY2019 Treasury Forfeiture Funds described in the Administration's plan, at least $242 million has been transferred for use by the U.S. Army Corps of Engineers (USACE). The Treasury Department has stated that it will transfer the remaining $359 million when additional funds become available. Of the $2.5 billion the Administration has designated for transfer through the defense Drug Interdiction and Counterdrug Activities account (hereafter referred to as the defense Drug Interdiction account), $1.9 billion has been obligated. A substantial portion of the total amount, previously frozen by court injunctions, became available on July 26, 2019 when the U.S. Supreme Court struck down lower court injunctions. Since then, DOD border barrier construction has been allowed to proceed, though the courts have made no final ruling. After an extended review process, on September 3, 2019, the Secretary of Defense invoked the emergency construction statute 10 U.S.C. 2808 and directed the Department to transfer appropriations from 127 previously authorized military construction projects to eleven barrier projects identified by DHS. The figure below illustrates the status of the Administration's border security factsheet plan as of September 2019. Of the $6.7 billion in newly introduced funds, approximately $2.1 billion has been obligated (or otherwise made available for obligation). For completeness, the figure also includes $1.375 billion in FY2019 DHS appropriations that were included in the President's Border security factsheet announcement, though these funds were previously enacted and do not represent a plan for future actions. Overview of DOD funds Available for Securing the Border Although the Secretary of the DHS is charged with preventing the entry of terrorists, securing the borders, and carrying out immigration enforcement functions, funding to carry out those missions may be supplemented in part by resources from other agencies. Within DHS, U.S. Customs and Border Protection (CBP), is chiefly responsible for securing the borders of the United States, preventing terrorists and their weapons from entering the country, and enforcing hundreds of U.S. trade and immigration laws. Because border security lies primarily within the jurisdiction of DHS, Congress has not generally provided DOD with significant funds to address that mission. Congress has instead authorized the military to support DHS (or local authorities) in certain situations, such as to assist with drug interdiction or with terrorist incidents involving weapons of mass destruction. According to DOD officials: Active-duty and National Guard personnel have supported Federal and State counterdrug activities (e.g., detection and monitoring of cross-border trafficking, aerial reconnaissance, transportation and communications support, and construction of fences and roads) beginning in the early 1990s. Most recently, U.S. Northern Command's Joint Task Force-North executed 53 counterdrug support missions in fiscal year (FY) 2017 and 23 missions in FY2018. When the Secretary of Defense approved the four border States' plans for drug interdiction and counterdrug activities, DoD committed $21 million in funds in FY2017 and $53 million in FY2018. Congress has also permitted DOD special flexibility for undertaking military construction projects during periods of national crisis, such as when the President declares a national emergency. (The National Emergencies Act, or NEA, establishes procedures for how a President may declare a national emergency but does not explicitly define that term. ) Historically, emergency military construction has been used to support troops engaged in contingency operations overseas at locations that include Iraq and Afghanistan. DOD Funding Available Without a Declaration of a National Emergency The Administration's plan would tap funds for border barriers using both statutory military construction authorities and non-statutory general transfer authorities. This section provides an overview of those available to the Administration (both invoked and not invoked). Later sections examine the Administration's use of specific authorities in depth. Statutes Permitting Military Construction Statutes that would authorize DOD to undertake military construction activities along the border but that would not require a Presidential declaration of a national emergency include the items below. The Administration has invoked: 10 U . S . C . 284 Support for counterdrug activities and activities to counter transnational organized crime . Upon request by qualifying entities, this statute authorizes DOD to reprogram funds to construct roads, fences, and lighting along international drug smuggling corridors in order to support law domestic (and foreign) law enforcement. The Department's activities are funded from a central transfer account called the Drug Interdiction and Counter-D rug Activities , which also receives direct annual appropriations. The Administration has not invoked: 10 U . S . C . 2803 Emergency construction . This statute authorizes the Secretary of Defense, under conditions the Secretary determines to be vital to the national security or the protection of health, safety, or environmental quality, to obligate $50 million for military construction projects not otherwise authorized by law. This authority was not included in the Administration's Border security factsheet plan for wall funding. General and Special Transfer Authorities (Section 8005 and Section 9002) The Administration's use of the statute 10 U.S.C. 284 is predicated on accessing DOD funds made available by General Transfer Authority (GTA) transfers. GTA (sometimes colloquially referred to as Section 8005 , though the provision number may change ) , refers to the recurring provision in annual defense appropriations acts that set the maximum amount permitted for DOD's base reprogramming actions (usually around $4 billion). Section 9002 is the equivalent designation for war-related, Title IX Overseas Contingency Operations , funds (usually around $2 billion). Congress typically requires that reprogramming be undertaken within a specified timeframe (less than year) and meet the following additional criteria: That such authority to transfer may not be used unless for higher priority items, based on unforeseen military requirements, than those for which originally appropriated and in no case where the item for which funds are requested has been denied by the Congress. Congress has generally considered reprogramming authority provided to Executive branch departments and agencies to be a privilege. Though the constitution invests Congress with the "powers of the purse," legislators typically provide executive branch agencies some limited flexibility to shift funds among various accounts in recognition of a complex budget execution process wherein estimated costs often vary based on unforeseen events. Such flexibility allows agencies to accommodate changing circumstances, while continuing to carry out the essential functions for the programs and activities for which funds have been provided. Congress can grant reprogramming and transfer authorities in a variety of forms. They may be statutory or non-statutory. Congress may establish a central transfer account for a special purpose, or alternately, apply a broader criteria that describe which funds may be exchanged, and in what specific circumstances. Historically, Congress has consistently provided some limit to the total amount of funds that may be used. DOD Funding Available With a Declaration of a National Emergency With the declaration of a national emergency, the President may invoke statutory authorities that allow DOD to fund military construction projects that support the national response. These authorities generally last only as long as the emergency is in effect (expiring immediately or within 180 days of termination). They include DOD military and civil works funds. In his February 2019 proclamation, the President invoked: 10 U.S.C. 2808 Construction authority in the event of a declaration of war or national emergency . This broad authority permits the Secretary of Defense to undertake military construction projects not otherwise authorized by law that may be necessary to support the use of the Armed Forces after the declaration of a national emergency . New projects are funded from the unobligated balances of existing ones, with no other upper limit on the overall total. In his February 2019 proclamation, the President did not invoke: 33 U.S.C . 2293 Reprogramming during national emergencies . This statute permits the Secretary of the Army in the event of a declaration of war or a declaration of a national emergency that requires or may require use of the Armed Forces to terminate or defer Army civil works projects that the Secretary deems are nonessential to national defense, and apply the resources of the Department's civil works program to, "authorized civil works, military construction, and civil defense projects that are essential to the national defense." Figure 2 summarizes the main points of each of the statutes listed above as they pertain to the use of military construction. Use of Authorities to Fund Border Barrier Construction The following two subsections contain a detailed examination of DOD's proposed use of statutory and non-statutory authorities espoused in the Trump Administration border security factsheet . These include: 10 U.S.C. 2808, which would make $3.6 billion available, and; 10 U.S.C. 284, which would transfer $2.5 billion of defense program savings in concert with the non-statutory authority Section 8005 (General Transfer Authority). The final subsection addresses the use of Treasury Forfeiture Funds, which would provide $601 million for the Administration's border funding plan. 10 U.S.C. 2808: Military Projects Deferred by Emergency Statute Overview When the President declares a national emergency requiring the use of the Armed Forces and invokes the emergency statute 10 U.S.C. 2808, the Secretary of Defense is permitted to undertake military construction projects "not otherwise authorized by law that are necessary to support such use of the armed forces." Such projects are funded using the unobligated appropriations of construction projects currently underway— effectively deferring them until Congress provides replenishing appropriations. On February 15, 2019, President Trump issued Proclamation 9844, Declaring a National Emergency Concerning the Southern Border of the United States , to address what he described as a long-standing and worsening problem of large-scale, unlawful migration through the southern border. The Proclamation asserted that the severity of the crisis justified use of the Armed Forces, and invoked 10 U.S.C. 2808, thus unlocking emergency construction authority. On September 3, 2019, the Secretary of Defense determined that 11 construction projects requested by DHS were necessary to support the use of the Armed Forces along the southern border, pursuant to 10 U.S.C. 2808. In a memorandum to the Department, the Secretary directed the DOD Comptroller to transfer $3.6 billion in unobligated military construction appropriations for the new construction, and urged the Secretary of Army to begin work expeditiously. The transfers indefinitely deferred 127 previously authorized military construction projects, roughly half of which were at overseas locations ($1.8 billion for 64 non-U.S. projects). Of the deferred military construction projects outside the United States, approximately 42% ($772 million; 21 projects) would have supported the European Deterrence Initiative (EDI), a program intended to increase the capability of U.S. forces in Europe against non-NATO regional adversaries. In public remarks to the media on September 5, 2019, Secretary of Defense Mark Esper suggested allies reimburse the United States for the funding shortfalls. Of deferred military construction projects within the United States (and associated territories), the largest share of funds would come from Puerto Rico ($403 million, or 23% of total) and, to a lesser extent, Guam ($257 million, or 15% of the total). The Table 2 summarizes the total amount of deferred funds, grouped by U.S. State or affiliated territory. DOD has stated that it would make funds available to the Department of the Army for border barrier projects by prioritizing the deferral of $1.8 billion in non-U.S. projects . Funds associated with projects in the United States ($1.8 billion) would be made available at some later date. DOD's action has attracted warnings from Members of Congress concerned over military construction projects that may be affected in their states and districts. Critics have also expressed concerns that the President's use of emergency powers could circumvent (or be perceived as circumventing) the congressional appropriations process. DOD Imposed Non-Statutory Selection Criteria to Identify Project Funds as Sources for Potential Reprogramming DOD developed internal criteria not required by 10 U.S.C. 2808 that narrowed the pool of military construction projects eligible for deferment under the Administration's use of that statute. In testimony before the Subcommittee on Military Construction, Veterans Affairs, and Related Agencies in February 2019, Assistant Secretary of Defense for Sustainment Robert McMahon explained the Department's reasoning for the additional guidelines: In order to protect military readiness, the projects that are most likely to be temporarily delayed include those that pose no or minimal operational or readiness risks if deferred, projects that were already scheduled to be awarded in the last six months of the fiscal year, and recapitalization projects of existing facilities that can be temporarily deferred for a period of months. The Department's internal criteria narrowed the scope of the project funding pool by applying the following selection criteria: No military construction projects would be considered that have already received a contract award; No military construction projects with FY2019 award dates would be considered; and No military housing, barracks, or dormitory projects would be considered. In official statements, DOD has said that if its FY2020 budget request for military construction is approved by Congress, it will use the funds provided to replenish funding for projects deferred in favor of newly funded border barrier construction. If the Department's FY2020 budget is enacted on time as requested, no military construction project used to source section 2808 projects would be delayed or cancelled. Nevertheless, projects deferred by use of the statute effectively remain underfunded (or unfunded) unless Congress enacts additional amounts to replenish the original appropriations. DOD has requested $3.6 billion in additional Army military construction funds as part of its FY2020 budget submission for this purpose. Congressional opponents have argued against replenishment and asserted that DOD transfers would be tantamount to cancelling—not deferring— affected projects. DOD's Emergency Decision-making May Have Deviated from Precedent The current DOD decisionmaking process for construction in the event of a declaration national emergency appears to differ from the one described in the Department's Financial Management Regulation (FMR) and associated internal directives. The current process appears to have been driven by DHS requests, not generated internally by Military Departments in conjunction with Combatant Commanders (COCOMs). DOD's Internal Process on Use of 10 U.S.C. 2808 Remains Unclear Though DOD has not fully disclosed internal deliberations related to its 10 U.S.C. 2808 funding decisions, an approximate chronology of events has emerged from court records, media reporting and official briefings. (See Appendix A for detailed chronology.) On February 18, 2019, then-Acting Secretary of Defense Patrick Shanahan requested DHS provide a prioritized list of construction projects that, according to its assessment, would improve the operational effectiveness of troops deployed to the border. DHS responded on March 20, 2019 with a prioritized list that included $5 billion in projects along 220 miles of both public and private U.S.-Mexico borderland. On April 11, 2019, then-Acting Secretary of Defense Shanahan directed the Chairman of the Joint Chiefs of Staff to provide a detailed evaluation of the DHS proposal by May 10th, 2019 and assess how the DHS-requested projects might support the mobilization of the Armed Forces to the southern border. Concurrently, the Acting Secretary instructed the DOD Comptroller and others to identify $3.6 billion in unobligated balances from existing military construction projects that might serve as a source of funding for border barriers. On May 6, 2019, the Chairman of the Joint Chiefs of Staff submitted his final report, Assessment of Whether the Construction of Barriers at the Southern Border is Necessary to Support the Use of Armed Forces in Securing the Border , which concluded that all DHS-identified construction projects were necessary to support the use of the Armed Forces. The report's methodology was based, in part, on the assumption that any construction along the border would provide necessary support, wherever troops may (or may not) be deployed: In general, construction projects in one sector of the border have ripple effects across all other sectors. This recognition drives our conclusion that any border barrier construction supports the use of the armed forces on the border to some extent, regardless of where the construction occurs relative to the current location of DoD operations. On August 21, 2019, Kenneth Rapuano, Assistant Secretary of Defense, Homeland Defense & Global Security (ASD/HDGS), recommended the Secretary of Defense adopt an action plan that would execute 11 DHS identified projects and defer $3.6 billion in existing military construction. The Secretary of Defense approved all these recommendations on September 3, 2019. DOD Directives on Use of 10 U.S.C. 2808 Describe a Process that Originates with Combatant Commanders Historically, DOD has used 10 U.S.C. 2808 to fund projects at overseas locations for war related infrastructure. Requests for emergency construction projects originate with the Secretaries of the Military Departments and COCOMs, who together make a preliminary assessment on whether use of 10 U.S.C. 2808 authorities is warranted. For each emergency project, officials must provide detailed justification materials that analyze possible alternatives to use of the emergency authority, give a history of the request and rationale for why the project may not be deferred, and submit a cost estimate and timeline for completion. The Chairman of the Joint Chiefs of Staff (CJCS) is then required to certify any proposed projects are consistent with current theater basing plans and do not conflict with other operational priorities. Having made these determinations, the Secretaries then forward their list of proposed emergency projects and detailed justification materials to the Under Secretary of Defense for Acquisition and Sustainment, or ASD (Sustainment). That office, in turn, provides the Secretary of Defense with its recommendations. The Secretary makes a final decision on projects to be undertaken and notifies all appropriate defense committees of the pending action, as required by statute. Following this notification, the Office of the Under Secretary of Defense (Comptroller) (OUSD(C)) is permitted to issue funds for execution. 10 U.S.C. 284: DOD Transferred Funds Over Congressional Objections in Contravention of DOD Directives Overview To execute the plan described by the Administration's border security factsheet, DOD reprogrammed $2.5 billion from a variety of nondrug defense programs, through the Department's Drug Interdiction and Counterdrug Activities, and on to the U.S. Army Corps of Engineers, the federal agency that both DHS and DOD have asked to manage border barrier construction activities. This two-stage process—transferring funds into and out of the defense Drug Interdiction account—was permitted by multiple authorities: first by Section 8005 General Transfer Authority and Section 9002 Special Transfer Authority, and in the final stage by the statute 10 U.S.C. 284. By transferring funds from nondrug programs into the defense Drug Interdiction account, DOD was able to tap a larger pool of appropriations than might otherwise have been available by using the account's own funds. At the same time, the Drug Interdiction account's ongoing programs were safeguarded from diminishing transfers. DOD officials have stated they would not tap the account's own appropriations for wall-related projects: DOD will not use any DoD counter-narcotics funding for the drug-demand-reduction program, the National Guard counter-drug program, or the National Guard counter-drug schools program to provided support to DHS under 10 U.S.C. 284(b)(7). To accomplish the first stage of the $2.5 billion transfer process—transferring savings from nondrug programs to the defense Drug Interdiction account—DOD did not comply with internal regulations that require the Department to first seek congressional prior approval for general transfer authority (Section 8005) actions. DOD's process for submitting prior-approval requests to congressional defense committees is a non-statutory requirement intended to preserve comity with legislators who set the Department's reprogramming thresholds each year. Disapproval by any one of the four committees terminates further action, according to DOD regulations, though the Department may request reconsideration or submit a modified request. On March 25, 2019, the Department notified the four congressional defense committees of its plan to transfer $1 billion, the first of several reprogramming actions. The House Armed Services and House Committee on Appropriations immediately denied the request. DOD nevertheless completed its transfer on March 26, 2019, for the first time overriding congressional disapprovals. The Department followed up with an additional reprogramming action of $1.5 billion, which it completed on May 9, 2019. How DOD Transferred $2.5 billion in Two Reprogramming Actions DOD's first reprogramming action occurred on March 25, 2019, and included $1 billion for construction of high priority projects in Yuma Sector Arizona (Projects 1 and 2) and El Paso Sector Texas (Project 1). All projects were to be managed by the U.S. Army Corps of Engineers. The transfer of funds took place in two stages. In the first stage, the Department used General Transfer Authority (also known as Section 8005 authority) to shift $1 billion in Army military personnel program savings into the defense Drug Interdiction account. The funds consisted of: $812 million (81%) in excess appropriations due to a shortfall of 9,500 personnel from the Army's targeted end strength, and $188 million (19%) in program savings from several military benefits programs. In the second stage of the transfer action, the Department invoked 10 U.S.C. 284 to authorize moving the $1 billion into an Army Operation and Maintenance appropriation for use by the Army Corps of Engineers, which is responsible for managing all DOD approved border barrier projects. On May 9, 2019, DOD notified congressional defense committees of a second reprogramming action of $1.5 billion for four additional border barrier projects (El Centro California Project 1 and Tucson Sector Arizona Projects 1-3; see Appendix Table B-2 for complete list). Unlike the first action, the Department transferred both base and OCO funds: Base: $818.5 million (55%) drawn from a variety of accounts, including research and development technologies to reduce the U.S. chemical stockpile ($252 million), recovered savings related to lower than expected contributions to the Thrift Savings Plan retirement ($224 million), and the cancellation of a National Security Space Launch mission ($210 million). Overseas Contingency Operations: $681.5 million (approximately 45%) drawn from funding for training of Afghan security forces and reimbursement to Pakistan for logistics support. Base and OCO reprogramming authorities are derived from separate provisions with nearly identical legislative language; for base Section 8005 of P.L. 115-245 and Section 1001 of P.L. 115-232 ; and for OCO Section 9002 of PL. 115-245 and Section 1512 of P.L. 115-232. DOD Has Undertaken Six Border Barrier Projects Requested by DHS Under 10 U.S.C. 284 On February 25, 2019, DHS requested that DOD undertake 11 construction projects on the U.S.-Mexico southwest border in California, Arizona, and New Mexico. The projects involved construction or replacement of roads, lighting, and vehicle and pedestrian fencing along drug smuggling corridors that were also areas of high illegal entry. DHS stated the purpose: To support DHS's action under Section 102 of IIRIRA, DHS is requesting that DoD, pursuant to its authority under 10 U.S.C. § 284(b)(7), assist with the construction of fences roads, and lighting within the Project Areas to block drug-smuggling corridors across the international boundary between the United States and Mexico. DOD initially agreed to fund seven of the 11 projects in multiple funding tranches (described above). The Defense Department subsequently cancelled one of these projects (Yuma Sector Project 2), which was later funded using the emergency authority 10 U.S.C. 2808. All the projects were to be managed by the U.S. Army Corps of Engineers (USACE). DOD's first reprogramming funding tranche of $1 billion supported: Yuma Sector Arizona Projects 1 and 2, and El Paso Sector Texas Project 1. DOD's second funding tranche of $1.5 billion supported: El Centro California Project 1 and Tucson Sector Arizona Projects 1-3. Court Challenges Delayed Project Execution While Funds Expire September 30, 2019 As of September 2019, DOD has obligated $1.9 billion of the $2.5 billion it reprogrammed for wall related construction under 10 U.S.C. 284. Until recently, operations were suspended due to multiple court injunctions in a legal case challenging DOD's reprogramming actions, Sierra Club v. Trump . The delays incurred additional costs as contractors that had received contract awards were compelled to idle their equipment and put laborers on standby. On July 26, 2019, the U.S. Supreme Court lifted all injunctions in the case, allowing construction to once again proceed. Nevertheless, the litigation remains unresolved. In the case of an unfavorable ruling, the government has suggested that it may be required to take down the new construction. DOD is under some pressure to complete the obligation of reprogrammed appropriations before funds are no longer available. Due to legislative language regarding the period of availability of transferred appropriations, all unobligated amounts expire at the end of the current fiscal year, on September 30, 2019, thus incentivizing quick action. Additionally, due to the complex funding structure of contracts under consideration, USACE requires some actions be taken within 100 days of the award date, according to Army officials: …contracts require definitization not later than 100 days from the date of contract award…If the Corps does not have sufficient time available prior to September 30, 2019, to definitize these contracts and thereby obligate the balance of the contract price, the remaining unobligated funds will become unavailable for obligation…As a consequence, the Corps will be unable to complete the projects as planned, and the contracts will have to be significantly de-scoped or terminated. Treasury Forfeiture Funds (TFF) Available Established in 1992 for the purpose of managing cash and other resources seized as the result of civil or criminal asset forfeiture, the Treasury Forfeiture Funds (TFF) functions as a multi-Departmental source of funding for law enforcement interests of the Departments of the Treasury and Homeland Security. With executive authority to define what fits within this broadly defined purpose, the Administration determined that it could be a source of wall funding. The TFF is managed by the Treasury Executive Office of Asset Forfeiture (TEOAF), which makes budget authority available to other federal agencies or bureaus via interagency agreements, reimbursing them upon the receipt of spending invoices. Payments are limited by the total value of seized property. TEOAF's mission statement is: To affirmatively influence the consistent and strategic use of asset forfeiture by law enforcement bureaus that participate in the Treasury Forfeiture Fund (the Fund) to disrupt and dismantle criminal enterprises. On February 15, 2019, the Treasury Department notified congressional appropriators that it had approved a DHS request (submitted in December 2018) to provide a total of $601 million in TFF to the CBP for border security purposes. The first tranche of $242 million was made available to CBP for obligation on March 14, 2019. The second tranche of $359 million is expected to be made available at a later date, upon Treasury's receipt of additional anticipated forfeitures. All funds the TFF provides to U.S. Customs and Border Protection (CBP) may be used for various aspects of border security –not only the construction of a physical wall. Congressional Actions Congressional response to the Administration's b order security factsheet plan has generally split by chamber, with the House Armed Services and Appropriations committees moving swiftly to pass legislative language that would block the President's actions and the Senate Armed Services and Appropriations committees expressing some support. In late July 2019, news outlets reported congressional leadership had come to an informal understanding as part of a settlement of the annual budget caps for FY2020 and FY2021 that might exclude legislative language restricting the use of federal funds for border barriers from annual appropriations measures. The deal would specifically prohibit legislative provisions limiting the use of transfer authority—a key part of the President's Border security factsheet plan—unless such language was adopted on a bipartisan basis. The effect of such language is still unclear as is how it may otherwise be used to modify ongoing legislative activity. House Authorization The House-passed version of the FY2020 National Defense Authorization Act ( H.R. 2500 ) contains a number of provisions that if enacted would limit or prohibit the use of DOD funds for construction of border barriers. Furthermore, it provides no funding for the Administration's request for replenishment of defunded projects or for related future projects. The bill targets each stage of the Administration's funding plan: Transfer Authority . Section 1001 would sharply curtail the total amount of base funds that may be used for reprogrammed, reducing the limit to $1 billion (from $4.5 billion in FY2019). Section 151 2, the equivalent transfer authority used for war-related funds, would be reduced to $500 million (from $3.5 billion in FY2019). 10 U.S.C. 284 . Section 1011 would remove fence construction as a permitted type of support authorized under 10 U.S.C. 284 and would impose additional congressional notification requirements associated with use of the statutory authority. 10 U.S.C. 2808 . Section 2802 would limit the total amount of funds that could be used under 10 U.S.C. 2808 emergency authorities to $500 million if used for construction "outside the United States," or $100 million if used for domestic construction projects. (Currently, transfers are only limited to the total amount of all unobligated military construction appropriations.) These changes would apply only to projects pursuant to a declared emergency and would not impact projects that support a declared war. General Prohibition . Section 1046 would prohibit the use of national defense funds appropriated between FY2015-FY2020 for the construction of any type of physical border barrier along the southern border. Section 2801 contains identical language that applies to military construction funds. On May 15, 2019, a group of legislators led by House Armed Services Committee members introduced H.R. 2762 , a bill that would modify 10 U.S.C. 2808 by imposing a $250 million cap on the total amount that could be used for emergency military construction projects in the event of a national emergency. Additionally, "The bill would only allow money that cannot be spent for its intended purpose to be used for an emergency, would require additional information in a congressional notification, and delay the start of construction until after a waiting period following the notification going to Congress." Senate Authorizations The Senate passed version of the FY2020 National Defense Authorization Act ( S. 1790 ) would support the actions described in the President's Border security factsheet plan by providing $3.6 billion in military construction funds to replenish projects deferred by the Administration's use of 10 U.S.C. 2808 and avoiding large cuts to DOD reprogramming thresholds. However, the Senate bill would not authorize the additional $3.6 billion requested by the Administration for future border barrier projects. Transfer Authority . Section 1001 and Section 1522 provide $4 billion in general transfer authority— a decrease of $0.5 billion from FY2019 authorized amounts— and $2.5 billion in special transfer authority— a decrease of $1 billion from FY2019 authorized amounts, respectively. 10 U.S.C. 2808 Replenishment funding. Section 2906 would provide $3.6 billion to replenish military construction projects affected by the use of 10 U.S.C. 2808 transfers, fulfilling the Administration's entire request for that purpose. Authorization for the transfer of these funds into the depleted accounts would terminate at the end of FY2020 (September 30, 2020). House Appropriations The House has generally sought to limit the Administration's funding actions across multiple appropriations bills. In the first of two FY2020 appropriations minibus measures, the Labor, Health and Human Services, Education, Defense, State, Foreign Operations, and Energy and Water Development Appropriations Act, 2020 ( H.R. 2740 ), Division C (Department of Defense Appropriations, H.R. 2968 ) and Division E (Energy And Water Development And Related Agencies Appropriations Act, 2020, H.R. 2960 ) contained the following provisions that would affect the Administration's plan for funding border barrier construction: Transfer Authority. Section 8005 would limit general transfer authority of base funds to $1 billion (a reduction from $4 billion in FY2019 ) and require the Secretary of Defense and others to certify the transferred funds will be used for higher priority items. The Section 9002 special transfer authority for war funds would provide authority to transfer up to $500 million (a reduction from $2 billion in FY2019). 10 U.S.C. 284 . Though the legislation would provide $816.8 million for Drug Interdiction and Counterdrug Activities transfer account (for use under 10 U.S.C. 284), the bill prohibits use of any of those funds for construction of border barrier fencing, and further prohibits any transfer of these funds. General Prohibition. Section 8127 would broadly prohibit defense appropriations from being used for construction of a wall, fence, border barrier, or border security infrastructure along the southern border. U.S. Army Corps of Engineers. Section 108 of Division E would broadly prohibit USACE from using any civil works funds for border barrier construction: Notwithstanding any other provision of law, none of the funds made available by this Act or any other prior appropriations Acts for the Civil Works Program of the United States Corps of Engineers may be committed, obligated, expended, or otherwise used to design or construct a wall, fence, border barriers, or border security infrastructure along the southern border of the United States. The House passed the second of two FY2019 appropriations mini-buses, H.R. 3055 on June 25, 2019. It contains a number of limiting restrictions in Division D (Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2020) that would interrupt the Administration's plans for funding border barriers. Reprogramming Guidelines. Section 122 would require DOD to follow its own guidelines when reprogramming military construction funds, a directive that would make significant transfers contingent on congressional prior-approval. In committee language, the House cautioned DOD that "reprogramming is a courtesy provided to DOD and can be taken away if the authority is abused" and urged the Department to adhere to its own directives when seeking to reprogram funds. General Prohibition on Transfers. In committee language, the House underscored the absence of wall funding in the current appropriations language and its efforts to preserve previously appropriated projects from becoming a pool of funds for the Administration's efforts to construct border barriers. The Committee recommendation does not provide these requested funds. Also, the accompanying bill includes language that protects previously appropriated projects, as well as fiscal year 2020 projects included in this bill from being used as a source for wall funding. Prohibition on Design and Construction. Section 612 would prohibit the use of military construction appropriations provided in any act from FY2015-FY2020 to be used for the purpose of designing or constructing border barriers or access roads along the southern border. The provision uses the strongest possible legislative language by stating it would apply, "notwithstanding any other provision of law." The House-passed Financial Services and General Government Appropriations Act, 2020 ( H.R. 3351 ) contains a provision (Section 126) that would bar the Administration's use of Treasury Forfeiture Funds for planning, designing, or executing any kind of barrier or road along the southwest border. If enacted, this language would likely prevent the use of $601 million funds approved by the Treasury Department for these purposes. Senate Appropriations On September 12, 2019, the Senate Committee on Appropriations reported the Defense Appropriations Act, 2020 ( S. 2474 , S.Rept. 116-103 ), which would retain transfer authorities at FY2019 levels ($4 billion for General Transfer Authority, or Section 8005; $2 billion for OCO related transfers) and contained no additional wall-related provisions. Issues for Congress Separation of Powers At the highest level, the President's statements regarding the use of emergency powers to supplement the congressional appropriations process have raised questions for some about the reach of the executive branch's lawful authority. "I could do the wall over a longer period of time. I didn't need to do this [national emergency]. But I would rather do it much faster." – President Trump, February 15, 2019 Critics also assert the President's actions risk violating the constitutional separation of powers. Article I, Section 9 of the U.S. Constitution states, "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by law." Supporters have argued the President has lawfully reallocated funds to address a national crisis. On June 3, 2019, in a lawsuit brought by the House of Representatives that argued the Administration's actions to fund a border wall represented a breach of the Appropriations Clause of the Constitution, a federal judge ruled the legislature had no standing to sue. In the 116 th Congress, House authorizers and appropriators have inserted provisions into annual legislation that would broadly prohibit the use of defense funds for construction of a wall, fence, border barrier, or other security infrastructure along the southern border. Some of these prohibitions would appear to apply retroactively to all appropriations since FY2015. Section 8005 (and Related) Reprogramming Guidelines DOD's recent decision to undertake general and special reprogramming transfers (in conjunction with 10 U.S.C. 284), "without regard to comity-based DOD policies that prescribe prior approval from congressional committees" has introduced uncertainty into a historically uncontroversial process. For some, DOD's disregard for long-standing reprogramming agreements with congressional defense committees has signaled a challenge to the legislative branch's ability to conduct oversight of approximately $6 billion in annual defense appropriations. Consequently, the Department's actions have generated new congressional interest and actions (particularly in the House) that would sharply limit the annual budget flexibility provided to the Department in authorizations and appropriations acts. Others view DOD's recent reprogramming notifications in support of border wall construction as a justifiable anomaly in an otherwise unbroken agreement supported by the Department's own internal directives. In cases where DOD reprogramming actions do not reflect congressional intent (or adhere to DOD directives), Congress may consider what legislative recourse might be available to prohibit future violations. In some cases, decreasing the Department's budgetary flexibility may potentially undermine DOD's ability to effectively execute congressionally directed policies and programs. DOD's Emergency Military Construction Selection Criteria The emergency Military Construction statute (10 U.S.C. 2808) does not limit the types of military construction projects that may be deferred based on a set of criteria, including, for example, whether such delays will affect military readiness. Nevertheless, DOD has stated it will apply its own criteria to the 10 U.S.C. 2808 pool of eligible projects in order to preserve readiness. Congress may evaluate whether DOD's guidelines are sufficient and whether they serve as a sound basis for governing future decisions. Appendix A. Selected Communications and Documents The tables below contains a chronology of selected communications, correspondence, and documents relevant to the use of 10 U.S.C. Section 2808 and Section 284, drawn primarily from court records. This section is intended to identify milestones in the decision-making process. Appendix B. 10 U.S.C. 284 Reprogramming Requests DOD has submitted two reprogramming notifications to defense committees transferring a total of $2.5 billion to the Drug Interdiction and Counterdrug Activities account. The Department's first action, on March 25, 2019, used general transfer authority to reallocate $1 billion. Approximately 82% of this total was taken from the active duty army pay and allowances (for officers and enlisted personnel), savings realized from service recruiting shortfalls. DOD's second action, on May 9, 2019, used a mix of $818.465 million in general transfer authority (base) and $881.535 in special transfer authority (OCO); a total of $2.5 billion. In the table below, reprogramming actions that use special transfer authority are indicated parenthetically with the (OCO) designation. Together, both reprograming actions reallocated $1.8 billion from base and $.7 billion from OCO defense funds. The majority of these funds were derived from Army personnel accounts and programs supporting the Afghanistan Security Forces. The Department's two actions were sourced exclusively from appropriations that began in FY2019 and had a one- to three-year lifespan, or period of availability . When these program savings were transferred to the Drug Interdiction and Counter-drug activities FY2019 appropriations, they became one-year appropriations. Following additional transfer actions, all appropriations were merged with an FY2019 Army Operations and Maintenance appropriations account, another one-year account. Appendix C. Wall Projects Requested by DHS Pursuant to 10 U.S.C. 284 On February 25, 2019, DHS formally requested DOD support its ability to impede and deny illegal entry and drug smuggling activities along the southwest U.S.-Mexico border by assisting with the construction (or replacement) of fences, roads, and lighting. DHS summarized the work required: The new pedestrian fencing includes a Linear Ground Detection System, which is intended to, among other functions, alert Border Patrol agents when individuals attempt to damage, destroy or otherwise harm the barrier. The road construction includes the construction of new roads and the improvement of existing roads. The lighting that is requested has an imbedded camera that works in conjunction with the pedestrian fence. The lighting must be supported by grid power…. DHS will provide DoD with more precise technical specifications as contract and project planning moves forward. DHS requested DOD undertake a total of 11 projects on federal lands, which the agency identified by geographic location and unique numeric id. The Border Patrol divides responsibility for its operations along the Southwest border into nine geographic sectors. Four of these were included as part of the DHS request: Yuma Sector Arizona. Composed primarily of desert terrain with vast deserts, mountain ranges, and sand dunes, the area encompasses 126 miles of U.S.-Mexico borderland (181,670 square miles) between California and Arizona. DHS requested DOD undertake 36 miles of vehicle barrier replacement, 6 miles of pedestrian fencing, and lighting in this sector. El Paso Sector Texas. This sector covers the entire state of New Mexico and two counties in western Texas; 268 miles of U.S.-Mexico borderland (125,500 square miles). DHS requested 70 miles of vehicle barrier (with pedestrian fencing) and lighting in this sector. El Centro California . Located in Southern California, the sector is characterized primarily by agricultural lands, eastern desert areas (where summer temperatures can exceed 120 degrees), and western mountain ranges. The sector stretches for 71 miles along the U.S.-Mexico border. DHS requested DOD undertake a mix of projects along 15 miles in this sector (vehicle, pedestrian, and lighting). Tucson Sector Arizona. Encompassing nearly all of Arizona, this area—a particularly active one for illegal alien apprehension and marijuana seizures—covers 262 miles. DHS requested road construction, 86 miles of vehicle barrier (with pedestrian fencing), and lighting in this sector. Between March and April 2019, DOD approved seven of the eleven requested projects, funding them in two tranches. One of the approved projects, Yuma 2, was subsequently terminated due to contract complications. In August 2019, DHS notified DOD of anticipated contract savings and requested surplus 10 U.S.C. 284 funds be applied to the execution of three additional projects (Yuma 3-5). After evaluating the request, DOD agreed to undertake a modified set of projects (Yuma 4-5, Tucson 4). In September, the Department terminated the new projects after new estimates revealed the anticipated contract savings would be insufficient to undertake additional construction. The list below shows projects initially requested by DHS and those added by DOD in subsequent modified requests. The geographic sector is indicated in the "Project Name" column, along with the project's numeric designation. Several projects not funded by the use of 10 U.S.C. 284 funds were later funded by 10 U.S.C. 2808. For those approved for action by DOD, the funding tranche is also indicated. In a letter to Acting DHS Secretary Kirstjen Nielsen, Acting Secretary of Defense Shanahan stated the U.S. Army Corps of Engineers would undertake the planning and construction of approved projects and, upon completion, would hand over custody of all new infrastructure to DHS. Court Injunctions Temporarily Suspended Construction On May 24, 2019, the U.S. District Court for the Northern District of California issued a temporary injunction in Sierra Club v. Trump , barring use of DOD's first funding tranche of $1 billion. In compliance with the court's order, USACE immediately suspended ongoing operations for the two active border barrier projects. At the time of the suspension, $423,999,999 remained unobligated (of the original $1 billion): El Paso 1: An undefinitzed contract was awarded on April 9, 2019. At the time of the court's injunction, $389,999,999 remained unobligated. Yuma 1: An undefinitized contract was awarded on awarded May 15. At the time of the court's injunction, $35,000,000 remained unobligated. On May 25, 2019, DOD executed a second reprogramming action of $1.5 billion. On June 28, 2019, the California district court issued a second injunction that prohibited DOD from using either of the two funding tranches ($2.5 billion total). Again, USACE project managers suspended ongoing operations. At the time of the new suspension, approximately $752,750,000 remained unobligated from the second funding tranche ($1.5 billion): Tucson Sector Projects 1-3: An undefinitzed contract was awarded on May 15, 2019. At the time of the court's injunction, $646,000,000 remained unobligated. El Centro Sector Project 1: An undefinitzed contract was awarded on May 15, 2019. At the time of the court's injunction, $106,750,000 remained unobligated. Project delays have resulted in some additional costs to the government. DOD financial regulations recognize contractors are entitled to compensation for unreasonable contract suspensions, since costs continue to be incurred by idling equipment, site security, contract labor, material storage, or market fluctuations. The government is charged additional penalties for late payment (3.625% per annum). In the event an active contract is terminated, DOD would be held responsible for compensating contractors for sunk costs. On July 26, 2019, the U.S. Supreme Court lifted the lower court injunctions, allowing construction to proceed. Appendix D. Wall Projects Requested by DHS Pursuant to 10 U.S.C. 2808 On September 3, 2019, the Secretary of Defense, having determined that border barrier construction would serve as a "force multiplier" for reducing DHS's demand for DOD personnel and assets, directed the Acting Secretary of the Army to proceed with the construction of 11 border barrier projects. In a memorandum to the Department, the Secretary stated: Based on analysis and advice from the Chairman of the Joint Chiefs of Staff and input from the Commander. U.S. Army Corps of Engineers, the Department of Homeland Security (DHS), and the Department of the Interior and pursuant to the authority granted to me in Section 2808, I have determined that 11 military construction projects along the international border with Mexico with an estimated total cost of $3.6 billion, are necessary to support the use of the armed forces in connection with the national emergency. These projects will deter illegal entry, increase the vanishing time of those illegally crossing the border, and channel migrants to ports of entry. They will reduce the demand for DoD personnel and assets at the locations where the barriers are constructed and allow the redeployment of DoD personnel and assets to other high-traffic areas on the border without barriers. In short, these barriers will allow DoD to provide support to DHS more efficiently and effectively. In this respect, the contemplated construction projects are force multipliers. Of the eleven projects DOD selected for execution, seven were located (in whole or in part) on land under the jurisdiction of the Department of the Interior (DOI) that required an administrative transfer to the Department of Defense before construction could proceed. On September 18, 2019, DOI issued Public Land Orders that temporarily transferred jurisdiction of land required for five of these projects for a period of three years. In the table below, DOI-transferred lands have been indicated with an asterisk (see column marked "Jurisdiction"). Two of the eleven projects selected by DOD (El Centro 5 and Laredo 7) were located on non-public lands that will require either purchase or condemnation before construction may proceed. USACE representatives have stated that such a process would not be completed before April 2020. The remaining two projects (Yuma 2 and Yuma 10/27), are located exclusively on the Barry M. Goldwater Range (BMGR), a military installation under the jurisdiction of the U.S. Navy where construction may begin immediately. The table below indicates the eleven projects DOD has agreed to fund using 10 U.S.C. 2808 funds, and describes the estimated cost of construction, the jurisdiction of associated lands, and a description of the parcel. Appendix E. Military Construction Projects Deferred Pursuant to 10 U.S.C. 2808 On September 3, 2019, DOD delivered to congressional defense committees a list of ongoing military construction projects the Department had selected for deferral pursuant to 10 U.S.C. 2808. The list had been preceded by two additional notifications that identified potential military construction projects that might be affected by use of the statute. The first of these three lists of military construction projects, delivered to defense committees in March 2019, identified all military construction projects that had not yet received contract awards—making them vulnerable for selection under 10 U.S.C. and the Department's independent internal criteria. A second list, which DOD delivered to defense committees in late May 2019, selectively updated the contract award dates of some military construction projects. The final list, comprised of approximately 127 projects ($3.6 billion), updated the contract award dates for six projects ($209 million) located outside of the United States, making them newly eligible for selection. Additionally, the Department's final list included one planning and design project ($13.6 million) not included in previous notifications. The table below summarizes this final list.

The Department of Defense (DOD, or the Department) has played a prominent role in the Trump Administration's border security strategy because of controversies related to $13.3 billion in defense funding it has sought to use for border barrier construction projects not otherwise authorized by Congress. These defense funds would comprise a complex mix of DOD program savings and unobligated military construction funds from past years ($6.1 billion), as well as a request for new appropriations in FY2020 ($7.2 billion). An additional $2 billion in non-DOD appropriations are often cited as part of the Administration's overall border funding plan. These include $1.375 billion in previously enacted FY2019 Department of Homeland Security (DHS) appropriations, and $601 million in contributions from a Treasury Forfeiture Fund (TFF) that manages seized assets. Altogether, these defense and non-defense funds would total $15.3 billion, of which 87% would be DOD funds. President Donald Trump has consistently declared the deployment of fencing, walls, and other barriers along the U.S.-Mexico border a high priority, however, he has been unable to fully secure from Congress the total amount of funding he deems necessary for that purpose. On February 15, 2019, in part to gain access to such funding, the President declared a national emergency at the southern border that required use of the Armed Forces, an act that triggered statutes allowing the President to redirect national resources—including unobligated military construction funds—for purposes for which they were not originally appropriated by Congress. Concurrent with the declaration, the Administration released a fact sheet entitled, President Donald J. Trump's Border Security Victory ( hereafter referred to as the border security factsheet ) that described a plan for redirecting $6.1 billion in DOD funds to border barrier construction projects not authorized by Congress. An additional $601 million was included using TFFs. The plan invoked a mixture of emergency and nonemergency authorities that included: $2.5 billion in defense funds authorized by the (nonemergency) statute 10 U.S.C. 284 Support for counterdrug activities and activities to counter transnational organized crime; $3.6 billion in defense funds authorized by the emergency statute Title 10 U.S.C. 2808 Construction authority in the event of a declaration of war or national emergency; and $601 million in nondefense, nonemergency TFFs. Shortly after the release of the border security fact sheet , the DHS requested that DOD undertake 11 construction projects along the Southwest U.S.-Mexico border for execution under 10 U.S.C. 284 authority. Typically, such construction would be funded using congressionally provided appropriations from DHS's own budget. Nevertheless, citing the ongoing state of emergency, DOD agreed to undertake seven of the projects and, between March and May 2019, reprogrammed $2.5 billion in defense program savings over the objections of House congressional defense committees, a deviation from the Department's own regulations. Subsequent court injunctions temporarily prevented approximately half ($1.2 billion) of these appropriations from being fully obligated, and resulted in the suspension of contracts that had been quickly awarded following DOD's reprogramming actions. The U.S. Supreme Court lifted these injunctions on July 26, 2019, but there has been no final ruling in the case ( Sierra Club v. Tru mp) . It remains unclear how a potentially unfavorable ruling might affect construction completed during the ongoing litigation. In September, DOD officials stated that $1.9 billion of the 10 U.S.C. 284 funds have been obligated, with the remainder to be obligated by the end of the month. On September 3, 2019, the Secretary of Defense exercised his authority under the emergency statute 10 U.S.C. 2808 to defer approximately 127 authorized military construction projects ($3.6 billion) and redirect the funds to 11 border barrier projects identified by the DHS. Deferred military construction projects would be halted indefinitely (or terminated) unless Congress were to provide replenishing appropriations. Congressional critics of the Administration's border barrier funding plans have hesitated to reimburse DOD for transfer actions they opposed or expressly prohibited. Furthermore, in March 2019, as part of its annual budget submission to Congress, the Administration also requested an additional $7.2 billion in defense appropriations (not described by the February 2019 border security factsheet plan). DOD officials stated that half this amount ($3.6 billion) would be used to support new DHS border barrier projects which the Administration has not yet described. The other half ($3.6 billion) would replenish military construction projects deferred by DOD's earlier 10 U.S.C. 2808 transfer actions. There has been considerable congressional concern over the Administration's efforts to fund the construction of border barriers outside of the regular budgetary process. In broad terms, these concerns are related to the novel and unorthodox use of emergency authorities, and the possibility that the Administration's actions jeopardize congressional control of appropriations, thereby potentially violating the Constitution's separation of powers. At the interagency level, DOD's break from comity-based agreements with congressional defense committees on reprogramming actions has generated new legislative interest in limiting the Department's budgetary flexibility and applying sharper oversight. More narrowly, individual Members have voiced apprehensions that military construction projects in their states and districts have been jeopardized by DOD's emergency transfers. FY2020 defense authorization and appropriation bills currently under consideration (as of September 2019) include provisions that would constrain the Administration from fully executing its plan, though final versions have not yet been passed. In late July 2019, news outlets reported congressional leadership had come to an informal understanding as part of a settlement of the annual budget caps for FY2020 and FY2021 that would specifically prohibit legislative provisions limiting the use of transfer authority—a key part of the President's Border security factsheet plan—unless such language was adopted on a bipartisan basis. Ongoing litigation has generally slowed the execution of border barrier construction and imperiled large portions of the President's plan. Of the $6.7 billion in future DOD and Treasury Funds included in the border security factsheet , $2.1 billion (32%) has been obligated as of September 13, 2019. This includes $242 million in TFFs and $1.9 billion transferred from the defense Drug Interdiction and Counter-Drug Activities account.

GAO_GAO-19-599

Background Care Provided in Nursing Homes and Assisted Living Facilities Nursing homes and assisted living facilities provide important long-term care to vulnerable individuals in institutional or residential settings. Specifically, nursing homes provide care to elderly and disabled individuals, many of whom have physical and cognitive limitations requiring skilled nursing care. Assisted living facilities provide a residential alternative to nursing home care for individuals who prefer to live independently but need assistance to maintain their independence. Like nursing homes, they may provide residents with a variety of services to assist with activities of daily living, such as bathing and dressing, but the facilities are generally not licensed to provide 24-hour skilled nursing care and typically offer a more limited range of medical care. As we reported in our January 2018 report on CMS’s oversight of assisted living facilities under the Medicaid program, the demand for assisted living services, which offer the benefit of community living, is expected to increase as a result of the aging of the nation’s population, increased life expectancy, and older adults’ desire to remain in the community. Additionally, the cost of nursing home care for an individual generally exceeds the cost of assisted living facility services, further incentivizing a shift among consumers and payers to assisted living for elderly individuals, including those with increasingly complex health needs who would otherwise need nursing home care. Long-Term Care Facility Oversight Oversight of nursing homes is a shared federal-state responsibility. Federal law imposes both a comprehensive set of quality standards that nursing homes must meet to participate in the Medicare and Medicaid programs, and federal and state oversight responsibilities to enforce these standards. CMS, which is charged with implementing these standards and conducting federal oversight, contracts with state survey agencies to perform both routine inspections—known as standard surveys—and conduct investigations of elder abuse incidents, including complaints and facility-reported incidents. CMS provides guidance implementing statutory and regulatory requirements to protect residents from elder abuse in its State Operations Manual, which specifies requirements for reporting, investigating, and notifying law enforcement about elder abuse in nursing homes. CMS regional offices monitor state compliance with federal requirements for nursing home oversight. Generally, states establish their own oversight requirements for assisted living facilities. These facilities are largely overseen by state agencies within, for example, the state health or aging departments; however, when assisted living facilities provide services to Medicaid beneficiaries, they are also indirectly subject to CMS oversight through the agency’s oversight of state Medicaid agencies. As we have previously reported, states can provide Medicaid coverage for assisted living services under multiple authorities, but most commonly states use an HCBS waiver under section 1915(c) of the SSA. Under these waivers, CMS requires states to develop a quality assurance system that monitors beneficiary health and welfare—including tracking and responding to incidents that may cause harm to a beneficiary’s health and welfare, such as elder abuse. States must demonstrate to CMS that they are meeting these quality assurance obligations in their waiver renewal reports, typically submitted about 2 years before an HCBS waiver is scheduled to end. States must also report summary information annually to CMS on any health and welfare deficiencies occurring under their HCBS waivers. CMS regional offices oversee state compliance with waiver requirements. In addition to state survey agencies, state Medicaid agencies, and the agencies that license and regulate assisted living facilities, there are other entities charged with protecting nursing home and assisted living facility residents from elder abuse. These agencies’ roles and missions can vary by state. For example, Adult Protective Services (APS) programs in each state are generally responsible for identifying, investigating, resolving, and preventing abuse of older adults, and such programs may investigate complaints of elder abuse in nursing homes and assisted living facilities. Additionally, Medicaid Fraud Control Units and local law enforcement can also play a role in investigating elder abuse. Consequently, incident management may be coordinated among multiple separate agencies. Federal Requirements Specify Elder Abuse Reporting, Investigation, and Notification in Nursing Homes and Direct States to Establish Assisted Living Facility Requirements Federal requirements include those for nursing homes and state survey agencies specific to reporting, investigating, and notifying law enforcement of elder abuse in nursing homes. For example, federal requirements specify the time frames within which nursing homes must report alleged elder abuse to state survey agencies and, similarly, specify time frames for state survey agencies to report elder abuse to CMS. In contrast, there are no similar requirements for assisted living facilities and, instead, states must establish their own policies to ensure the reporting and investigation of elder abuse in assisted living facilities covered by Medicaid. (See fig. 1 for federal requirements for reporting, investigating, and notifying law enforcement about elder abuse in nursing homes and assisted living facilities.) As illustrated in figure 1, there are key differences between federal requirements for reporting, investigating, and notifying law enforcement about elder abuse occurring in nursing homes compared to assisted living facilities. CMS officials told us that the difference in requirements between nursing homes and assisted living facilities reflects the different regulatory relationship between the agency and the two facility types. According to CMS officials, CMS has direct regulatory authority over nursing homes, but does not have direct authority over assisted living facilities. As noted, states are largely responsible for establishing their own policies for overseeing the reporting and investigation of abuse in assisted living facilities. (See app. I for profiles of selected states with HCBS waivers regarding elder abuse reporting, investigating, and notification.) Differences in federal requirements include the following: Reporting. Federal law and CMS policy define specific time frames for nursing home staff and state survey agencies to report incidents of abuse that occur in nursing homes, respectively, and CMS requires states to establish their own reporting time frames for assisted living facilities serving HCBS waiver participants. Nursing homes must ensure that allegations of elder abuse are reported to the state survey agency immediately, but no later than 2 hours after the allegation is made if the incident involves serious bodily injuries and within 24 hours if it does not. In addition, state survey agencies must report to CMS all complaints and certain facility-reported incidents of abuse through a computer-based complaint and incident tracking system and immediately alert CMS regional offices when an especially significant or sensitive incident occurs that attracts public or broad media attention. In contrast, CMS requires state Medicaid agencies that pay for care in assisted living facilities through HCBS waivers to establish their own required time frames for reporting incidents. Consequently, reporting time frames and processes for assisted living facilities can vary by state. For example, Connecticut requires incidents to be reported to the state Medicaid agency and Adult Protective Services within 2 business days, while Oklahoma requires that initial incident reports are submitted within 1 business day. Investigation. CMS prescribes investigation time frames and priority categories for incidents occurring in nursing homes and requires states to establish their own time frames and priority categories for incidents in assisted living facilities. CMS requires state survey agencies to assess reports of elder abuse in nursing homes and assign a priority investigation status based on the seriousness of the allegations. The required investigation time frames are tied to the priority status. For example, if the allegation indicates that there continues to be an immediate risk of serious injury, harm, impairment, or death of a resident unless immediate corrective action is taken, the survey agency must initiate an onsite investigation within 2 business days of receiving the report. CMS also requires nursing homes to have written policies and procedures for conducting internal investigations of suspected elder abuse and to submit findings from these investigations to the state survey agency within 5 business days of the incident. In contrast, CMS does not prescribe investigation time frames or define priorities for incidents occurring in assisted living facilities; instead, CMS requires that state Medicaid agencies with HCBS waivers establish their own policies for prioritizing reports of abuse and initiating investigations in assisted living facilities. Consequently, investigation time frames and prioritization can vary by state. For example, Connecticut does not specify a process for prioritizing incident investigations in its HCBS waiver, but officials told us the state requires the Medicaid program to initiate an investigation immediately; whereas South Dakota requires face-to- face contact with a victim within 24 hours if the incident is life or health-threatening. Family or Legal Guardian Notification Although the Centers for Medicare & Medicaid Services (CMS) requires facilities to notify a resident’s representative of a deterioration in the resident’s condition, CMS does not require nursing homes, assisted living facilities, state survey agencies, or state Medicaid agencies to notify a victim’s family or legal guardian of alleged elder abuse. However, CMS’s guidance for nursing homes notes the importance of family or legal guardian notification. Specifically, CMS guidance requires facilities to take actions to prevent further harm from occurring to a victim of alleged elder abuse and cites law enforcement notification, as well as family or legal guardian notification as examples of protective measures facilities may take to comply with that requirement. In addition, CMS requires states to develop a policy for notifying participants, family, or legal guardians of the findings of any critical incident investigations under its home and community-based services waiver program. CMS officials told us family or legal guardian notification is generally a state responsibility, and state officials told us that it is largely a facility responsibility governed by the facility’s policies. Some states include family or guardian notification requirements in state guidance on mandatory reporting of elder abuse. In interviews with stakeholders representing consumers and elder abuse investigators we learned that family notification can both help but also pose some privacy challenges. Law enforcement notification. Although federal law requires nursing homes to establish policies for ensuring that law enforcement is notified of elder abuse that occurs in their facilities, and CMS policy requires state survey agencies to notify law enforcement of substantiated findings of elder abuse that occur in nursing homes, these actions are not required when a similar incident occurs in an assisted living facility. Furthermore, CMS also does not require state Medicaid agencies to establish their own law enforcement notification requirements for assisted living facilities as part of the state’s HCBS waiver agreements. CMS and state officials told us that, generally, state agencies coordinate with law enforcement regardless of where the abuse occurs. Some states also require law enforcement notification as part of their state mandatory reporter laws. (See app. I for descriptions of selected state mandatory reporter laws.) For example, Connecticut requires Medicaid waiver program staff members to inform law enforcement of all suspected crimes, including abuse. Both GAO and HHS-OIG have identified, among other things, gaps in notifying law enforcement about abuse in nursing homes and recommended that CMS make changes to help ensure that nursing homes and state survey agencies notify law enforcement. In the course of our review, we found states may align certain requirements for investigating, reporting, and notifying law enforcement about elder abuse in assisted living facilities with federal requirements for nursing homes. Officials from all three selected states in our review told us they apply certain federal nursing home requirements and time frames to assisted living facilities when overseeing reports and investigations of alleged elder abuse. For example, officials from Oklahoma and South Dakota told us they align or are in the process of aligning time frames within which assisted living facilities are required to report incidents of elder abuse to state authorities with the time frames federally required for nursing homes, and said that alignment reduces confusion, especially among facilities that offer both types of residential care. Given its attenuated role in overseeing the reporting, investigation, and law enforcement notification of elder abuse in assisted living facilities, CMS officials told us the agency is taking steps to gather and disseminate best practices to help states better manage their response to elder abuse incidents in assisted living facilities. Specifically, officials told us that CMS has initiated an effort to more closely examine how states operate their incident management systems, which are used to track reports and investigations of elder abuse in assisted living facilities covered by their HCBS waivers. In May 2018, CMS surveyed states requesting information on how those states operate an incident management system for their HCBS waiver programs to track reports and investigations of elder abuse. CMS officials said they will take information learned through the survey as well as through on-site reviews that the agency has been conducting in five states since June 2019, to develop best practices and technical guidance on collecting and reporting critical incidents. Agency Comments We provided a draft of this report to HHS for review and comment. HHS noted that federal oversight of nursing homes and assisted living facilities is not directly comparable given the differences between HHS’s statutory authority to oversee both facility types. HHS noted that although CMS’s oversight of assisted living facilities is more limited, CMS works in partnership with states—through providing guidance, technical support, training, and oversight of states’ quality reporting—to ensure the safety of Medicaid beneficiaries in assisted living facilities. We recognize that CMS is operating in different statutory frameworks with respect to both nursing homes and assisted living facilities, and we have noted the distinction in our report. HHS further noted that CMS is undertaking efforts to strengthen federal oversight of nursing homes and states with HCBS programs, including through addressing our past recommendations. HHS comments are reproduced in appendix III. HHS also provided technical comments, which were 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 Secretary of Health and Human Services, appropriate congressional committees, and other interested parties. The correspondence is also available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or at dickenj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Summary of Selected States’ Requirements for Reporting, Investigating, and Notifying Law Enforcement about Elder Abuse in Assisted Living Facilities We reviewed state-level requirements for reporting, investigating, and notifying law enforcement about elder abuse in three selected states that cover services in assisted living facilities under their Home and Community-based Services (HCBS) waivers—Connecticut, Oklahoma, and South Dakota. These states are collectively responsible for safeguarding as many as 16,800 assisted living residents—2,751 of whom are covered by Medicaid—from elder abuse. All three states have mandatory reporting requirements that typically require various identified health care providers and facility staff to report suspected elder abuse to adult protective services or law enforcement, regardless of the setting in which the victim was abused or whether the victim is an HCBS waiver participant who would be protected under the Centers for Medicare & Medicaid Services (CMS) program requirements. Further, the states developed guidance for their HCBS programs that establishes additional reporting, investigation, and notification requirements—beyond their mandatory reporting law requirements—that caregivers, facilities, program staff, and state agencies must follow in response to incidents that occur to residents receiving services under Medicaid waiver programs. Selected information about assisted living facilities and state- level requirements for each of the three states is summarized in figures 2 through 4. Appendix II: Summary of Selected Federal and State Audits of Oversight of the Reporting, Investigation, and Notification of Law Enforcement about Elder Abuse in Nursing Homes and Assisted Living Facilities GAO has issued reports reviewing the Centers for Medicare & Medicaid Services’ (CMS) oversight of the health and welfare of residents in nursing homes and assisted living facilities. For example, selected GAO reports from approximately the past 5 years included a review of the incidence of abuse in nursing homes and a review of what is known about the incidence of abuse in assisted living facilities. Reports often included key recommendations. (See table 1.) In addition to GAO’s audits of federal oversight of nursing homes and assisted living facilities, the Office of Inspector General within the Department of Health and Human Services (HHS-OIG) routinely audits a broad range of both the Centers for Medicare & Medicaid Services’ (CMS) and states’ oversight activities related to long-term care facilities. We identified three HHS-OIG reports issued between 2014 and 2018 that provide examples of HHS-OIG’s examinations of the reporting, investigation, and notification of law enforcement of elder abuse in nursing homes. (See table 2.) Although the specific scope of these reports varied, common findings included gaps in notifying law enforcement. For example, HHS-OIG examined Medicare claims data to identify cases where hospital staff had identified potential abuse and found that nursing homes failed to report many of these incidents to state survey agencies or notify law enforcement despite federal and state requirements and recommended that CMS provide training, clarify guidance, and track referrals to law enforcement. State auditors may also audit their states’ oversight of nursing homes and assisted living facilities. We identified nine reports issued by state auditors between 2014 and 2018 that examined their states’ oversight of elder abuse reporting and investigation across both settings. (See table 3.) Although the scope of individual reports across the states varied, state auditors identified instances of state entities not complying with state or federal requirements for a variety of reasons—including weaknesses in policies and procedures, resource constraints, and information management challenges—and recommended improvements. For example, in 2014 California state auditors found that thousands of complaint investigations—including over 300 classified as immediate jeopardy—were left open for almost a year, in part because the state did not specify time frames for completing investigations. Appendix III: Comments from the Department of Health & Human Services Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact John E. Dicken, (202) 512-7114 or dickenj@gao.gov. Staff Acknowledgments In addition to the contact named above, Karin Wallestad (Assistant Director); Jasleen Modi (Analyst-in-Charge); and Elise Pressma made key contributions to this report. Also contributing were Thomas Garloch, Cathy Hamann, Laurie Pachter, and Jennifer Whitworth.

The federal government and states share responsibility for the health and welfare of about 1.5 million individuals—most of them vulnerable older adults—receiving long-term care in nursing homes and assisted living facilities covered by Medicare and Medicaid. For nursing homes, which provide skilled nursing care, federal law defines applicable quality standards and CMS provides guidance for nursing homes and the state survey agencies to help protect residents from elder abuse. For assisted living facilities, which provide assistance with activities of daily living in a residential setting, CMS defines the framework states must establish to oversee these facilities if covered under Medicaid. This includes requiring states to demonstrate to CMS that they are assuring quality including the obligation to protect against elder abuse. GAO was asked to review federal oversight of elder abuse reporting, investigation, and law enforcement notification in both nursing homes and assisted living facilities. In this report, GAO describes federal requirements for reporting, investigating, and notifying law enforcement about elder abuse in both types of facilities. GAO reviewed relevant laws and regulations and agency guidance, and interviewed CMS and state officials from three states selected for variation in HCBS waiver program size and geography. GAO also interviewed representatives from national stakeholder groups representing consumers, facilities, Medicaid directors, and abuse investigators. In comments on this report, HHS highlighted the distinct oversight frameworks for the two settings and noted that CMS is undertaking efforts to strengthen oversight. The Centers for Medicare & Medicaid Services (CMS) oversees the Medicare and Medicaid programs and is responsible for safeguarding the health and welfare of beneficiaries living in nursing homes and assisted living facilities. This includes safeguarding older residents from abuse—referred to as elder abuse. CMS delegates responsibility for overseeing this issue to state survey agencies, which are responsible for overseeing nursing homes. When assisted living facilities provide services to Medicaid beneficiaries, they are indirectly subject to CMS oversight through the agency's oversight of state Medicaid agencies. GAO found that there are specific federal requirements for nursing homes and state survey agencies for reporting, investigating, and notifying law enforcement about elder abuse in nursing homes. (See table below). For example, state survey agencies must prioritize reports of elder abuse in nursing homes based on CMS's specified criteria and investigate within specific time frames. In contrast, there are no similar federal requirements for assisted living facilities—which are licensed and regulated by states. Instead, CMS requires state Medicaid agencies to develop policies to ensure the reporting and investigation of elder abuse in assisted living facilities. For example, CMS requires that state Medicaid agencies establish their own policies and standards for prioritizing reports when investigating incidents in assisted living facilities. Officials from the three selected states in GAO's review said they apply certain federal nursing home requirements and investigation time frames for assisted living facilities when overseeing elder abuse.

CRS_R45793

Introduction The detection of certain per- and polyfluoroalkyl substances (PFAS) in some public water supplies has generated public concern and increased congressional attention to the U.S. Environmental Protection Agency's (EPA) efforts to address these substances. Over the past decade, EPA has been evaluating several PFAS under the Safe Drinking Water Act (SDWA) to determine whether national drinking water regulations may be warranted. EPA has not issued SDWA regulations for any PFAS but has taken various actions to address PFAS contamination. Using SDWA authorities, in 2016, EPA issued non-enforceable health advisories for two PFAS—perfluorooctanoic acid (PFOA) and perfluorooctane sulfonate (PFOS)—in drinking water. The 116 th Congress has held hearings on PFAS and passed legislation to address PFAS contamination issues through various authorities and departments and agencies. The National Defense Authorization Act (NDAA) for Fiscal Year 2020 ( P.L. 116-92 ) includes several PFAS provisions involving the Department of Defense (DOD) and other federal agencies. Of the EPA provisions related to drinking water, Title LXXIII, Subtitle A, directs EPA to require public water systems to conduct additional monitoring for PFAS and establishes a grant program for public water systems to address PFAS and other emerging contaminants. On January 10, 2020, the House passed H.R. 535 , a broad PFAS bill that would direct EPA and other federal agencies to take numerous actions to address PFAS. Among its provisions, H.R. 535 would amend SDWA to direct EPA to regulate PFAS in drinking water and would authorize grants for communities for treatment technologies. Other bills would variously direct EPA to take regulatory and other actions under several environmental statutes, including SDWA. Similar to H.R. 535 , multiple SDWA bills would require EPA to establish final or interim drinking water regulations for some or all PFAS, require monitoring for more of these substances, or authorize grants to assist communities in treating PFAS in drinking water. (See Table 1 .) PFAS are a large, diverse group of fluorinated compounds, some of which have been used for decades in a wide array of commercial, industrial, and U.S. military applications. Since the 1940s, more than 1,200 PFAS compounds have been used in commerce, and about 600 are still in use today. The chemical characteristics of PFAS have led to the widespread use of these substances for beneficial purposes (such as firefighting) and in the processing and manufacture of many commercial products, such as nonstick cookware, food wrapper coatings, stain-resistant carpets, waterproof clothing, and food containers. The two PFAS most frequently detected in water supplies are PFOA and PFOS. Since 2002, U.S. manufacturers have phased out the production and most uses of PFOS. In coordination with EPA, manufacturers completed the phase-out of PFOA production by 2015. EPA reports that food and consumer products represent a large portion of exposure to PFOA and PFOS, while drinking water can be an additional source in the small percentage of communities with contaminated water supplies. Among the thousands of different PFAS, few have sufficient health effects studies for determining a threshold at which adverse effects are not expected to occur. Most studies of potential health effects of PFAS have focused on PFOA and PFOS because of their predominant historical use. For those PFAS for which scientific information is available, animal studies suggest that exposure to particular substances above certain levels may be linked to various health effects, including developmental effects; changes in liver, immune, and thyroid function; and increased risk of some cancers. A discussion of these studies and their results is beyond the scope of this report. In 2016, EPA reported that public water systems in 29 states had detected at least one PFAS in their water supplies. In total, 63 public water systems serving approximately 5.5 million people reported detections of PFOA and PFOS (separately or combined) above EPA's health advisory level of 70 parts per trillion (ppt). EPA has reported that PFAS contamination of drinking water "is typically localized and associated with a specific facility." According to the Agency for Toxic Substances and Disease Registry, PFAS may have been released to surface or ground water from manufacturing sites, industrial use, use and disposal of PFAS-containing consumer products (e.g., unlined landfills), fire/crash training areas, wastewater treatment facilities, and the spreading of contaminated biosolids. A discussion of PFAS use, including at U.S. military installations, and PFAS disposal is not included in this report. Uncertainty about potential health effects that may be associated with exposure to specific PFAS above particular concentrations—combined with the absence of a federal health-based drinking water standard—has posed challenges and created uncertainty for states, water suppliers and their customers, homeowners using private wells, and others regarding treatment or other potential responses. State drinking water regulators and others have called for greater federal leadership to address these substances through several federal laws and, specifically, have urged EPA to set federal drinking water standards for one or more PFAS under SDWA. Representatives of public water systems have supported EPA's commitment to follow the statutory process for regulating contaminants in drinking water, which prioritizes regulating those that occur at levels and frequency of public health concern. SDWA provides EPA with several authorities to address emerging contaminants in public water supplies and drinking water sources. These include the authority to (1) issue health advisories, (2) regulate contaminants in water provided by public water systems, and (3) issue enforcement orders in certain circumstances. For more than a decade, EPA has been using SDWA authorities to evaluate several PFAS—particularly PFOA and PFOS—to determine whether national drinking water regulations may be warranted. To date, EPA has not promulgated drinking water regulations for any PFAS but has taken a number of related actions. In February 2019, EPA issued a PFAS Action Plan, which identifies and discusses the agency's current and proposed efforts to address PFAS through several statutory authorities, including SDWA. These actions range from potential regulatory actions to public outreach on PFAS. Many of these actions support EPA's evaluation of PFAS for potential regulation under SDWA. These include research and development of analytical methods needed to accurately measure substances in drinking water, development of additional toxicity information to increase understanding of potential health risks associated with exposures to different PFAS, and research on drinking water treatment effectiveness and costs for various PFAS. EPA also plans to generate occurrence data for more PFAS to determine their frequencies and concentrations in public water supplies. Further, EPA is working with federal, state, and tribal partners to develop risk communication materials on PFAS and plans to develop an interactive map on potential PFAS sources and occurrence. Table A-1 includes EPA's selected actions and associated timelines relevant to addressing PFAS in drinking water. The challenges of regulating individual substances or categories of PFAS in drinking water are multifaceted and may raise several policy and scientific questions. Technical issues involve availability of data, detection methods, and treatment techniques for related but diverse contaminants. Scientific questions exist about health effects attributed to many individual PFAS and whether health effects can be generalized from one or a category of PFAS to others. Policy and regulatory considerations may involve setting priorities among numerous unregulated contaminants, the value of establishing uniform national drinking water standards, and the ability to demonstrate the relative risk-reduction benefits compared to compliance costs to communities associated with regulating individual or multiple PFAS. The absence of a federal health-based standard can pose challenges for states and communities with PFAS contamination. State drinking water regulators have noted that many states may face significant obstacles in setting their own standards. This report provides an overview of EPA's ongoing and proposed actions to address PFAS under SDWA authorities, with particular focus on the statutory process for evaluating PFAS—particularly PFOA and PFOS—for potential regulation. It also reviews PFAS-related legislation introduced in the 116 th Congress, with emphasis on bills that would amend SDWA. This report does not address the status of scientific research on health effects that may be associated with exposure to one or more PFAS, nor does it discuss federal actions regarding other environmental statutes, such as the Toxic Substances Control Act (TSCA) and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). Addressing PFAS Using SDWA Authorities SDWA provides EPA with several authorities to address emerging contaminants in drinking water supplies and sources. The act authorizes EPA to promulgate regulations that include enforceable standards and monitoring requirements for contaminants in water provided by public water systems. For contaminants that are not regulated under the act, SDWA authorizes EPA to issue contaminant-specific health advisories that include technical guidance and identify concentrations that are expected to be protective of sensitive populations. In addition, if the appropriate state and local authorities have not acted to protect public health, SDWA authorizes EPA to take actions to abate an imminent and substantial endangerment to public health from "a contaminant that is present in or is likely to enter a public water system or an underground source of drinking water." Evaluating Emerging Contaminants for Regulation SDWA specifies a multistep process for evaluating contaminants to determine whether a national primary drinking water regulation is warranted. The evaluation process includes identifying contaminants of potential concern, assessing health risks, collecting occurrence data (and developing reliable analytical methods necessary to do so), and making determinations as to whether or not regulatory action is needed for a contaminant. To make a positive determination that a national drinking water regulation is warranted for a contaminant, EPA must find that a contaminant may have an adverse health effect; it is known to occur or there is a substantial likelihood that it will occur in public water systems with a frequency and at levels of public health concern; and in the sole judgment of the EPA Administrator, regulation of the contaminant presents a meaningful opportunity for health risk reduction for persons served by water systems. Identifying Contaminants That May Warrant Regulation SDWA Section 1412(b) requires EPA to publish, every five years, a list of contaminants that are known or anticipated to occur in public water systems and may require regulation under the act. Before publishing a final contaminant candidate list (CCL), EPA is required to provide an opportunity for public comment and consult with the scientific community, including the Science Advisory Board. In 2009, EPA placed PFOA and PFOS on the third such list (CCL 3) for evaluation. In preparing the CCL 3, EPA considered over 7,500 chemical and microbial contaminants and screened these contaminants based on their potential to occur in public water systems and potential health effects. EPA selected 116 of the contaminants on the proposed CCL based on more detailed evaluation of occurrence, health effects, expert judgement, and public input. In 2016, EPA published the fourth list, CCL 4, which carried over many CCL 3 contaminants, including PFOA and PFOS. EPA carried forward these contaminants to continue evaluating health effects, gathering national occurrence data, and developing analytical methods. Monitoring for Emerging Contaminants in Public Water Systems To generate data on the nationwide occurrence of emerging contaminants in public water supplies, EPA is required to administer a monitoring program for unregulated contaminants. SDWA directs EPA to promulgate, every five years, an unregulated contaminant monitoring rule (UCMR) that requires public water systems to test for no more than 30 contaminants. Only a representative sample of systems serving 10,000 or fewer people is required to conduct monitoring. EPA uses data collected through UCMRs to estimate whether the occurrence of the contaminant in public water supplies is local, regional, or national in scope. UCMRs set a minimum reporting level (MRL) for each contaminant. MRLs are not health based; rather, they establish concentrations for reporting and data collection purposes. EPA makes the UCMR monitoring results available to the public and reports the number of detections above the MRL and also detections above EPA's health-based reference levels (discussed below), where available. The act includes an authorization of appropriations to cover monitoring and related costs for small systems (serving 10,000 persons or fewer). However, large systems pay UCMR monitoring and laboratory costs. In 2012, EPA issued the third UCMR (UCMR 3), under which 4,864 public water systems tested their drinking water for six PFAS—including PFOA and PFOS—between January 2013 and December 2015. Among these systems, EPA reported the following monitoring results for PFOA and PFOS: 117 of the public water systems reported detections of PFOA at levels above the MRL of 20 ppt, and 95 reported detections of PFOS at concentrations above the MRL of 40 ppt. Overall, 63 of the 4,864 (1.3%) water systems that conducted PFAS monitoring reported at least one sample with PFOA and/or PFOS (separately or combined) concentrations exceeding EPA's health advisory level of 70 ppt for PFOA and PFOS. Actual exposures among individuals served by these systems would be expected to vary depending on water use and consumption. EPA estimates that these 63 water systems serve approximately 5.5 million individuals. Of the 63 systems: 9 reported detections of both PFOS and PFOA above 70 ppt; 4 reported detections of PFOA above 70 ppt; 37 reported detections of PFOS above 70 ppt; and 13 reported detections of PFOA and PFOS (combined but not separately) above 70 ppt. Systems with PFOA or PFOS detections above 70 ppt were located in 21 states, the Pima-Maricopa Indian community, and 2 U.S. territories. EPA's PFAS Action Plan notes that the agency intends to propose monitoring requirements for other PFAS when it proposes the next UCMR (UCMR 5) in 2020. As of January 2020, EPA has developed an analytical method to detect 29 PFAS in drinking water supplies. The plan states that the agency would use the monitoring data gathered through UCMR 5 to evaluate the national occurrence of additional PFAS. The agency is currently working to develop analytical methods to support monitoring for additional PFAS. Regulatory Determinations SDWA requires EPA, every five years, to make a regulatory determination—a determination of whether or not to promulgate a national primary drinking water regulation—for at least five contaminants on the CCL. To consider a contaminant for a regulatory determination (RD), EPA requires, at a minimum, a peer-reviewed risk assessment and nationally representative occurrence data. In selecting contaminants for an RD, SDWA requires EPA to give priority to those that present the greatest public health concern while considering a contaminant's health effects on specified subgroups of the population (e.g., infants, children, pregnant women) who may be at greater risk of adverse health effects due to exposure to a contaminant. As noted above, to make a positive determination to regulate a contaminant, EPA must find that (1) a contaminant may have an adverse health effect; (2) it is known to occur or there is a substantial likelihood that it will occur in public water systems with a frequency and at levels of public health concern; and (3) in the sole judgment of the EPA Administrator, regulation of the contaminant presents a meaningful opportunity for health risk reduction for persons served by water systems. SDWA directs EPA to publish a preliminary determination and seek public comment prior to making an RD. EPA may also make RDs for contaminants not listed on the CCL if EPA finds that the statutory criteria regarding health effects and occurrence are satisfied. EPA has issued RDs for CCL 1 through CCL 3. EPA published final determinations that no regulatory action was appropriate or necessary for nine contaminants on CCL 1 (2003) and 11 contaminants (including perchlorate) on CCL 2 (2008). In the most recent RD (2016), EPA determined that regulation was not needed for four of the 116 contaminants listed on CCL 3. EPA delayed a determination on a fifth contaminant, strontium, "in order to consider additional data and decide whether there is a meaningful opportunity for health risk reduction by regulating strontium in drinking water." In 2014, when EPA published preliminary RDs for contaminants on CCL 3 (including PFOA and PFOS), UCMR 3 monitoring was underway and national occurrence data were not available. EPA did not include any PFAS among the contaminants selected for the third RD. In November 2016, EPA included PFOA and PFOS on the agency's list of unregulated contaminants for which sufficient health effect and occurrence data were available to make RDs. The next round of RDs is scheduled for 2021, although SDWA does not prevent EPA from making determinations outside of that five-year cycle. In the Fall 2019 Unified Regulatory Agenda , EPA expected to propose preliminary determinations for two PFAS—PFOA and PFOS—by the end of 2019, followed by final determinations by January 2021. Developing Regulations and Standards for Emerging Contaminants Once the Administrator makes a determination to regulate a contaminant, SDWA allows EPA 24 months to propose a "national primary drinking water regulation" and request public comment. EPA is required to promulgate a final rule within 18 months after the proposal. SDWA authorizes EPA to extend the deadline to publish a final rule for up to nine months, by notice in the Federal Register . For each contaminant that EPA determines to regulate, EPA is required to establish a non-enforceable maximum contaminant level goal (MCLG) at a level at which no known or anticipated adverse health effects occur and which allows an adequate margin of safety. An MCLG is based solely on health effects data and does not reflect cost or technical feasibility considerations. EPA derives an MCLG based on an estimate of the amount of a contaminant that a person can be exposed to on a daily basis that is not anticipated to cause adverse health effects over a lifetime. This amount is derived using the best available peer-reviewed studies and incorporates uncertainty factors to provide a margin of protection for sensitive subpopulations. In developing an MCLG, EPA also estimates the general population's exposure to a contaminant from drinking water and other sources (e.g., food, dust, soil, and air). After considering other exposure routes, EPA estimates the proportion of exposure attributable to drinking water (i.e., the relative source contribution). When exposure information is not available, EPA uses a default assumption that 20% of exposure to a contaminant is attributable to drinking water. EPA applies the relative source contribution to ensure that an individual's total exposure from all sources remains within the estimated protective level. The MCLG provides the basis for calculating a drinking water standard. Thus, EPA's ability to develop a drinking water regulation for a contaminant is dependent, in part, on the availability of peer-reviewed scientific studies. Drinking water regulations generally specify a maximum contaminant level (MCL)—an enforceable limit for a contaminant in public water supplies. SDWA requires EPA to set the MCL as close to the MCLG as feasible. When assessing feasibility, the law directs EPA to consider the best available (and field-demonstrated) treatment technologies, taking cost into consideration. If the treatment of a contaminant is not feasible—technologically or economically—EPA may establish a treatment technique in lieu of an MCL. Each regulation also establishes associated monitoring, treatment, and reporting requirements. These regulations can cover multiple contaminants and, generally, establish an MCL for each contaminant covered by the regulation. Regulations generally take effect three years after promulgation. EPA may allow up to two additional years if the Administrator determines that more time is needed for public water systems to make capital improvements. (States have the same authority for individual water systems. ) The law directs EPA to review—and if necessary revise—each regulation every six years and requires that any revision maintain or provide greater health protection. Health Advisories For emerging contaminants of concern, data may be limited, particularly regarding a contaminant's potential health effects and occurrence in public water supplies. SDWA authorizes EPA to issue health advisories for contaminants in drinking water that are not regulated under the act. These advisories provide information on a contaminant's health effects, chemical properties, occurrence, and exposure. They also provide technical guidance on identifying, measuring, and treating contaminants. Health advisories include non-enforceable levels for concentrations of contaminants in drinking water. EPA sets health advisories at levels that are expected to protect the most sensitive subpopulations (e.g., nursing infants) from any deleterious health effects, with a margin of protection, over specific exposure durations (e.g., one-day, 10-day, or lifetime). These non-regulatory levels are intended to help states, water suppliers, and others address contaminants for which federal (or state) drinking water standards have not been established. Some states may use health advisories to inform their own state-specific drinking water regulations. Health advisories may be used to address various circumstances: to provide interim guidance while EPA evaluates a contaminant for possible regulation, to provide information for contaminants with limited or localized occurrence that may not warrant regulation, and to address short-term incidents or spills. EPA has issued health advisories for more than 200 contaminants to address different circumstances and subsequently established regulations for many of these contaminants. In May 2016, EPA issued health advisory levels for lifetime exposure to PFOA and PFOS in drinking water. EPA established the Lifetime Health Advisory level for PFOA and PFOS at 70 ppt, separately or combined. In calculating the health advisory level, EPA applied a relative source contribution of 20% (i.e., an assumption that 20% of PFOS and/or PFOA exposure is attributable to drinking water and 80% is from diet, dust, air or other sources). These levels are intended to protect the most sensitive subpopulations (e.g., nursing infants), with a margin of safety, over a lifetime of daily exposure. The Lifetime Health Advisories replaced Provisional Health Advisories that EPA issued in 2009 to address short-term exposures to PFOA and PFOS. Emergency Powers Orders SDWA Section 1431 grants EPA "emergency powers" to issue orders to abate an imminent and substantial endangerment to public health from "a contaminant that is present in or is likely to enter a public water system or an underground source of drinking water" and if the appropriate state and local authorities have not acted to protect public health. This authority is available to address both regulated and unregulated contaminants. The EPA Administrator "may take such actions as he may deem necessary" to protect the health of persons who may be affected. Actions may include issuing orders requiring persons who caused or contributed to the endangerment to provide alternative water supplies or to treat contamination. When using this authority, EPA generally coordinates closely with states. EPA reports that it has used its emergency powers under Section 1431 to require responses to PFOA and/or PFOS releases and related contamination of drinking water supplies at four sites, three of which involved the Department of Defense (DOD). Warminster Naval Warfare Center, Pennsylvania. In 2014, EPA issued an administrative enforcement order directing the U.S. Navy to address PFOS in three drinking water supply wells at and near this National Priorities List site. Former Pease Air Force Base, New Hampshire. In August 2015, EPA issued an administrative enforcement order to require the U.S. Air Force to design and construct a system to treat water systems contaminated from releases of PFOA and PFOS at the former Pease Air Force Base in New Hampshire. Horsham Air Guard Station/Willow Grove, Pennsylvania . In 2015, EPA issued an order directing the Air Guard/Air Force to treat onsite drinking water wells and to provide treatment for private offsite wells. Chemours Washington Works Facility , West Virginia/Ohio. EPA issued three emergency orders to this facility in 2002, 2006, and 2009—and amended the 2009 order in 2017 to incorporate the 2016 Lifetime Health Advisory level—requiring DuPont and Chemours to offer water treatment, connection to a public water system, or bottled water where PFOA concentrations exceeded 70 ppt. Related Legislation in the 116th Congress In the 116 th Congress, more than 40 bills have been introduced to address PFAS through a broad range of actions and federal agencies. The NDAA for FY2020 (P.L 116-92) and House-passed H.R. 535 include provisions to reduce exposures to PFAS in drinking water and to prevent or remediate the contamination of groundwater, surface water, and drinking water supplies from releases of these substances. This discussion focuses primarily on legislation that amends the Safe Drinking Water Act (SDWA) or otherwise affect public water systems. Table 1 briefly describes relevant provisions of such bills offered in the 116 th Congress. In the context of SDWA, congressional attention has focused primarily on whether EPA might set drinking water standards (MCLs) for PFOA, PFOS, and/or other PFAS. SDWA directs EPA to follow a regulatory development process for contaminants, which includes consideration of technical feasibility and the assessment of health risk reduction benefits and costs, among other factors. On occasion, Congress has directed EPA to promulgate a regulation for a particular contaminant within a specified time frame. Congress has used this approach to prompt EPA to regulate certain contaminants already under review and/or to specify a deadline for issuing regulations under development. In the case of PFAS, representatives of public water systems and others have cautioned against bypassing SDWA's science-based and risk-driven process. As regulatory compliance costs are borne by communities, public water suppliers have urged that regulations be data-driven to better ensure risk reduction benefits. Others have urged "federal leadership" to provide more certainty to states and communities with contaminated water supplies. State drinking water regulators have noted that some states may lack the resources to assess and/or the authority to regulate drinking water contaminants that are not federally regulated, including PFAS. As with certain other contaminants, some states have urged EPA to set national standards. A further concern is that state-by-state actions could create public confusion regarding the safety of drinking water. National Defense Authorization Act Enacted December 20, 2019, the NDAA for FY2020 ( P.L. 116-92 ) contain PFAS provisions specific to DOD, EPA, and several other federal agencies. Some NDAA provisions involve the use of aqueous film forming foam, while others address DOD remediation of PFAS-contaminated drinking water, groundwater, and surface water. Among the EPA provisions, the NDAA addresses drinking water as follows: Section 7311 requires EPA to add to UCMR 5 all PFAS or categories of PFAS with validated test methods. Section 7312 amends SDWA to establish a grant program within the Drinking Water State Revolving Fund to assist water systems in addressing emerging contaminants with an emphasis on PFAS. Section 7312 authorizes appropriations of $100 million annually for FY2020-FY2024 for this purpose. House-Passed H.R. 535 On January 10, 2020, the House passed H.R. 535 , a broad PFAS bill. H.R. 535 contains a range of provisions that would address PFAS using multiple authorities, including several EPA-administered laws. Regarding drinking water, the bill includes several specific provisions, some of which would amend SDWA: Section 5 would amend SDWA to require EPA, within two years of enactment, to promulgate a national primary drinking water regulation for PFAS with standards for PFOA and PFOS at a minimum. It would establish a separate regulatory process for PFAS to accelerate EPA's promulgation of drinking water standards. Among other provisions, this section would require EPA to propose a regulation for a PFAS within 18 months (rather than 24 months) of making a determination to regulate it. This section would allow EPA, when developing regulations, to rely on health risk information for one PFAS to make reasoned extrapolations regarding the health risks of other PFAS. It would also direct EPA to issue a health advisory within a year of finalizing a toxicity value for a single PFAS or class of PFAS. Section 6 would prohibit EPA (but not states) from imposing penalties for violations of PFAS drinking water regulations until five years after the date of promulgation (to allow systems time to make capital improvements as needed for compliance). Section 7 would add SDWA Section 1459E to direct EPA to establish a competitive grant program to assist community water systems with installing treatment technologies to address PFAS contamination. To support this program, Section 7 would authorize annual appropriations of $125 million for FY2020 and FY2021 and $100 million for FY2022-FY2024. EPA would be required to give funding priority to community water systems that (1) serve a "disadvantaged community or a disproportionately exposed community," (2) provide at-least a 10% cost share, or (3) demonstrate the capacity to maintain the treatment technology. Other bills introduced in the 116 th Congress would variously require EPA to establish an MCL for specific PFAS or for PFAS as a group. These include S. 1507 (as reported), S. 1473 , and H.R. 2377 . Additionally, S. 1507 and H.R. 2800 would require public water systems to conduct monitoring for more PFAS in drinking water. Several bills—including S. 1507 , H.R. 2533 / H.R. 2741 (Title II), and H.R. 1417 / S. 611 —would authorize grants for public water systems and/or households to treat PFAS in drinking water. In contrast, H.R. 2570 would direct EPA to establish PFAS manufacturing fees to support the "PFAS Treatment Trust Fund." Amounts in the trust fund would be available to EPA, without further appropriation, to make grants to community water systems and municipal wastewater treatment works for costs associated with PFAS removal. Appendix. Selected Drinking-Water-Related Actions by EPA

Per- and polyfluoroalkyl substances (PFAS) are fluorinated chemicals that have been used in an array of commercial, industrial, and U.S. military applications for decades. Some of the more common applications include nonstick coatings, food wrappers, waterproof materials, and fire suppressants. Detections of some PFAS in drinking water supplies and uncertainty about potential health effects associated with exposure to particular PFAS above certain concentrations have increased calls for the U.S. Environmental Protection Agency (EPA) to address these substances in public water supplies. For those few PFAS for which scientific information is available, animal studies suggest that exposure to particular substances above certain levels may be linked to various health effects, including developmental effects; changes in liver, immune, and thyroid function; and increased risk of some cancers. In 2009, EPA listed certain PFAS for formal evaluation under the Safe Drinking Water Act (SDWA) to determine whether regulations may be warranted. EPA has not issued drinking water regulations for any PFAS but has taken various actions to address PFAS contamination. In the 116 th Congress, Members have introduced more than 40 bills to address PFAS through various means. The National Defense Authorization Act (NDAA) for FY2020, P.L. 116-92 , includes multiple PFAS provisions regarding primarily the Department of Defense (DOD), but several involve EPA and other federal agencies. Among the EPA provisions, Title LXXIII, Subtitle A, directs EPA to require public water systems to conduct additional monitoring for PFAS and creates a grant program for public water systems to address PFAS and other emerging contaminants. The House of Representatives passed H.R. 535 , a broad PFAS bill, on January 10, 2020. Among SDWA provisions, H.R. 535 would direct EPA to issue drinking water regulations for at least two PFAS within two years and establish a separate standard-setting process for PFAS. In February 2019, EPA released its PFAS Action Plan, which discusses the agency's current and proposed actions to address these substances under its various statutory authorities. Regarding SDWA, the plan notes that EPA is following the statutory process for evaluating PFAS—particularly perfluorooctanoic acid (PFOA) and perfluorooctane sulfonate (PFOS)—to determine whether national primary drinking water regulations are warranted. The Fall 2019 Regulatory Agenda indicated that EPA planned to propose preliminary regulatory determinations for PFOA and PFOS by the end of 2019 and finalize determinations by January 2021. The absence of a national health-based drinking water standard for any PFAS has increased interest in the SDWA process for regulating contaminants. The statute prescribes a risk- and science-based process for evaluating and regulating contaminants in drinking water. The evaluation process includes identifying contaminants of potential concern, assessing health risks, collecting occurrence data (and developing reliable analytical methods necessary to do so), and making determinations as to whether a national drinking water regulation is warranted for a contaminant. PFAS include thousands of diverse chemicals, and setting drinking water standards for individual or groups of PFAS raises technical and scientific challenges. For example, SDWA requires EPA to make determinations and set standards using the best available peer-reviewed science and occurrence data. However, data on the potential health effects and occurrence are available for few of these substances. Further, EPA may face challenges in developing test methods and identifying treatment technologies for a diverse array of PFAS. Contamination of drinking water by PFAS can pose challenges for states and communities, and some have called for EPA to establish enforceable standards. State drinking water regulators have noted that many states may face significant obstacles in setting their own standards. For contaminants not regulated under SDWA, EPA is authorized to issue non-enforceable health advisories, which provide information on health effects, testing methods, and treatment techniques for contaminants of concern. In 2016, EPA established health advisory levels for PFOA and PFOS in drinking water at 70 parts per trillion (separately or combined). SDWA also authorizes EPA to take actions it deems necessary to abate an imminent and substantial endangerment to public health from a contaminant present in or likely to enter a public water system or an underground source of drinking water. Actions may include issuing orders requiring persons who caused or contributed to the endangerment to provide alternative water supplies or to treat contamination. Since 2002, EPA has used this authority to require responses to PFOA and/or PFOS contamination of water supplies associated with four sites, including three DOD sites.

GAO_GAO-19-307

Background U.S. Export Control System The U.S. government implements an export control system to manage risks associated with exporting sensitive items and ensure that legitimate trade can still occur. The export control system is governed by a complex set of laws, regulations, and processes that multiple federal agencies administer to ensure compliance. State and Commerce each play a role in the U.S. export control system. Historically, State has controlled the export of military items, known as defense articles and services, while Commerce has controlled the export of less sensitive items with both military and commercial applications, known as dual-use items. In addition to firearms, artillery, and ammunition, State controls the export of items such as tanks, fighter aircraft, missiles, and military training, which it lists on the U.S. Munitions List (USML). Commerce controls the export of dual-use items such as computers, radars, and telecommunications equipment, which it lists on the Commerce Control List (CCL). State and Commerce both control the export of items within their jurisdictions by requiring a license or other authorization to export a controlled item; vetting the parties associated with export transactions; monitoring the end-use of exports and other compliance activities; and supporting law enforcement agencies’ investigations of possible violations of export control laws and regulations. Generally, unless a license exemption applies, exporters submit a license application to State if their items are controlled on the USML or to Commerce if they are controlled on the CCL to receive export approval. As part of the application review process, State and Commerce consult with other agencies, including DOD. Additionally, offices within Commerce, DHS, and the Department of Justice (DOJ) investigate potential violations of export control laws and regulations, and conduct enforcement activities. State and Commerce Export Control Lists Items identified on the State and Commerce export control lists are subject to different laws and regulations. The Arms Export Control Act of 1976, as amended, (AECA) provides the statutory authority to control the export of defense articles and services, which the President delegated to the Secretary of State. State’s International Traffic in Arms Regulations (ITAR) implement this authority and identify the specific types of items subject to control in the USML. The USML is comprised of 21 categories of items, each with multiple sub-categories, encompassing defense items such as firearms, missiles, and aircraft. Firearms, artillery, and ammunition represent the first three categories of the USML (see table 1). Additional information on the 21 categories of the USML is presented in appendix II. Within State, the Directorate of Defense Trade Controls (DDTC) is responsible for implementing controls on the commercial export of these items. The Export Control Reform Act of 2018 (ECRA) provides the statutory authority for Commerce to control the export of less sensitive military items, dual-use items, and basic commercial items. Commerce’s Export Administration Regulations (EAR), which contain the CCL, implement this authority. The CCL classifies less sensitive military items, dual-use items, and basic commercial items in 10 categories, such as Nuclear & Miscellaneous, Electronics, and Telecommunications, and in 5 product groups. Appendix II shows the 10 categories and five groups of the CCL. Commerce’s Bureau of Industry and Security (BIS) is responsible for implementing these export controls (see table 2 for a summary of the legal and regulatory frameworks for State’s and Commerce’s export controls). Proposed Transfer of Certain Firearms from State to Commerce Jurisdiction In May 2018, State and Commerce published proposed rules in the Federal Register to request public comments on the proposed transfer of certain items in USML Categories I, II, and III (firearms, artillery, and ammunition) to the CCL. According to State and Commerce’s proposed rules, the purpose of the transfer is to limit the items that State controls to those that provide the United States with a critical military or intelligence advantage or, in the case of weapons, are inherently for military end use. According to the proposed rules, items that do not meet these criteria would be removed from State’s export control jurisdiction and moved to Commerce’s jurisdiction. The proposed rules state that some, but not all, of the firearms, artillery, and ammunition currently controlled for export by State would transfer to Commerce control. The items proposed for transfer to the CCL include non-automatic and semi-automatic firearms up to .50 caliber, and non-automatic shotguns with a barrel length less than 18 inches; as well as parts, components, accessories, attachments, and ammunition for these firearms and shotguns, among other items. According to the proposed rules, if finalized, State would continue to control fully-automatic firearms, shotguns, and modern artillery; silencers, components, parts, and accessories specially designed for automatic firearms and shotguns; and specific types of ammunition, including ammunition for automatic firearms. The proposed rules would also make a variety of conforming changes to the USML and CCL to accommodate the transferred items. The proposed transfer of firearms, artillery, and ammunition is part of an ongoing effort to reform the export control lists by reviewing the USML categories and transferring certain items considered less sensitive to the CCL. Since the export control reform initiative was first announced in 2010 with the objective of modernizing the export control system, State and Commerce have finalized various rulemakings that transferred certain items from USML Categories IV through XXI to Commerce’s control. Firearms, artillery, and ammunition are the last three USML categories proposed to undergo regulatory changes under export control reform. In accordance with the AECA, the President must notify Congress of items proposed for removal from the USML and describe the nature of any controls to be imposed on the items, and may not remove the items until 30 days after providing such notice. State and Commerce published the proposed rules in the Federal Register on May 24, 2018, opening a 45-day public comment period that ended on July 9, 2018. After reviewing public comments, State and Commerce submitted final rules to the Office of Management and Budget for regulatory review on November 7, 2018. The required 30-day congressional notification period pursuant to the AECA began on February 4, 2019, according to a State official. State Reviewed about 69,000 Export License Applications Valued at up to $45.4 Billion for Firearms, Artillery, and Ammunition in Fiscal Years 2013-2017 State reviewed 68,690 export license applications for firearms, artillery, and ammunition with a potential value of up to $45.4 billion during fiscal years 2013 to 2017. The number of export license applications for firearms, artillery, and ammunition remained relatively constant from fiscal years 2013 to 2017, averaging 13,738 annually, even as the total number of licenses reviewed by State declined as the export control reform process transferred items from State to Commerce control (see fig. 1). Firearms, artillery, and ammunition increased from about 16 percent of all license applications reviewed by State in fiscal year 2013 to about 36 percent in 2017. State processes export license applications for permanent exports, temporary exports and imports, and certain types of agreements. During fiscal years 2013 to 2017, about 91 percent of export license applications for firearms, artillery, and ammunition were for permanent exports, about 8 percent for temporary exports and imports, and about 2 percent for agreements. State can take various actions on the export license applications it receives, including approving the license, approving with conditions, returning without action, and denying the license. For fiscal years 2013- 2017, State approved 87 percent of the number of export license applications for firearms, artillery, and ammunition, returned without action 12 percent, and denied 1 percent. State can approve an application but place conditions on the export license, such as limiting the validity period or prohibiting certain types of intermediaries in the export transaction. State can also return without action export license applications that are missing information or that it is otherwise unable to review, and can deny, revoke, suspend, or amend a license for foreign policy or national security reasons. About Two-Thirds of Category I-III Export License Applications Were for Firearms in Fiscal Years 2013-2017 About two-thirds of the export license applications for firearms, artillery, and ammunition that State reviewed during fiscal years 2013-2017 were for firearms and related items controlled under Category I of the USML (see fig. 2). Of the applications for these items, about 57 percent involved non-automatic or semi-automatic firearms—most of which are proposed to transfer to the CCL under Commerce control—and about 4 percent involved fully-automatic firearms—which would remain on the USML under State control. The remainder of export license applications for Category I items included other types of firearms such as combat shotguns, firearm attachments such as silencers and riflescopes, firearm parts and components, and technical data and defense services related to these items. The proposed rules state that some of these items would transfer to Commerce control while others would remain under State control. As shown in figure 2, export license applications for Category II artillery were about 5 percent of all Category I-III license applications from fiscal years 2013 through 2017. According to State, under the proposed rules, modern artillery, their ammunition, and certain related parts and components would remain under State’s control. Category III ammunition represented about 21 percent of the Category I-III export license applications. As stated in the State and Commerce proposed rules, USML Category III would be revised to specifically list the ammunition that it controls, which would include ammunition that has only or primarily military applications. Generally, ammunition used in the non- automatic and semi-automatic firearms that are proposed to transfer to Commerce control would also transfer. About 8 percent of the export license applications involved items controlled in more than one category of USML Categories I, II, and III, which are shown as “Multiple” in figure 2. Volume of Category I-III Export License Applications Varied by Geographic Region of End-User in Fiscal Years 2013-2017 In fiscal years 2013 to 2017, 32 percent of license applications for the export of firearms, artillery, and ammunition were intended for end-users in countries in Europe and Eurasia, 29 percent to the Western Hemisphere, 24 percent to East Asia and the Pacific, 7 percent to the Near East, 3 percent to Africa, 3 percent to South and Central Asia, and 2 percent to multiple countries (see fig. 3). Export license applications for firearms, artillery, and ammunition during fiscal years 2013 to 2017 included applications for end-users spanning 189 countries and territories, yet the top 20 countries represented about 70 percent of the total number of applications (see fig. 4). State and Commerce Export Controls Have Several Different Requirements, Including for Registration, Licensing, End-Use Monitoring, and Congressional Notification State’s and Commerce’s export controls are guided by different laws, regulations, or policies that have several different requirements for registration, licensing, end-use monitoring, congressional notification, public reporting, and enforcement. The AECA requires manufacturers, exporters, and brokers of items on the USML to register with State whereas there is no registration requirement in the law for manufacturers, exporters, and brokers of items on the CCL under Commerce’s jurisdiction. Differences also exist in how State and Commerce screen export license applications and in their license requirements. For example, State and Commerce rely on different internal watch lists to screen applicants. In addition, according to Commerce, certain exports that currently require a State license would not require a Commerce license once transferred to Commerce’s jurisdiction. State and Commerce also conduct end-use monitoring of selected controlled exports differently. For example, State relies primarily on embassy staff to conduct end-use checks and Commerce relies primarily on several export control officers based overseas for this responsibility. In addition, congressional notification and public reporting requirements that under current law apply to firearms on the USML would not be applicable if they are transferred to the CCL. Finally, there are some differences in enforcement of export control laws, such as different maximum fines for civil violations, depending on whether the item is controlled by the ITAR under State’s jurisdiction or controlled by the EAR under Commerce’s jurisdiction. The Law Requires Registration for Items on the USML but Not for Items on the CCL The AECA requires manufacturers, exporters, and brokers of defense articles or services listed on the USML to register annually with State’s Directorate of Defense Trade Controls (DDTC) whereas there is no requirement in the law for registration for manufacturers, exporters, and brokers of items on the CCL. State reported having 13,083 registrants across all 21 USML categories in fiscal year 2017. Registration, which requires a fee payment of at least $2,250 per year, is generally a precondition for obtaining a State export license, unless State grants an exception to a manufacturer or exporter, or a broker is eligible for an exemption. According to a State document, registration provides important information on the identity and location of defense companies and conveys management responsibility for compliance with export control laws. Those registering must disclose any foreign ownership or affiliations and certify that they have not been indicted, otherwise charged with, or convicted of export control violations and other crimes. Manufacturers and exporters whose entire product line transfers to the CCL would no longer have to register, according to Commerce’s proposed rule, while those that manufacture or export any items that remain on the USML, would continue to register with DDTC. Differences Exist in State and Commerce Applicant Screening Processes and License Requirements Both Agencies Review Export License Applications Using an Interagency Process State’s and Commerce’s processes for reviewing export license applications involve opportunities for other Departments to review applications. While DDTC has primary responsibility for reviewing State’s commercial export license applications, other bureaus within State, as well as DOD, also review certain applications, depending on the defense article, defense service, or the destination country. Commerce export license applications also involve an interagency review that includes State, DOD, and the Department of Energy, depending on the item to be exported. Both departments have a process for resolving disagreements among the reviewing bureaus or agencies on the disposition of the application. According to State officials, as part of the interagency review process for Commerce licenses, State has generally reviewed applications for items that have previously moved from the USML to the CCL and would continue to do so for items that would transfer to the CCL under the proposed rules. Moreover, DOD officials told us that DOD intends to review Commerce export license applications for these items during the interagency review process, if the proposed transfer is implemented. This would represent a change from DOD’s current practice to generally not review State’s firearms license applications. DOD officials told us that if the proposed rules are finalized, they believed it is prudent to begin reviewing Commerce license applications for items that would transfer under the proposed rules, at least initially. State and Commerce Use Different Watch Lists to Screen Parties to the Export Transaction State and Commerce each maintain their own internal watch lists to screen all parties identified on license applications. A watch list match would trigger further review of the license and ultimately can result in a denial of the license in some cases. State and Commerce also use watch lists as a means of targeting transactions for possible end-use checks to verify legitimacy of end-users of controlled exports. Both departments’ watch lists include any derogatory information they collect internally from their past screening and end-use monitoring of licenses. For example, if information is identified raising questions about the legitimacy of a party to a license during the application review, that information would be used to update the watch list to inform future license application reviews. State’s and Commerce’s watch lists also include information from automated databases maintained by other U.S. agencies as well as information from law enforcement agencies and the intelligence community. State’s watch list contains over 200,000 entries, including sensitive details related to ongoing and previous law enforcement activities, according to State officials. According to Commerce officials, because State has been responsible for export controls of firearms, artillery, and ammunition, its internal watch list is also more likely than Commerce’s to include derogatory information collected from past screening and end-use monitoring related to exports of these items. However, Commerce does not have access to State’s watch list, according to State and Commerce officials. These officials noted that a Commerce licensing officer can ask State to screen an applicant with State’s watch list on a case-by-case basis, although such checks are not done routinely. State and Commerce officials told us that, in anticipation of the transfer of firearms, artillery, and ammunition to Commerce’s responsibility, the two departments are engaged in ongoing discussions to potentially share State’s watch list with Commerce. According to State officials, these discussions involve determining which specific watch list information Commerce would need and State is able to share, depending on the source of the information. State and Commerce also have to resolve the sharing and updating of information using different information technology infrastructures, according to department officials. As of February 2019, the departments had not reached agreement or established a documented process to achieve the goal of sharing watch list information before implementation of the proposed transfer would occur, according to State and Commerce officials. Information sharing is supported by a policy statement included in the ECRA. The statement says that among other factors, the “export control system must ensure that it is transparent, predictable, and timely, has the flexibility to be adapted to address new threats in the future, and allows seamless access to and sharing of export control information among all relevant United States national security and foreign policy agencies.” Without access to State’s watch list, if the proposed rules are finalized, Commerce may lack critical information needed to effectively screen license applicants for firearms and related exports and target possible cases for end-use monitoring to ensure that these exports are used as intended and by legitimate end-users. Both Agencies Screen License Applications for Human Rights Concerns but Statutory Prohibition Applies Differently Both State and Commerce screen license applications for human rights concerns, but the federal law that prohibits exports to the governments of certain foreign countries on human rights grounds applies differently to items under State’s jurisdiction than under Commerce’s. Under Section 502B of the Foreign Assistance Act of 1961, as amended, in general, “no security assistance may be provided to any country the government of which engages in a consistent pattern of gross violations of internationally recognized human rights.” For this provision, “security assistance” is defined in part as any license in effect with respect to the export to or for the armed forces, police, intelligence, or other internal security forces of a foreign country of (1) any defense articles or defense services licensed for export under section 38 of the AECA, or (2) items listed under the 600 series of the CCL. Licenses under Commerce’s jurisdiction generally may not be issued for items defined as “crime control and detection instruments and equipment” to a country, the government of which engages in a consistent pattern of gross violations of internationally recognized human rights. For items under Commerce’s jurisdiction, the Commerce proposed rule specifies that concern for human rights is a regulatory reason for denying a license for firearms and ammunition under Commerce’s Export Administration Regulations (EAR). Within State, the Bureau of Democracy, Human Rights and Labor (DRL) is primarily responsible for screening export license applications to ensure that exports do not involve parties with human rights concerns. According to DRL officials, the bureau reviews applications for exports to specific countries where human rights concerns exist and prioritizes applications for firearms exports because they are often associated with human rights abuses committed by government police and military units. The officials noted, however, that State rarely denies an export license based solely on human rights concerns. If firearms are transferred to Commerce’s responsibility, DRL will continue to have the primary role in screening license applications for human rights as part of the Commerce-led interagency review process, according to DRL officials. For Commerce license applications, however, State’s position would be weighed together with the positions of Commerce, DOD, and Energy, according to Commerce officials. By contrast, for State export license applications, State alone makes the final determination, according to State officials. State Has Different Requirements than Commerce for End-Users to Certify They Will Not Re-Export Certain Licensed Exports State and Commerce have different end-user certification requirements. State’s export control regulations require that for certain items, applicants provide a written certification from end-users that they will not re-export, resell, or otherwise dispose of the commodity outside of the country listed on the license. This requirement generally applies to all items on the USML that are designated as Significant Military Equipment, including firearms, and ammunition. In contrast, Commerce generally does not require end-user certification for items on the CCL but does require it when it has not verified the legitimacy of end-users and may also impose this requirement on a case-by-case basis. Written end-user certification provides additional assurance and accountability that end-users will comply with the terms and conditions of the license, according to State officials. It also is a deterrent and provides documentary evidence that can be later used in court, if necessary, according to an official from Immigration and Customs Enforcement (ICE). The Law Requires Disclosure of Political Contributions, Fees and Commissions for Items on the USML but Not for Items on the CCL The AECA states that the Secretary of State shall require reporting on political contributions, gifts, commissions, and fees paid or offered, or agreed to be paid by any person in connection with a commercial sale of an item listed on the USML to or for the armed forces of a foreign country or an international organization. State’s export control regulations also require license applicants to disclose certain payment of political contributions, fees, and commissions for certain sales of defense articles and defense services. This requirement applies to exports of $500,000 or more. Applicants must report political contributions in an aggregate amount of $5,000 or more and paid fees or commissions in an aggregate amount of $100,000 or more. Applicants must provide a letter to DDTC containing specific information about the sale, including the amounts of political contributions, fees, or commissions paid, and the name and nationality of each recipient. The disclosures are intended to ensure that purchases made by foreign governments of U.S. defense articles are based on merit without improper influence. Failure of applicants to comply with these disclosure requirements can result in additional oversight measures and civil penalties. According to an ICE official, this disclosure information may provide valuable information in criminal or civil matters. There is no requirement in the law for these disclosures for items listed on the CCL and Commerce licenses do not require these disclosures. Therefore, this information would no longer be collected as part of the licensing process for firearms, artillery, and ammunition that are proposed for transfer to the CCL, according to Commerce officials. According to Commerce, Certain Exports That Require a State License Would Not Require a Commerce License if Transferred to the CCL Consistent with export control regulations, there are several circumstances in which some exports proposed for transfer that currently require State licenses would either require fewer or no Commerce licenses if the proposed rules are finalized, according to Commerce. Multiple end-users on one license. State requires licenses to be limited to only one end-user, while Commerce allows multiple end-users on a single license. The applicant for a State export license must provide a purchase order documenting the proposed export to a single end-user and an additional license would be required for each additional end-user. According to Commerce officials, a Commerce license can have multiple end-users associated with a particular consignee, reducing the total number of licenses for which the applicant must apply. Technical data and defense services. State requires licenses for defense services and technical data whereas Commerce’s export controls do not generally apply to defense services and apply to technical data more narrowly than State. State’s regulations define defense services as “the furnishing of assistance (including training) to foreign persons … in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of defense articles.” State’s definition of defense services also includes military training of foreign units and forces including publications, training exercises, and military advice. State’s definition of technical data includes information, such as blueprints, drawings, or instructions. Commerce’s export control regulations generally do not apply to services. For example, training in the basic operation of a firearm controlled by Commerce would not be subject to export controls, according to State officials. In addition, Commerce’s regulations do not control technology or software, if it is “available to the public without restrictions.” For example, Commerce officials told us that Commerce would not require an export license for the posting of instructions for 3D printing of firearms on the internet, if they were publicly available without restrictions. Minimum level of U.S.-origin content. Items subject to State’s controls require a license when they are incorporated into a foreign-made product regardless of the percentage of controlled U.S. content in that product. Commerce does not require a license for items when they are incorporated into foreign-made items unless the controlled U.S.-origin content of a foreign-made product exceeds the applicable minimum percentage which, according to Commerce officials, may be 10 or 25 percent, depending on the destination. This minimum level of U.S.-origin content is referred to as “de minimis treatment.” Commerce’s proposed rule states that de minimis treatment in Commerce’s regulations would apply for all foreign-made items proposed for transfer to the CCL, unless they are being exported to a country that is subject to a United States arms embargo, in which case there would be no minimum threshold for U.S.-origin content. License exceptions. State regulations contain some country-based license exceptions, including for exports to Canada and, more narrowly, to Australia and the United Kingdom whereas Commerce has several different license exceptions under its regulations. For example, Commerce regulations have the “Strategic Trade Authorization” (STA) exception that permits exports of certain items to countries determined to be low risk, which includes NATO partners and other close allies, of which 37 are eligible for a broader STA authorization and seven are eligible for a much narrower STA authorization. Commerce’s proposed rule specifies that it would revise Commerce’s regulations to make firearms and most parts, components, accessories, and attachments ineligible for the STA license exception. However, Commerce estimates that 450 to 650 license applications per year involving certain eligible items would still be authorized under STA exceptions if the proposed rules are finalized. Commerce also has a “Limited Value Shipment” exception, which is available for proposed exports of certain less sensitive firearms parts and components with a value of $500 or less per shipment based on the actual selling price or fair market value. Commerce’s proposed rule specifies that this exception would only be available for certain parts, components, and accessories and attachments for firearms; complete firearms would be ineligible for this exception. State offers a similar exemption but only for licenses with a value of $100 or less, based on the wholesale price. State and Commerce Both Conduct End-Use Monitoring of Selected Controlled Exports but Differences Exist State and Commerce Both Implement End-Use Monitoring Programs State and Commerce both conduct end-use monitoring to verify the reliability of foreign end-users and legitimacy of proposed transactions and to provide reasonable assurance of compliance with the terms of the license and proper use of the licensed items. State recommends that end-use checks involve a site visit whenever possible, while Commerce policy requires that the end-use check include a physical verification on-site with a party to the transaction, according to Commerce officials. State and Commerce also apply their own means of risk-based targeting to select the licenses or exports that will undergo end-use monitoring, however, similarities exist involving selection criteria. For example, State and Commerce may target transactions that involve unfamiliar foreign parties, unusual shipping routes, or derogatory information from watch lists, according to the departments. The number of end-use checks conducted by State averaged about 1.3 percent of its license applications, and those conducted by Commerce averaged about 3.3 percent of its applications from fiscal years 2013-2017. State and Commerce end-use checks may result in either “favorable” or “unfavorable” findings. Commerce may also categorize an end-use check as “unverified.” An “unfavorable” or “unverified” result occurs if the end- use check cannot verify information in the license or reveals facts that are inconsistent with the license. For either State or Commerce, an unfavorable end-use check can lead to denying applications, revoking licenses, removing parties from licenses, updating the watch list, or making referrals to U.S. law enforcement agencies for investigation, according to a State report and Commerce officials. State closed 166 of 766, or 22 percent, of end-use monitoring cases as “unfavorable” in fiscal years 2013-2017 for firearms, artillery, and ammunition licenses. State’s three most common reasons for an unfavorable finding for end-use checks for firearms, artillery, and ammunition were derogatory information on a foreign party, inability to confirm order or receipt of goods, and involvement of an unlicensed party. State relies on U.S. embassy or consulate staff in the country or countries involved in the transaction to conduct its end-use checks. Commerce relies primarily on Export Control Officers (ECOs) positioned overseas to conduct end-use checks. ECOs conducted an average of about 60 percent of Commerce’s end-use checks per year from fiscal years 2013 to 2017. According to Commerce officials, Commerce had a total of nine ECO positions in Beijing, Dubai, Frankfurt, Hong Kong, Istanbul, New Delhi, and Singapore, as of October 2018 (see fig. 5). Six of these nine positions were filled as of this date. The ECOs have areas of responsibility covering multiple countries within their geographic region. For the remaining 40 percent of end-use checks, Commerce relied primarily on its “Sentinel Program” in which BIS special agents based in domestic field offices, along with other responsibilities, travel to destination countries not covered by ECOs to conduct end-use checks. In addition, a small percentage of Commerce’s end-use checks are conducted by Foreign Commercial Service officers or other personnel stationed at U.S. embassies, according to Commerce officials. State conducted 766 end-use checks for firearms, artillery, and ammunition in fiscal years 2013-2017 with the largest share, over 40 percent, in the Western Hemisphere (see fig. 6). None of Commerce’s overseas ECO positions are located in this region nor do any cover it within their areas of responsibility. According to Commerce officials, the number and locations of end-use checks for firearms, artillery, and ammunition, if these items are transferred to the CCL, will depend on how exports of these items factor into the department’s existing targeting criteria. To the extent that Commerce needs to conduct end-use checks for these items in the Western Hemisphere, Commerce officials told us that they plan to cover these checks via the Sentinel Program and, where necessary, through checks by Foreign Commercial Service Officers. The officials noted that they plan to reassess their end-use monitoring efforts after items are transferred to the CCL if the proposed rules are finalized. End-use checks include pre-license checks in support of the license application review or post-shipment verifications after the license has been approved and items have shipped. As shown in figure 7, more than 50 percent of State’s end-use checks specifically for firearms, artillery, and ammunition licenses from fiscal years 2013 to 2017 were pre-license checks. Conversely, about 90 percent of Commerce’s end- use checks for all items subject to the EAR for this period were post- shipment verifications. Commerce noted that it conducts mostly post- shipment verifications because it controls a higher share than State of items that are exported without a license. State Is Required by Law to Notify Congress of Certain Export License Applications for Firearms, Artillery, and Ammunition While Commerce Is Not The AECA requires State to notify Congress before State can approve certain export licenses for firearms, artillery, and ammunition. These notification requirements depend on the proposed export value and type of export, among other factors. For example, the AECA requires State to notify Congress of proposed licenses for the export of USML Category I firearms in the amount of $1 million or more. Additionally, State must notify Congress of proposed licenses for commercial agreements that involve the overseas manufacture of certain USML items, including many firearms, artillery, and ammunition items, regardless of the proposed value. During fiscal years 2013 to 2017, State identified 240 export license applications involving firearms, artillery, and ammunition that required congressional notification, totaling approximately $2.5 billion. Additionally, State identified 41 license applications for commercial technical assistance or manufacturing license agreements involving the overseas manufacture of firearms, artillery, and ammunition that required congressional notification, totaling approximately $5.7 billion. According to State and Commerce officials, these congressional notification requirements would no longer apply to firearms, artillery, and ammunition that move from State’s to Commerce’s export control responsibility because the requirements apply specifically to USML controlled items. The proposed rule transferring firearms to Commerce’s responsibility does not revise Commerce’s export control regulations to add a congressional notification requirement for firearms, according to Commerce officials. State Is Required by Law to Publicly Report More Details on Controlled Exports than Commerce The Foreign Assistance Act, as amended, requires State to report to Congress annually on military assistance and military exports to the governments of each foreign country and international organization and specifies that the report include “a statement of the aggregate dollar value and quantity of semiautomatic assault weapons, or spare parts for such weapons.” The Act also requires that State post all unclassified information from this report on the internet. To comply with this requirement, State posts an annual report that includes the aggregate dollar value and quantity of defense articles and services, by USML category, licensed to each foreign country and international organization, as well as data on the actual shipments occurring during the fiscal year. The report also includes an appendix that breaks out exports specifically for the USML sub-category I(a), which includes non-automatic and semi- automatic firearms, and sub category I(h), which includes firearms components, parts, accessories, and attachments. This reporting requirement only applies to exports of items on the USML, which are licensed by State under the AECA, but does not apply to exports controlled by Commerce. This information on exports, by country, would no longer be available for firearms and other items from Categories I-III of the USML after they are transferred to the CCL if the proposed rules are finalized, according to Commerce officials. Some Differences Exist between Export Control Enforcement of Items Controlled by State and Commerce The statutory penalties available for criminal violations of export control laws are the same regardless of whether the items are on the USML and controlled by State or on the CCL and controlled by Commerce. Criminal violations may result in fines up to $1 million and prison terms up to 20 years, or both. Under the AECA, civil violations of State’s export controls may result in a fine of up to $500,000 but, according to State officials, can be much higher based on inflation under the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended. State told us that actual civil penalties for civil violations in 2018 ranged from $824,959 to $1,134,602. By contrast, the ECRA set the penalty for civil violations of Commerce’s export controls at up to $300,000 or twice the value of the transaction that is the basis of the violation, whichever is of greater value. According to Commerce officials, this can substantially increase the monetary penalty for civil violations. Criminal violations of either State’s or Commerce’s export control laws may result in prohibiting the violator from involvement in future exports of controlled items. The AECA also precludes the issuance of State licenses to persons convicted of violating certain federal laws, such as the Foreign Corrupt Practices Act. Similarly, Commerce can deny the export privileges, including the ability to obtain a license, of companies and individuals for a period of 10 years from the date of conviction for violating certain federal laws. This prohibition can be expanded to include other related parties, such as those connected with the denied person by virtue of affiliation, ownership, or control. Agencies with responsibility for export control enforcement can vary depending on whether items are controlled by State or Commerce. According to DHS officials, ICE has jurisdiction to investigate potential export control violations and U.S. Customs and Border Protection has primary enforcement responsibility for export control violations at the border, seaports, and airports. The Federal Bureau of Investigation (FBI) can also investigate these cases involving items controlled by either State or Commerce. According to Commerce, the Office of Export Enforcement in BIS has over 100 special agents in U.S.-based field offices authorized to investigate potential violations of Commerce’s export control laws. These investigative resources would be available, in addition to DHS and FBI, to address illegal firearms trafficking if the proposed transfer is implemented, according to Commerce officials. Proposed Rules, If Finalized, Would Reduce State’s and Increase Commerce’s Licensing Volume, but Extent of the Resource Impact on These Agencies Is Unknown According to State, the Proposed Transfer Would Impact Resources from State Fee Collections to an Uncertain Extent State expects to lose revenue from registration fees if the proposed transfer of firearms, artillery, and ammunition to Commerce is implemented. State estimates in its proposed rule that the transfer would result in about 10,000 fewer license applications per year for Category I- III items—a reduction of about 26 percent from the 38,862 applications that State processed in fiscal year 2017. State estimates a recurring annual registration fee revenue loss of about $2.5 million, according to its proposed rule. State officials told us, if the proposed rules become final, there would be additional revenue declines from an uncertain drop in the number of registrants that State cannot estimate. They explained that because many manufacturers and exporters would likely be involved in items controlled by State as well as Commerce, they would still need to register with State. Others involved only in items moving to Commerce would no longer have to register with State. For example, according to State officials, a manufacturer of both semi-automatic weapons that the proposed rules identify for transfer to the CCL and fully automatic weapons that would stay on the USML would still be required to register with State, if the proposed rules are finalized. State officials noted that the decline in the number of license applications resulting from previous transfers of items from the USML to the CCL has not produced a proportional decline in registration revenue. According to data provided by State, registration revenue has dropped less than 25 percent from about $47 million in fiscal year 2013 to about $36 million in fiscal year 2017, while the number of export license applications has dropped more than 50 percent from about 83,000 to almost 39,000. With the decline in license workload that State expects would result if the proposed rules are finalized, State officials told us that four contractors currently responsible for reviewing licenses for firearms and ammunition in DDTC could be moved to other teams with vacancies in order to review licenses for other controlled items. On the other hand, State’s Bureau of International Security and Nonproliferation (ISN), which has lead responsibility at State for reviewing Commerce licenses for items transferring from the USML to the CCL, expects to see an increase in its workload. An ISN official told us his bureau could potentially need an additional 2.5 full-time equivalent staff to review items transferred to the CCL as part of Commerce’s interagency review process. Commerce Officials Believe They Have Sufficient Resources to Handle an Increase in Workload Resulting from the Proposed Transfer Commerce estimates in its proposed rule that it would gain 6,000 additional license applications from the proposed transfer—an increase of about 18 percent above the 34,142 license applications it reviewed in fiscal year 2017. Commerce officials told us that the increased workload to review license applications will also create more work for some related activities. For example, Commerce expects the number of investigative leads and export enforcement investigations to include more firearms- related actions. However, Commerce officials told us they have not estimated the magnitude of these changes. Commerce officials told us they believe they have enough resources to absorb the increase in workload. They noted that they have flexibility to shift license review staff to meet demand created by the additional licenses, if necessary. In addition, BIS received an 18 percent increase in full-time equivalent staff positions, from 367 to 432, in fiscal year 2018. This increase was in response to workload demands created by previous transfers of items from the USML to the CCL, according to Commerce officials. Commerce officials told us that they will continue to assess workload data after the proposed transfer is implemented to determine whether they have adequate staff levels to meet increased workload demands. Conclusions If finalized, the proposed rules to transfer certain firearms, artillery, and ammunition from Categories I-III of the USML to the CCL would apply Commerce’s export control system to these items instead of State’s. However, critical information needed to effectively screen applicants and target licenses for end-use monitoring may be unavailable to Commerce unless State shares its watch list data. Further, because State has been responsible for export controls of firearms, artillery, and ammunition, its watch list is more likely than Commerce’s to include derogatory information collected from past screening and end-use monitoring related to exports of these items, according to Commerce officials. While State and Commerce officials said that they have held discussions regarding how to share relevant information from their internal watch lists, as of February 2019, they had not reached any agreement on how to share watch lists if the proposed rules are finalized. Without such an agreement or process to share State’s watch list, Commerce may lack critical information needed to ensure that items proposed for transfer are used as intended and by legitimate end-users. Recommendations for Executive Action We are making a total of two recommendations, including one to State and one to Commerce. If responsibility for controlling the exports of certain firearms, artillery, and ammunition is transferred from State to Commerce, the Secretary of State should ensure that the Under Secretary of State for Arms Control and International Security Affairs develops a process for sharing State’s internal watch list with Commerce to enhance oversight of these items. (Recommendation 1) If responsibility for controlling the exports of certain firearms, artillery, and ammunition is transferred from State to Commerce, the Secretary of Commerce should ensure that the Under Secretary of Commerce for Industry and Security develops a process for receiving State’s internal watch list and integrating it into Commerce’s licensing review process to enhance oversight of these items. (Recommendation 2) Agency Comments We provided a draft of this report to State, Commerce, DOD, DHS, and DOJ for review and comment. In their written comments, reproduced in appendixes III and IV, State and Commerce agreed with our recommendations. Commerce provided some minor revisions to the recommendation, which we incorporated. DOD, DHS, and DOJ did not provide written comments. In addition, State, Commerce, and DOJ provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees and the Secretaries of State, Commerce, Defense, and Homeland Security; and the Attorney General of the United States. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8612 or gianopoulosk@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 V. Appendix I: Objectives, Scope, and Methodology Our objectives were to assess (1) the volume and value of commercial export license applications State Department (State) reviewed for firearms, artillery, and ammunition—Categories I-III of the U.S. Munitions List (USML)—in fiscal years 2013-2017, (2) how certain export controls differ between State and Commerce, and (3) what is known about the resource implications for State and Commerce due to the proposed transfer. To assess the volume and value of export license applications for USML Category I-III firearms, artillery, and ammunition that State reviewed during fiscal years 2013 to 2017, we obtained data from the interagency export licensing database, USXPORTS. USXPORTS is the system of record for all munitions and dual-use export license applications and adjudications, and is maintained by the Defense Technology Security Administration, within the Department of Defense (DOD). The data on USXPORTS originates from private companies applying for export licenses which, in the case of munitions, State is responsible for adjudicating. The agencies use this database to review and adjudicate applications, and also to report back to the applicants. We interviewed officials from State’s Directorate of Defense Trade Controls (DDTC) in State’s Bureau of Political and Military Affairs to understand the data and identify any limitations on how we use them. We analyzed the data to describe the number and reported value of export license applications, the USML items in the applications, and the reported destination country, among other characteristics. We assessed these data and found them to be sufficiently reliable for the purpose of conducting these analyses, but recognized that approved applications may not necessarily result in actual exports. We also noted some minor data limitations in our report, such as the fact that amendments to export license applications are not associated with destination countries. We did not independently audit the underlying data submitted to DDTC by private companies. To analyze how certain export controls differ between State and Commerce, we reviewed the departments’ proposed rules, relevant laws and regulations, agency guidance, and annual reports related to State’s and Commerce’s export controls. We also interviewed officials from Commerce’s Bureau of Industry and Security; DDTC; State’s Bureau of Democracy, Human Rights and Labor; State’s Bureau of International Security and Nonproliferation; Immigration and Customs Enforcement and U.S. Customs and Border Protection in the Department of Homeland Security; and the Defense Technology Security Administration. We sought to present differences between State’s and Commerce’s export controls that are potentially relevant for items proposed for transfer from the USML to the CCL, rather than every possible distinction between the two departments’ export control systems. To describe the number of export license applications for firearms, artillery, and ammunition that required congressional notification, we reviewed the licensing data from the USXPORTS database. To describe the end-use monitoring conducted on exports of firearms, artillery, and ammunition, we extracted data from State’s Defense Trade Application database and interviewed agency officials to understand the data. We analyzed the data by the number of checks per year, the proportion of pre-license checks to post- shipment checks, the countries where the checks were conducted, and the outcome of the checks. We assessed these data and found them to be sufficiently reliable for these purposes. To assess what is known about the resource implications for State and Commerce due to the proposed transfer, we held discussions with State and Commerce officials, and reviewed annual budget documents and other agency reports. To better understand State’s estimated reduction of 10,000 license applications per year and Commerce’s estimated gain of 6,000 licenses that would result from the proposed transfer of items from the USML to the CCL, we reviewed State’s fiscal year 2013-2017 export license data and the proposed rules. We also discussed the estimates with agency officials. Commerce officials told us that their estimate was fairly broad, based on State’s estimate and their knowledge and experience of differences between the two agencies’ license requirements that account for the difference between the two estimates. We were not able to independently assess the accuracy of either estimate because the license data we collected from State were not disaggregated to identify which items on license applications would be transferring to the CCL under the proposed rules and which would be staying on the USML. Each State license application can involve multiple items across multiple USML Sub-Categories. We also reviewed the number of full-time equivalent staff responsible for export control activities and State’s annual revenue from registration fees paid by manufacturers, exporters, and brokers involved in items on the USML. We discussed State’s registration data with agency officials and while we assessed these data as sufficiently reliable for descriptive purposes, we also determined that these data could not be used to generate reliable estimates about the resource implications for the Department of State because there was no clear pattern in the relationship between applications, registrants, and revenue in the data provided. We conducted this performance audit from February 2018 to March 2019 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. Appendix II: The U.S. Munitions List and the Commerce Control List Defense articles and services subject to export controls under the Department of State’s jurisdiction are listed in the 21 categories of the United States Munitions List (USML). Table 3 shows the 21 USML categories and the dates of rule changes under export control reform that transferred certain items within these categories to the Commerce Control List (CCL). The CCL is divided into ten broad categories and each category is further subdivided into five product groups (see table 4). Appendix III: Comments from the Department of State Appendix IV: Comments from the Department of Commerce Appendix V: GAO Contacts and Staff Acknowledgments GAO Contact Staff Acknowledgements In addition to the individual named above, Drew Lindsey (Assistant Director), Howard Cott (Analyst in Charge), Ashley Alley, Martin de Alteriis, Neil Doherty, Adam Peterson, and Aldo Salerno made significant contributions to this report.

The U.S. government implements an export control system to manage risks associated with exporting sensitive items while facilitating legitimate trade. State currently controls the export of most firearms, artillery, and ammunition. Regulatory changes proposed by State and Commerce would transfer this responsibility for many of these items to Commerce, which implements export controls under different legal and regulatory authorities. The proposed changes are part of a larger export control reform effort since 2010 to transfer control of less sensitive items from State to Commerce. GAO was asked to review the proposed changes to export controls of firearms, artillery, and ammunition. This report assesses (1) the volume and value of commercial export license applications State reviewed for these items in fiscal years 2013-2017, (2) how certain export controls differ between State and Commerce, and (3) what is known about the resource implications for State and Commerce due to the proposed transfer. GAO reviewed the proposed rules and related laws and regulations; analyzed data and documents related to licensing, end-use monitoring, and staff resources; and interviewed agency officials. The Department of State (State) reviewed approximately 69,000 commercial export license applications for firearms, artillery, and ammunition valued at up to $45.4 billion during fiscal years 2013 to 2017. About two-thirds of these applications were for firearms, and the majority involved the export of non-automatic and semi-automatic firearms, which are among the items proposed for transfer from State to Department of Commerce (Commerce) control. GAO identified several differences in Commerce's and State's export controls including those related to registration, licensing, end-use monitoring, and congressional notification that, according to the agencies, would apply to firearms, artillery, and ammunition proposed for transfer. Some of these differences are due to varying requirements in applicable laws and regulations. For example, the law requires manufacturers, exporters, and brokers to register with State for items controlled by State but not for items controlled by Commerce. Additionally, while Commerce and State both screen parties to licenses against relevant watch lists, Commerce officials said they do not have direct access to State's internal watch list, which contains derogatory information from past screening of licenses for firearms, artillery, and ammunition exports. State and Commerce officials stated that, while they have held some discussions, they have not established a process for sharing watch list information. Without access to State's watch list, Commerce may lack critical information to effectively screen parties to exports of firearms and related items. State and Commerce also both have end-use monitoring programs to confirm the legitimacy of end-users but some differences exist. For example, State relies on embassy staff to conduct end-use monitoring whereas Commerce relies primarily on several officers positioned overseas specifically for this purpose. In addition, a statutory requirement to notify Congress of proposed firearms exports over $1 million would no longer apply to firearms that transfer from State to Commerce, according to Commerce officials. According to the proposed rules and agency officials, the proposed transfer, if finalized, would result in a decline in licenses and revenues for State and an increase in licenses for Commerce, but the precise extent of these changes is unknown. State estimates that the transfer would result in a decline in revenue from registration fees but officials stated it is difficult to predict the extent of this decline. Commerce officials stated that they expected their licensing and enforcement workload to increase as a result of the transfer, if finalized, but they believe they have sufficient staff resources available to absorb the increase.

CRS_R46191

Introduction Approximately 27 million trips are taken on public transportation on an average day. Federal assistance to public transportation is provided primarily through the public transportation program administered by the Department of Transportation's (DOT's) Federal Transit Administration (FTA). The federal public transportation program was authorized from FY2016 through FY2020 as part of the Fixing America's Surface Transportation (FAST) Act ( P.L. 114-94 ). This report discusses the major issues that may arise as Congress considers reauthorization. In federal law, public transportation—also known as public transit, mass transit, and mass transportation—includes local buses, subways, commuter rail, light rail, paratransit (often service for the elderly and disabled using small buses and vans), and ferryboats, but excludes Amtrak, intercity buses, and school buses (49 U.S.C. §5302). About 48% of public transportation trips are made by bus, 38% by heavy rail (also called metro and subway), 5% by commuter rail, and 6% by light rail (including streetcars). Paratransit accounts for about 2% of all public transportation trips, and ferries about 1%. Public transportation accounts for about 3% of all daily transportation trips and about 7% of commute trips. Although ridership is heavily concentrated in a few large cities and their surrounding suburbs, especially the New York City metropolitan area, public transportation is provided in a wide range of places including small urban areas, rural areas, and Indian land. The Federal Public Transportation Program Most federal funding for public transportation is authorized in multiyear surface transportation acts. The FAST Act authorized $61.1 billion for five fiscal years beginning in FY2016, an average of $12.2 billion per year. The authorization for FY2020 is $12.6 billion. Of the total five-year amount, 80% was authorized from the mass transit account of the Highway Trust Fund. Funding authorized from the Highway Trust Fund is provided as contract authority, a type of budget authority that may be obligated prior to an appropriation. The other 20% was authorized from the general fund of the U.S. Treasury as appropriated budget authority. Funding for public transportation is sometimes provided under other authorities. The FY2018, FY2019, and FY2020 appropriations acts ( P.L. 115-141 , P.L. 116-6 , P.L. 116-94 ), for example, provided additional general fund money for several programs that typically receive funding only from the Highway Trust Fund, thereby raising the general fund share of federal public transportation expenditures to about 28% in FY2018, 26% in FY2019, and 21% in FY2020. Funding for the Public Transportation Emergency Relief Program, which provides grants for emergency repairs following natural disasters or other emergencies, is typically from the general fund provided in supplemental appropriations acts. Transit projects can also be funded with money transferred (or "flexed") from federal highway programs by state and local officials. In FY2016, the last year for which data are available, $1.3 billion in highway funds was flexed to transit. Excluding flexed highway funds and emergency relief funding, funding provided in FY2017 through FY2020 was above the level authorized in the FAST Act ( Figure 1 ). There are six major programs for public transportation authorized by the FAST Act: (1) Urbanized Area Formula; (2) State of Good Repair; (3) Capital Investment Grants (CIG) (also known as "New Starts"); (4) Rural Area Formula; (5) Bus and Bus Facilities; and (6) Enhanced Mobility of Seniors and Individuals with Disabilities. Typically, funding for all of these programs, except CIG, comes from the mass transit account of the Highway Trust Fund. CIG funding comes from the general fund. There are also a number of other much smaller programs ( Figure 2 ). Reauthorization Issues Program Funding The average of $12.2 billion per year authorized for the federal public transportation program in the FAST Act represented about a 14% increase (unadjusted for inflation) from the previous authorization, the Moving Ahead for Progress in the 21 st Century Act (MAP-21; P.L. 112-141 ). The Senate Committee on Environment and Public Works reported a bill in August 2019 ( S. 2302 ) that would reauthorize highway infrastructure programs through FY2025 with a 27% increase over the funding provided by the FAST Act. A similar increase in the annual authorization of public transportation funding would provide for federal expenditures of about $15.5 billion per year. A higher level of federal funding might improve the condition and performance of public transportation infrastructure. One indicator of the condition of public transportation infrastructure is the reinvestment backlog, which DOT defines as "an indication of the amount of near-term investment needed to replace assets that are past their expected useful lifetime." DOT estimated the reinvestment backlog to be $98 billion in 2014, about 13% of the total value of transit assets. In its biennial Conditions and Performance report, DOT projects how various future spending levels might affect the condition of public transportation infrastructure. The most recent report was published in November 2019 and used 2014 as the base year for projections. Capital expenditures on public transportation in 2014, DOT noted, totaled $17.7 billion from all sources, including federal, state, and local government support. Of this amount, $11.3 billion was spent on preserving the existing system and $6.4 billion on expansion. If this spending pattern were to continue over the 20 years between 2015 and 2034, DOT estimates, the investment backlog would grow to $116 billion (in 2014 inflation-adjusted dollars), an increase of 18%. DOT constructed two scenarios to estimate how much spending would be needed to eliminate the backlog and accommodate new riders. Under the assumption of low ridership growth, DOT estimated, $23.4 billion would be needed annually, an increase of about 32% (in 2014 inflation-adjusted dollars). In a scenario projecting high ridership growth, $25.6 billion would be needed annually, an increase of 45% (in 2014 inflation-adjusted dollars). DOT did not estimate the spending necessary if ridership is stagnant or dropping. However, it did estimate that $18.4 billion annually (adjusted for inflation) would eliminate the reinvestment backlog over 20 years if there was no spending on expansion. The focus of the federal public transportation program is on capital expenditures, but the program also supports operational expenses in some circumstances, as well as safety oversight, planning, and research. Greater federal support for transit operations could increase the quantity of transit service offered or reduce fares. In the past, particularly in the 1970s and early 1980s, such support caused the costs of providing service to increase, particularly through increases in wages and fringe benefits and by expanding services on routes with less demand. With greater flexibility to use federal funding for operating expenses, transit agencies could neglect maintenance and asset renewal, leading to a more rapid decline in the condition of capital assets. Existing flexibility to use capital funds for maintenance may help agencies preserve equipment and facilities. DOT does not make any recommendations about the relative shares of public transportation funding that should be borne by federal, state, and local governments. The federal share of government spending on public transportation has been around 15% to 20% over the past 30 years. A higher level of funding by the federal government may not necessarily translate into more spending overall if transit providers substitute federal dollars for their own. Highway Trust Fund Issues The solvency of the Highway Trust Fund and its two accounts, the highway account and the mass transit account, is a major issue in reauthorization of funding for the public transportation program. Outlays from the mass transit account have outpaced receipts for over a decade, an imbalance the Congressional Budget Office (CBO) projects will continue in the future under current law. For the five-year period beginning in FY2021, CBO expects the gap between revenues and outlays to total $26 billion, an average of $5.2 billion annually ( Table 1 ). The primary revenue source for the Highway Trust Fund is motor fuel taxes, which were last raised in 1993. Currently, of the 18.3 cents-per-gallon tax on gasoline and 24.3 cents-per-gallon tax on diesel that go to the Highway Trust Fund, 2.86 cents is deposited in the mass transit account. Congress has chosen to transfer general fund monies into the mass transit account to permit a higher level of spending than motor fuel tax revenues alone could sustain. These transfers have totaled $29 billion since they began in 2008. The FAST Act transferred $18.1 billion to the mass transit account from the general fund. According to FTA, a balance of at least $1 billion in the mass transit account is required to ensure that the agency has sufficient funds to make mandated payments to transit agencies. CBO estimates that if Congress were to extend current law without providing for further transfers from the general fund to the mass transit account, the balance in the mass transit account would be about $300 million at the end of FY2021 and would reach zero at some point in FY2022. This would likely require FTA to slow payments to transit agencies. Outlays also outpace receipts in the highway account, but solvency problems are expected to arrive earlier in the mass transit account. Bringing the receipts and outlays of the mass transit account into balance would involve a cut in program spending, an increase in revenues paid into the account, or a combination of the two. An increase in revenues could involve a commitment to regular transfers from the general fund. With the highway account facing similar problems, another possible change would be to redirect revenues from the mass transit account to the highway account and to fund the transit account with a general fund appropriation each year. This likely would make transit funding less certain, and it would not make up the entire shortfall in the highway account. Financing In addition to grants, the federal government supports public transportation infrastructure with direct loans and tax preferences for municipal bonds. Changes to two major federal loan programs relevant to public transportation—the Transportation Infrastructure Finance and Innovation Act (TIFIA) program and the Railroad Rehabilitation and Infrastructure Finance (RRIF) program—could be considered in reauthorization. TIFIA provides long-term, low-interest loans and other types of credit assistance for the construction of surface transportation projects (23 U.S.C. §601 et seq.). Although the maximum federal share of project costs that may be provided by the TIFIA program was raised in MAP-21 from 33% to 49%, DOT has stated that it will provide more than 33% only in exceptional circumstances. To date, TIFIA has not covered more than 33% of the cost of any project. By limiting the TIFIA share in this way, DOT appears to be trying to maximize the leveraging of nonfederal resources, but it may be excluding projects that may not be financially viable without greater federal assistance. Public transportation projects typically cover a relatively small share of their costs from user fees, thus they usually need more government support than highway and bridge projects. Congress could direct DOT to consider a higher federal share in more circumstances or across the board. Some project sponsors have stated that the lengthy process and upfront costs for obtaining TIFIA assistance led them not to seek TIFIA loans. The FAST Act required DOT to expedite projects thought to be lower-risk—those requesting $100 million or less in credit assistance with a dedicated revenue stream unrelated to project performance and standard loan terms—but this has apparently not had a significant effect: two projects have received TIFIA loans of less than $100 million since the passage of the FAST Act. Congress could make small TIFIA loans more attractive by changing a requirement that project sponsors obtain two credit ratings; at present, that requirement applies to TIFIA loans for projects with debt of $75 million or more. Less stringent requirements for credit ratings may increase the risk to the government of these loans. Reauthorization legislation also could incorporate various proposals that have been suggested to speed up approvals, such as requiring more frequent meetings of the DOT officials who make recommendations on project loans to the Secretary of Transportation (known as the Council on Credit and Finance), hiring additional staff to more quickly assess applications, and mandating that DOT regularly publish information about the time it takes loan applications to reach milestones. The RRIF program was originally created to support freight railroads, particularly small freight railroads known as short lines, but loans are increasingly being made to commuter railroads. Legislative changes have made RRIF loans more attractive to commuter railroads. Recent changes also permit loans for transit-oriented development, that is economic development projects, including commercial and residential development, physically or functionally related to a passenger rail station. Several large loans have been made to transit agencies for commuter rail projects in the past few years, including $908 million to the Dallas Area Rapid Transit to finance a project from Dallas-Fort Worth Airport, $220 million to the Massachusetts Bay Transportation Authority for positive train control (PTC), and almost $1 billion to the New York Metropolitan Transportation Authority, also for PTC. The federal government requires project sponsors to make a payment known as a credit risk premium to offset the risk of a default. No federal funding has been authorized to pay the credit risk premiums for RRIF borrowers, although $25 million was made available for this purpose in the 2018 appropriations act. To enhance the attractiveness of RRIF for public transportation projects, Congress could authorize a federal subsidy for the credit risk premium from the Highway Trust Fund. Alternatively, Congress could provide for the credit risk premium from the general fund directly or as part of another program. For example, the Further Consolidated Appropriations Act, 2020 ( P.L. 116-94 ) makes RRIF credit risk premiums eligible for grants under the BUILD Transportation Discretionary Grants Program. Another RRIF-related proposal is to extend the authority to provide loans for transit-oriented development projects, which expires on September 30, 2020. Capital Investment Grants (CIG) Program Because the CIG program receives funding from the general fund, not the Highway Trust Fund, appropriators have greater influence over its funding than they do over other transit programs. Nevertheless, the authorization sets a benchmark for the program's funding level, creates the program's overall structure, and can provide more or less discretion for FTA in the program's implementation. These characteristics could be more important in reauthorization than usual because of disagreements about the existence and operation of the program between Congress and the Trump Administration. During the Obama Administration, FTA, among others, recommended significant increases in CIG funding to accommodate demand by project sponsors, especially because projects to expand the capacity of existing transit facilities, known as Core Capacity projects, were made eligible for funding beginning in FY2013. FTA noted in its FY2017 budget submission that the number of projects in the CIG "pipeline" had grown from 37 in FY2012 to 63 in FY2016. In addition, FTA asked Congress in its FY2017 budget request to increase annual CIG funding from the $2.3 billion authorized by the FAST Act to $3.5 billion, to accelerate projects to "not only potentially lower financing costs incurred on these projects, but also allow FTA to better manage the overall program given the ever growing demand for funds." For FY2018 and FY2019, the Trump Administration proposed that funding should be limited to projects with existing commitments from the federal government, and that CIG funding should be phased out. In its funding recommendation for FY2018, FTA noted that "future investments in new transit projects would be funded by the localities that use and benefit from these localized projects." House and Senate appropriators rejected this approach, directing FTA to continue working with project sponsors to develop projects, including issuing project evaluation ratings, and requiring the allocation of appropriations, with deadlines, to projects that have met the program requirements. With pressure for continued operation of the program, FTA has made several announcements of allocations of CIG funding to new projects. In July 2019, FTA stated that from the beginning of the Trump Administration in January 20, 2017, FTA had made CIG funding commitments to 25 new projects totaling $7.63 billion. It appears that FTA has dropped its call for phasing out the program; it recommended funding of $1.5 billion in FY2020, including $500 million for new projects. Congress agreed to nearly $2 billion for the program in the Further Consolidated Appropriations Act, 2020 ( P.L. 116-94 ). New York and New Jersey Gateway Program The Gateway Program, which involves a set of projects in a 10-mile section of the Northeast Corridor (NEC) between Penn Station in Newark, NJ, and Penn Station in New York City, would be designed to improve intercity passenger rail service by Amtrak, which owns the underlying infrastructure, as well as commuter rail service provided by New Jersey (NJ) Transit. NJ Transit ridership in the corridor is approximately 50 million passenger trips per year, making this among the most heavily traveled public transportation routes in the country. The project sponsors—the Port Authority of New York and New Jersey, in cooperation with the Gateway Program Development Corporation, New Jersey Transit Corporation, and Amtrak—have proposed $7 billion in CIG program funding for the costliest Gateway Program project to date. The $14 billion project is for the construction of a new tunnel under the Hudson River, the restoration of the current tunnel that was damaged by Hurricane Sandy in 2012, and the preservation of the Hudson Yards right-of-way linking the proposed new tunnel with Pennsylvania Station in New York City. In addition, the project sponsors propose to borrow several billion dollars for tunnel construction from the federal government through the RRIF program. NJ Transit, the lead sponsor of the $1.6 billion Portal North Bridge project across the Hackensack River in New Jersey, has proposed a CIG grant to cover about half the cost. The Gateway Program overall is estimated to cost about $30 billion. The federal amount sought for the Gateway Program is equal to several years of funding for CIG, at recent funding levels, and could potentially overwhelm a program that is responsible for aiding projects throughout the country. The largest CIG grant since FY2007 is $2.6 billion. FTA typically pays out such grants in smaller amounts over a prolonged construction period; single-year allocations of funding for individual projects have rarely exceeded $200 million. The proposed use of federal loans in conjunction with federal grants for the Gateway Program is also controversial. The statute governing TIFIA (23 U.S.C. §603(b)(8)) states that proceeds from a TIFIA loan "may" be used as a nonfederal share of project costs if the loan will be repaid from nonfederal funds. The Trump Administration has been critical of CIG project sponsors using both federal grants and loans on public transportation projects. In June 2018, FTA circulated a letter stating the following: given the competitive nature of this discretionary program, the [CIG] statute specifically urges FTA to consider the extent to which the project has a local financial commitment that exceeds the required non-government share of the cost of the project. To this end, FTA considers U.S. Department of Transportation loans in the context of all Federal funding sources requested by the project sponsor when completing the CIG evaluation process, and not as separate from the Federal funding sources. The appropriations committees have taken action to prevent this policy from being implemented. For instance, Section 165 of Division G of the Consolidated Appropriations Act, 2019 ( P.L. 116-6 ), states that "none of the funds made available under this Act may be used for the implementation or furtherance of new policies detailed in the 'Dear Colleague' letter distributed by the Federal Transit Administration to capital investment grant program project sponsors on June 29, 2018." In a potential reauthorization, Congress could seek to eliminate permanently DOT's discretion to block project sponsors from combining CIG grants and TIFIA loans on a single project. Bills pending in the House, H.R. 731 and H.R. 1849 , would allow recipients of TIFIA and RRIF support to elect to have the loans treated as nonfederal funds. Expediting CIG Projects Applying for CIG funding requires the development of extensive data and the preparation of many detailed reports and other documents, all of which are reviewed by FTA in making project approval determinations. Legislative changes in MAP-21 and the FAST Act sought to simplify the process. For example, MAP-21 reduced the number of separate FTA approvals for more expensive projects from four to three, and for less expensive projects from three to two. The less expensive projects, known as small starts projects, are those that cost $300 million or less to build and require $100 million or less of CIG funding. Moreover, MAP-21 authorized the use of project justification warrants in certain cases "that allow a proposed project to automatically receive a satisfactory rating on a given criterion based on the project's characteristics or the characteristics of the project corridor." The FAST Act created an Expedited Project Delivery for Capital Investment Grants Pilot Program to more quickly review up to eight projects involving public-private partnerships in which the federal grant is 25% or less of the project cost. The federal share of a CIG project is typically about 50%. There have been no comprehensive evaluations of whether these changes have resulted in projects progressing more quickly through the CIG pipeline. However, there are options that could be considered to further speed CIG projects. For instance, the threshold for projects to qualify as small starts could be increased, and the use of warrants could be permitted in more circumstances. FTA has been slow to implement the Expedited Project Delivery for Capital Investment Grants Pilot Program. Increasing the permitted maximum federal share of project costs under the pilot program, currently 25%, might make the program more attractive to transit agencies. Falling Public Transportation Ridership According to data from the American Public Transportation Association (APTA), annual transit ridership reached a modern-era high of 10.7 billion trips in 2014. Since then, it has fallen by almost 8% to 9.9 billion trips in 2018. National trends in public transportation ridership are not necessarily reflected at the local level; thus, different areas may have different reasons for growth or decline. But at the national level, the two factors that most affect public transportation ridership are competitive factors and the supply of transit service. Several competitive factors, notably increased car ownership, the relatively low price of gasoline over the past few years, and the growing popularity of bikeshare, scooters, and ridesourcing services such as Lyft and Uber, appear to have reduced transit ridership. The amount of transit service supplied has generally grown over time, along with government investment, but average fares have risen faster than inflation, possibly deterring riders. The future of public transportation ridership in the short to medium term is likely to depend on population growth, the public funding commitment to supplying transit, and factors that make driving more or less attractive, such as the price of parking, the extent of highway congestion, and the implementation of fuel taxes, tolls, and mileage-based user fees. Under current law, federal grants to transit agencies are based mainly on population, population density, and the amount of service provided. Congress could address the issue of declining ridership by tying the allocation of federal formula funds to agencies' success in boosting ridership or fare revenue. Over the long term, the introduction of fully autonomous vehicles could reduce transit ridership, unless restrictions or fees make them an expensive alternative. However, there is significant uncertainty about when, or whether, fully autonomous vehicles will affect ridership. Given this uncertainty, federal capital funding might focus on buses, which last about 10 years, and not new rail systems that take many years to build and will remain in service for decades. Another option would be to redirect CIG funding from building new rail systems and lines to refurbishing rail transit in the large and dense cities where rail transit currently carries large numbers of riders. The emergence of new mobility options may have reduced transit ridership, but it also may present an opportunity for transit agencies to provide new services to improve customer mobility. FTA has funded some pilot projects through the Research, Development, Demonstration, and Deployment program. An option in reauthorization would be to fund a program that focuses on boosting transit ridership through mobility and technological innovations. Climate Change Surface transportation is a major source of carbon dioxide (CO 2 ) in the atmosphere, the main human-related greenhouse gas (GHG) contributing to climate change. At the same time, the effects of climate change on environmental conditions, such as extreme heat and global sea level rise, pose a threat to transportation infrastructure. Surface transportation reauthorization may seek to address environmental conditions with mitigation provisions that aim to reduce GHG emissions from surface transportation and adaptation provisions that aim to make the surface transportation system more resilient. S. 2302 , the reauthorization bill reported by the Senate Committee on Environment and Public Works in August 2019, included provisions that address climate change. GHG emissions from the transportation sector come mainly from passenger cars and light trucks. Public transportation might contribute to a reduction of GHG emissions if trips made in personal vehicles, particularly single-occupant trips, are made by trains and buses instead. The efficiency of public transportation in terms of GHG emissions depends, in part, on the amount of ridership in relation to the amount of transit supplied. GHG emissions from public transportation are also dependent on the sources of fuel used to power trains and buses, including the way in which electricity is generated. Specific policy options that might be considered to reduce GHG gases from public transportation vehicles could include funding for alternatives to diesel-powered buses, particularly electric buses using electricity generated from renewable sources. This could include a higher level of funding for the Low or No Emission Vehicle (Lo-No) Program. In the FAST Act, the discretionary Lo-No Program was funded as a $55 million annual set-aside from the Bus and Bus Facilities Program. Another possibility would be to require buses purchased using federal funds to have low or no emissions. Electric buses cost more to purchase than traditional diesel-powered buses, although the lifecycle cost is comparable. To overcome this, the federal government could offer low-interest or no-interest loans for the nonfederal share of the cost of buying electric buses. Adaptation is action to reduce the vulnerabilities and increase the resilience of the transportation system to the effects of climate change. Although much of the funding administered by FTA can be used to assess the potential impacts of climate change on public transportation infrastructure and to apply adaptation strategies, there is currently no dedicated surface transportation funding for adaptation projects. Reauthorization could create a new grant program dedicated to adaptation planning and projects or require that funds from other programs be set aside for such purposes. Emergency Relief Program The Public Transportation Emergency Relief (ER) Program (49 U.S.C. §5324; 49 C.F.R. §602) provides federal funding on a reimbursement basis to states, territories, local government authorities, Indian tribes, and public transportation agencies for damage to public transportation facilities or operations as a result of a natural disaster or other emergency and to protect assets from future damage, so-called resilience projects. FTA's ER program does not have a permanent annual authorization. Rather, all funds are authorized on a "such sums as necessary" basis and require an appropriation from the Treasury's general fund. Because of this, FTA cannot provide funding immediately after a disaster or emergency is declared. Transit agencies, therefore, typically rely on the Federal Emergency Management Agency (FEMA) to fund immediate needs beyond the capacity of state and local government. This could slow the response of transit agencies and blur the lines of responsibility between FTA and FEMA if funds are later appropriated for the ER program. Adding a quick-release mechanism to FTA's ER program would allow FTA funds to be approved and distributed within a few days of a disaster. Such a program already exists for the Federal Highway Administration, with an annual authorization of funds from the Highway Trust Fund, and FTA's program could similarly be authorized an amount from the mass transit account of the fund. Such an authorization, however, would place a new claim on resources of the mass transit account. The FTA's ER program does not have a limit on the amount that can be spent on resilience projects. Although this may allow for better projects, it can result in Congress appropriating larger amounts than might otherwise be necessary, and it could also be a way for transit agencies to fund betterments and new facilities that have little direct connection to the goals of repairing damages and making the transit systems resilient to future natural hazards. A separate resilience program and changes to the ER program may be a more effective way to protect public transportation infrastructure from future disasters. Public Transportation Safety Public transportation is a relatively safe mode of passenger transportation compared with traveling by car and light truck. The fatality rate per passenger mile for cars and light trucks is about double that of transit buses and five times that of heavy rail. While the fatality rate per passenger mile for commuter rail is more comparable with cars and light trucks, most commuter rail fatalities are nonusers, such as trespassing pedestrians and those in vehicles struck at grade crossings. The federal government's role in public transportation safety has been expanded significantly since 2008. One of the major changes was the requirement in the Rail Safety Improvement Act of 2008 ( P.L. 110-432 ) for commuter railroads, along with Amtrak and freight railroads, to install positive train control (PTC), systems that use signals and sensors to monitor and control railroad operations. The federal requirement for PTC resulted in significant capital costs for commuter rail agencies, of which about 10% has been borne by the federal discretionary and formula funds. In addition to the initial costs of installing PTC, commuter rail agencies claim that there will be ongoing costs associated with PTC estimated to be about $160 million per year. Consequently, PTC implementation may have a detrimental effect on the overall financial condition of commuter rail agencies, and, without more funding from federal, state, or local government, may have a detrimental effect on the condition of commuter rail assets. Commuter rail agencies have proposed the creation of a new federal PTC funding program that could pay some or all of these ongoing costs. Separately, proposals have been advanced to dedicate federal funding for commuter railroads to improve the safety of highway-rail grade crossings. Buy America With the aim of protecting American manufacturing and manufacturing jobs, Buy America laws place domestic content restrictions on federally funded transportation projects. Buy America requirements vary according to the specific DOT funding program and administering agency. For projects funded by FTA there is a 100% U.S.-made requirement for iron, steel, and manufactured goods. However, Buy America does not apply to rolling stock if more than 70% of components, by value, are produced domestically and final assembly is in the United States. An addition to Buy America law in the National Defense Authorization Act for Fiscal Year 2020 ( P.L. 116-92 , §7613) prohibits transit agencies purchasing railcars and buses from certain government-owned, -controlled or -subsidized companies, such as the China Railway Rolling Stock Corporation and BYD, even if they are otherwise Buy America-compliant. Waivers of Buy America requirements can be provided by DOT agencies under certain circumstances, but these can be difficult and time-consuming to obtain. To speed up the waiver process, Congress could require that a waiver decision be made within a specific number of days. Each DOT agency has its own Buy America requirements, creating complications when a project involves funding from more than one of the agencies. Congress might seek to standardize Buy America requirements across the department. Other proposals have been to make Buy America requirements more stringent. For example, the Buy America 2.0 Act ( H.R. 2755 , 116 th Congress) would increase the share of public transit rolling stock components and subcomponents that must be produced in the United States by five percentage points annually beginning in FY2021, reaching 100% by FY2026. Such measures may make it more costly and time-consuming for transit agencies to procure vehicles.

The federal public transportation program is currently authorized through FY2020 as part of the Fixing America's Surface Transportation (FAST) Act ( P.L. 114-94 ). This report highlights several major issues that may arise as Congress considers program reauthorization. Public transportation includes local buses, subways, commuter rail, light rail, paratransit (often service for the elderly and disabled using small buses and vans), and ferryboat, but excludes Amtrak, intercity buses, and school buses. The FAST Act authorized $61.1 billion for five fiscal years beginning in FY2016, an average of $12.2 billion per year. Of the total amount, 80% was authorized from the mass transit account of the Highway Trust Fund, and 20% was authorized from the general fund of the U.S. Treasury. Most federal funding from the mass transit account is distributed to transit agencies through formula programs. Most of the general funding authorized is for the Capital Investment Grants (CIG) Program, also known as New Starts, which provides discretionary funding for large capital projects to create and extend rail and bus rapid transit systems. Reauthorization issues discussed in this report include the following: Funding levels and the solvency of the mass transit account . Annual spending from the mass transit account is projected to exceed annual revenues by about $5 billion through FY2025. Bringing receipts and expenditures into balance would require a cut in spending of the federal transit program, an increase in revenues paid into the account, or a combination of the two. Revenue options include increasing taxes that are dedicated to the mass transit accounts and transferring money from the general fund. C hanges to two federal loan programs that may be used for transit capital expenditures , t he Transportation Infrastructure Finance and Innovation Act (TIFIA) program and the Railroad Rehabilitation and Infrastructure Finance (RRIF) program . Issues include TIFIA's share of project costs, the speed and cost of obtaining a loan, and the authorization of federal funding to pay the credit risk premium of RRIF loans. Declining public transportation ridership . Options include linking federal formula funds to transit agencies' success in boosting ridership; redirecting CIG funding from building new rail facilities to refurbishing lines in dense cities where rail transit currently carries large numbers of riders; and funding research projects to explore partnerships between transit agencies and firms offering new mobility options such as ridesharing and bike sharing. F unding the CIG program . CIG has been proposed as a major source of funding for the Gateway Program, which is intended to build new rail tunnels and repair existing tunnels between New Jersey and New York. The amount sought for the Gateway Program is equal to several years of funding for CIG, at recent funding levels, and could overwhelm a program that is responsible for aiding projects throughout the country. Public transportation and climate change. Congress may consider how to reduce greenhouse gas emissions from surface transportation and adaptation provisions that aim to make the public transportation system more resilient. Options considered might include dedicated funding for resilience projects and greater funding for buying low and no emission buses. Buy America . This law places domestic content restrictions on federally funded transportation projects, including procurement of rolling stock. Issues that might arise include the share of components and subcomponents that have to be domestically sourced, the availability of waivers, and the standardization of requirements across modes.

GAO_GAO-19-466

Background OMB Guidelines In January 2018, OMB released (M-18-04) Monitoring and Evaluation Guidelines for Federal Departments and Agencies that Administer United States Foreign Assistance (the “Guidelines”) in response to the 2016 FATAA legislation. (See appendix III for additional information on the requirements in the legislation). The Guidelines provide direction to federal departments and agencies that administer foreign assistance on monitoring the use of resources, evaluating the outcomes and impacts of the foreign assistance projects and programs, and applying the findings and conclusions of such evaluations to proposed project and program design. The goals of the Guidelines are to set forth key principles to guide each agency and to specify requirements, where appropriate, that agencies must cover in their own policies on M&E of foreign assistance. The Guidelines define monitoring and evaluation as follows: Monitoring is the ongoing and systematic tracking of data and information relevant to policies, strategies, programs, projects, and/or activities and is used to determine whether desired results are occurring as expected during program, project, or activity implementation. Monitoring often relies on indicators, quantifiable measures of a characteristic or condition of people, institutions, systems, or processes that may change over time. Evaluation is the systematic collection and analysis of information about the characteristics and outcomes of the program, including projects conducted under such program, as a basis for making judgments and evaluations regarding the program; improving program effectiveness; and informing decisions about current and future programming. Table 1 lists OMB’s M&E requirements and key excerpts of the descriptions as noted in the OMB M-18-04. GAO Leading Practices In 2016, we reported on leading practices for foreign assistance program M&E. We identified 28 leading practices—14 for monitoring and 14 for evaluation. Table 2 lists and defines these monitoring practices. Table 3 lists the evaluation practice and corresponding definition. OMB’s Foreign Assistance Monitoring and Evaluation Guidelines Incorporate Most but Not All of GAO’s Leading Practices Based on our review, the Guidelines incorporate most of GAO’s leading practices for monitoring and evaluation. However, they do not incorporate practices on developing monitoring plans that are based on risks, ensuring that staff are appropriately qualified to conduct monitoring, establish procedures to close out programs, developing staff skills for evaluation, and following up on evaluation recommendations. OMB indicated that it intended the Guidelines to focus on elements required by the FATAA legislation. Nevertheless, incorporating these leading practices in the Guidelines can help ensure that all agencies address impediments, effectively manage foreign assistance, and meet their assistance goals. The Guidelines Incorporate Most of the GAO’s Leading Practices for Monitoring, but Do Not Include Risk Assessments, Staff Qualifications, or Close-Out Procedures Based on our review, OMB incorporates 11 of 14 GAO’s leading practices. Figure 1 shows our assessment of the Guidelines with regard to monitoring foreign assistance. The OMB Guidelines do not incorporate practices on developing monitoring plans that are based on risks, ensuring that staff are appropriately qualified to conduct monitoring, and establishing close-out procedures for projects and programs. Developing monitoring plans based on an assessment of risk. The Guidelines do not incorporate GAO’s leading practice of developing monitoring plans based on as assessment of risks related to achieving the defined objectives. Identifying and assessing risks can help agencies determine if impediments exist that they might need to mitigate in order to manage their foreign assistance more effectively. Additionally, determining which activities warrant greater oversight and which require less can also help agencies ensure the appropriate allocation of foreign assistance. Ensuring Staff qualifications for monitoring. The Guidelines do not incorporate GAO’s leading practice for agencies to ensure that staff members responsible for monitoring programs or projects have the relevant knowledge, skills, and training. By having qualified staff for monitoring programs or projects, agencies can help ensure they meet their foreign assistance goals. By hiring qualified staff and providing them the right training, tools, structure, incentives, and responsibilities, agencies can make operational success possible. Establishing close out procedures for projects and programs. The Guidelines do not incorporate GAO’s leading practice for agencies to establish program closeout procedures for all required work and administrative actions completed by the implementing partner. By establishing such procedures, agencies can help ensure their foreign assistance is less susceptible to fraud, waste, and mismanagement; addresses increases to potential costs in fees for maintaining foreign assistance; and increases their ability to redirect foreign assistance to other projects. The Guidelines Incorporate Most of the GAO’s Leading Practices for Evaluation, but Do Not Include Developing Staff Skills and Following Up on Recommendations Based on our review, OMB incorporates 12 of 14 GAO’s leading practices. Figure 2 shows our assessment of the Guidelines with regard to evaluating foreign assistance. The OMB Guidelines do not incorporate some practices such as developing staff skills for evaluation and following up on evaluation recommendations. Developing staff skills regarding evaluating. The Guidelines do not incorporate GAO’s leading practice for agencies to establish requirements that the staff responsible for overseeing and using evaluations should continually undertake the relevant education, training, or supervised practice needed to learn new concepts, techniques, and skills. By having their staff continually undertake such education, training, or supervised practice, agencies can benefit more fully from program evaluations. Following up on recommendations. The Guidelines do not incorporate GAO’s leading practice for agencies to determine whether management or programs have accepted the recommendations made in evaluation reports and taken the actions needed to address them. By developing mechanisms to track recommendations, agencies can better address inefficient, mismanaged, or costly programs or projects. OMB Notes the Guidelines for Monitoring and Evaluation Include Elements Required in the FATAA Legislation The FATAA requires the President to set forth guidelines “according to best practices of monitoring and evaluation” but does not define these best practices. Specifically, FATAA states, “the President shall set forth guidelines, according to best practices of monitoring and evaluation studies and analyses, for the establishment of measurable goals, performance metrics, and monitoring and evaluation plans that agencies can apply with reasonable consistency to covered United States foreign assistance.” OMB staff told us that the Guidelines were intended to focus on elements required by the FATAA legislation but noted that agencies are free to add additional requirements to their own M&E policies. However, we have previously reported that while some of these agencies have incorporated these leading practices, others have not. Furthermore, agencies that have incorporated these practices would not necessarily continue to include them if they are not required in the Guidelines. Regarding leading practices, officials noted that while these practices are important, there is no singular established standard for best monitoring practices. Nevertheless, both OMB’s circulars and recent legislation note the importance of leading practices for M&E. For example, Circular A-123 notes that management should identify internal and external risks that may prevent the organization from meeting its objectives. Additionally, the Foundations for Evidence-Based Policymaking Act of 2018 requires OPM, in consultation with the OMB, to identify skills and competencies needed for program evaluation, establish a new occupational series or update an existing one for program evaluation, and establish a new career path for program evaluation. Most Agencies Have Incorporated OMB’s Guideline Requirements in Their Policies, and All Have Taken Initial Steps to Implement Them Based on our review, most agencies incorporated all of OMB’s Guidelines for monitoring in their policies. However, DOD did not include the requirement to establish roles and responsibilities among agencies that participate in funding transfers or ensure that verifiable, reliable, and timely information is collected and available to monitoring personnel. We also found that agencies incorporate most of OMB’s Guideline requirements for evaluation in their policies, but some did not include the requirement to conduct impact evaluation on all pilot programs. Without incorporating these Guideline requirements, agencies risk losing accountability over their funding and monitoring and evaluating activities. They also risk replicating programs without fully understanding their effectiveness. We also found that all of the agencies we reviewed have taken initial steps to implement their M&E policies. Most Agencies Have Incorporated OMB’s Guideline Requirements for Monitoring Based on our review of agency monitoring policies, all the agencies except DOD incorporated relevant Guideline requirements. All six agencies we reviewed incorporated the requirement to establish monitoring policies that apply to their major foreign assistance programs. For example, State, USAID, and MCC have agency-wide policies for foreign assistance M&E. USDA and HHS have policies relevant to their major foreign assistance programs—for USDA, the Foreign Agriculture Service’s food aid programs, and for HHS, the President’s Emergency Plan for AIDS Relief (PEPFAR). All of the agencies with relevant monitoring policies—DOD, HHS, MCC, State, USAID, and USDA— incorporate the requirement to develop, collect, analyze, and report data on performance indicators. These policies help ensure the measurement of project implementation and progress, and promote the timely analysis and reporting of results that could identify any needed corrections. DOD did not incorporate Guideline requirements to establish agencies’ roles and responsibilities and ensure verifiable data for monitoring activities. Establishing agencies’ roles and responsibilities when funds are transferred. DOD did not include the Guideline requirement for agencies to establish roles and responsibilities in funding transfers. Without defined roles and responsibilities, agencies risk losing accountability over funding and monitoring activities. In addition, agencies could miss opportunities to collaborate and leverage interagency efforts to facilitate decision-making and address barriers across agency boundaries. Ensuring verifiable, reliable, and timely data. DOD did not include the Guideline requirement for agencies to ensure they collect and provide verifiable, reliable, and timely data to monitoring personnel. Without ensuring that such data are available to monitoring personnel, agencies risk employing inappropriate methods, continuing ineffective programs or projects, and making uninformed decisions. DOD officials told us these practices are currently not required because they are still in the process of fully aligning their policy with the Guidelines. Officials explained that working on prioritizing and directing resources towards M&E efforts has been a challenge. Officials noted they expect to update the policy to include these requirements in the future, but they have no specific timelines in place. Agencies Incorporate Most but Not All of OMB’s Guideline Requirements on Evaluation The agencies we reviewed incorporated nearly all relevant Guideline requirements on evaluation. Three of the six agencies—DOD, HHS and USDA—did not include a requirement to conduct impact evaluations on all pilot programs or projects. Figure 4 shows our assessment of agencies’ evaluation policies against the Guidelines. All the agencies we reviewed have established project-specific evaluation plans. For example, HHS implements PEPFAR’s evaluation plan which indicates specific requirements for describing the evaluation component, strategy, or intervention, the reason for the evaluation, the type of evaluation, the key evaluation questions, the data sources, the methods by question, and the dissemination and utilization plan. All the agencies we reviewed also had policies on distributing their evaluation reports internally and publicly reporting them. For example, State and USAID have a web-based, customized Evaluation Registry system that they jointly maintain for bureaus and independent offices to record and track planned, ongoing, and completed evaluations. Conduct impact evaluations for pilot programs or projects. DOD, HHS, and USDA did not include the Guideline requirement for agencies to conduct impact evaluations for pilot programs or to conduct only a performance evaluation and to provide a justification for not conducting an impact evaluation. Without a requirement to conduct impact evaluations of pilot programs, agencies risk duplicating or scaling up programs without fully understanding the factors that could lead to their success or failure. DOD. DOD officials told us they do not require this practice because they are still in the process of fully aligning their policy with the Guidelines. According to DOD, it has determined that impact evaluations are impractical and inappropriate for the planned evaluations; instead, it plans to conduct only performance evaluations and provide justifications for not conducting impact evaluations, as required by the OMB Guidelines. DOD plans to address the evaluation methodology of pilot programs in future updates, according to officials. However, DOD has no specific timelines in place for these updates. HHS. PEPFAR’s M&E documents indicate that PEPFAR teams are encouraged but not required to evaluate all current pilot programs to see which should be taken to scale for specific populations. Officials from HHS and the Office of the U.S. Global Aids Coordinator noted that they conduct their own evaluation of pilot programs and use routine program data to inform scaling of programs. However, PEPFAR policies do not specifically require that such evaluations be like the impact evaluations described in the Guidelines. USDA. FAS’s M&E documents indicate that when selecting projects to undergo impact evaluation the agency will consider pilot projects. USDA officials told us they have no requirement to conduct impact evaluations on all pilot projects because impact evaluations may be cost prohibitive and project lifecycles are short (i.e., 3 to 5 years). Officials further noted that implementing partners can conduct an impact evaluation on pilot programs, but are not required to do so. Although the Guideline requirement indicates that agencies can forgo impact evaluations, they must provide a justification in their M&E policy. USDA officials have not provided such a justification provided in their M&E policy. Establish agencies’ roles and responsibilities for evaluation activities when funds are transferred. DOD did not include the Guideline requirement for agencies to define roles and responsibilities when there are funding transfers between or among U.S. government agencies to ensure accountability for evaluation activities. Without defined roles and responsibilities, agencies risk losing accountability over funding and evaluation activities. In addition, they could miss opportunities to collaborate and leverage interagency efforts to facilitate decision-making and address barriers across agency boundaries. Evaluate all programs at least once whose dollar value equals or exceeds that of a median sized program within the agency. DOD did not include the Guideline requirement for agencies to evaluate all programs, at least once during their existence, whose dollar value equals or exceeds that of a median sized program in the agency. Without a mechanism to evaluate all these types of programs, agencies risk continuing inefficient, mismanaged, or costly projects. DOD officials told us they do not currently require these practices because they are still in the process of fully aligning their policy with the Guidelines. They noted that they expect to update the policy to include these requirements, but they have no specific timelines in place. Agencies Have Taken Initial Steps to Implement Their M&E Policies Since the six agencies we reviewed recently updated their M&E policies to align with the OMB Guidelines, many existing assistance projects and programs may not be governed by these requirements. Nonetheless, the agencies we reviewed have taken initial steps to help ensure implementation of agency M&E policies. In interviews, agencies provided us with the following examples of such steps. State. State developed a guidance document and tool-kit to operationalize and oversee its M&E policy to ensure it implements the Guidelines. According to State officials, they provide classroom training on the M&E policy and are piloting a revised online and classroom evaluation courses for staff. Officials also noted that they have dedicated staff to assist bureaus in implementing the Guidelines, among other agency policies. USAID. USAID has an approval process to ensure key deliverables include Activity plans that meet Guideline requirements. Additionally, USAID’s policy requirements indicate that each mission program office must identify a point of contact for monitoring and evaluation to ensure that USAID and its partners are complying with the agencies policies and foreign assistance M&E guidelines. MCC. MCC also has an approval process through their Department of Policy and Evaluation to ensure implementation of the Guidelines. As part of the process, the MCC Board of Directors or the appropriate partner country must approve initial M&E plans. HHS. Within HHS, the Centers for Disease Control and Prevention (CDC) are responsible for implementing the monitoring and evaluation guidance for their PEPFAR programs. CDC officials told us that they have existing mechanisms and supervisory structures in place to ensure that the Guidelines’ requirements are met in PEPFAR programs. USDA. USDA officials told us that the current M&E policy applies only to food assistance programs within FAS and not for other USDA programs. Officials explained they are trying to develop a structure that allows FAS to ensure all USDA components are implementing the OMB Guidelines. DOD. DOD developed guidance for fiscal year 2020 on implementing its M&E policy. DOD officials we spoke to noted they are working on identifying resources, skills, and capabilities to fully implement DOD’s M&E policy. Conclusions OMB’s Guidelines set forth key principles to guide agencies and to specify requirements, where appropriate, which they must cover in their own policies on M&E of foreign assistance. However, they do not include key leading practices for M&E that GAO identified for ensuring agencies meet their foreign assistance goals and objectives. While OMB allows agencies discretion to include these or other best practices, it is unknown if the agencies will do so. By ensuring that OMB’s government-wide Guidelines include these best practices, agencies can help address impediments, effectively manage foreign assistance, and meet their goals. Although all agencies we reviewed developed or updated their M&E policies to align with the Guidelines, not all of them include important requirements. DOD, HHS, and USDA did not include the requirement for agencies to conduct impact evaluations for pilot programs or to conduct performance evaluations and provide a justification for not doing an impact evaluation. Without a requirement to conduct impact evaluations of pilot programs, agencies risk duplicating or scaling up programs without fully understanding the causes that could lead to their success or failure. Recommendations for Executive Action We are making the following seven recommendations, including one to OMB, four to DOD, one to State, and one to USDA. The Director of the Office of Management of Budget should update the Guidelines to include GAO’s leading practices of developing monitoring plans that are based on risks, ensuring that monitoring staff have appropriate qualifications, establishing procedures to close-out programs, developing staff skills regarding evaluations, and establishing mechanisms for following up on evaluation recommendations. (Recommendation 1) The Secretary of Defense should update the Department’s monitoring and evaluation policies to define roles and responsibilities among agencies that participate in interagency funding transfers. (Recommendation 2) The Secretary of Defense should update the Department’s monitoring and evaluation policies to ensure verifiable, reliable, and timely data are available to monitoring personnel. (Recommendation 3) The Secretary of Defense should update the Department’s monitoring and evaluation policies to ensure that it evaluates all programs, at least once in their lifetimes, whose dollar value equals or exceeds that of the median program in the agency. (Recommendation 4) The Secretary of Defense should update the Department’s monitoring and evaluation policies to require the agency to conduct impact evaluations on all pilot programs before replicating or expanding, or conduct performance evaluations for those programs and provide a justification for not conducting an impact evaluation. (Recommendation 5) The Department of State’s U.S. Global AIDS Coordinator, in collaboration with HHS and other implementing agencies, should update the PEPFAR monitoring and evaluation policies to require these agencies to conduct impact evaluations on all pilot programs before replicating or expanding, or conduct performance evaluations for those programs and provide a justification for not conducting an impact evaluation. (Recommendation 6) The Secretary of Agriculture, in collaboration with the Foreign Agriculture Service, should update their monitoring and evaluation policies to require USDA to conduct impact evaluations on all pilot programs before replicating or expanding, or conduct performance evaluations for those programs and provide a justification for not conducting an impact evaluation. (Recommendation 7) Agency Comments and Our Evaluation We provided a draft of this product to the DOD, HHS, MCC, OMB, State, USDA, and USAID for comment. OMB commented on the draft report in an email from the staff responsible for economic policy, federal financial management, and international affairs. In the email, OMB disagreed with the recommendation to revise the Guidelines. It emphasized that an interagency group had developed the Guidelines and had consulted a number of expert sources on monitoring and evaluation policies and practices, including GAO’s leading practices. OMB also developed the guidelines to achieve the objectives contained in the Foreign Aid Transparency and Accountability Act of 2016 within the context of other existing OMB guidance. OMB suggested that it would be more effective to remind agencies that, in addition to the Guidelines specified in M-18-04, they should follow all guidance OMB had issued affecting monitoring and evaluation activities. This guidance includes policies for closeout procedures in the Uniform Guidance, for the Enterprise Risk Management and Internal Control in A-123, and for the Foundations for Evidence- Based Policymaking Act on using evaluation information and monitoring and evaluation staff skills and qualifications. We acknowledge that relevant monitoring and evaluation guidance is available to agencies in other forms beyond the Guidelines. However, we believe it is important for OMB to incorporate this guidance into its Guidelines, if only by reference, in order to emphasize the importance of these practices in the context of monitoring and evaluation of foreign assistance. This step would help ensure that OMB had integrated this guidance into the management of foreign assistance programs as appropriate. DOD concurred with our recommendations and indicated that it would address many of them in the next iteration of its M&E policy for security assistance (see appendix IV for written comments). DOD noted that two of our recommendations had limited applicability to DOD for security assistance, but described how it would implement them. First, DOD stated that it has not used its authority to transfer funds for security cooperation assistance to other departments and agencies. However, DOD indicated it would implement our recommendation to define roles and responsibilities among agencies that participate in interagency funding transfers, should such transfers become necessary. Second, DOD stated that conducting impact evaluations was not a feasible in the context of security assistance. Instead, DOD plans to conduct only performance evaluations, but it would provide justifications for not conducting impact evaluations, as required by the Guidelines. By documenting these approaches in its M&E policies, DOD would help ensure that those departments conducting M&E for DOD security assistance initiatives implement them as required. State agreed with the intent of the recommendation (see appendix V for written comments). State explained that impact evaluations are often not feasible in the context of assistance provided under PEPFAR and described its alternative approach to evaluating new initiatives. State indicated it would update appropriate PEPFAR policies to clarify when agencies should conduct impact and/or performance evaluations. These clarifications will reflect how State evaluates PEPFAR programs in practice in accordance with OMB guidance and legislation, according to State. USAID provided written comments (see appendix VI). HHS and USDA provided technical comments, which we incorporated as appropriate. MCC did not provide comments. We are sending copies of this report to the appropriate congressional committees, the Director of the Office of Management and Budget; Secretaries of Agriculture, Defense, Health and Human Services, and State; Administrator of the U.S. Agency for International Development; and the Executive Officer of the Millennium Challenge Corporation and other interested parties. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3149 or GootnickD@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 major contributions to this report are listed in appendix VI. Appendix I: Objectives, Scope, and Methodology This report examines the extent to which (1) the Office of Management and Budget’s (OMB) monitoring and evaluation (M&E) Guidelines incorporate GAO leading practices and (2) agencies incorporate the OMB Guidelines in their M&E policies and plans. To address objective one, we examined the OMB Guidelines against GAO’s 28 leading practices—14 for monitoring and 14 for evaluation— identified in GAO-16-861R. In 2016, GAO developed the 28 leading practices. In 2019, we provide specific definitions for each of the practices noted. We made slight modifications to the language to align with the definitions provided. For monitoring, we developed this list of leading practices based on our review of the GPRA Modernization Act of 2010; OMB’s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards; GAO’s Standards for Internal Control in the Federal Government (Greenbook); and others. The list of leading practices for monitoring includes developing monitoring plans; collecting, reviewing, and analyzing monitoring data; and establishing roles and responsibilities of personnel responsible for monitoring. For evaluation, we developed a list of leading practices based on the American Evaluation Association’s (AEA) 2016 An Evaluation Roadmap for a More Effective Government (AEA Roadmap) and Preface to Evaluators’ Ethical Guiding Principles. The list of leading practices for evaluation include developing evaluation plans; ensuring evaluator independence; developing staff skills regarding evaluation and use of evidence; and establishing roles and responsibilities of personnel responsible for evaluation. To perform these analyses, two analysts assessed if the Guidelines incorporated specific GAO leading practices. The analysts worked iteratively, comparing notes and reconciling differences at each stage of the analysis. In addition, GAO staff independent of the two analysts reviewed the final analysis, and made modifications as appropriate. We also interviewed relevant OMB officials in Washington D.C. involved in developing the memorandum and inquired about specific requirements and plans to ensure the implementation of these Guidelines. To address our second objective, we examined U.S. agency M&E policies against the requirements noted in the OMB Guidelines. We identified the six major agencies administering the most foreign assistance funds. The six agencies are the U.S. Agency for International Development (USAID), the Department of State (State), the Millennium Challenge Corporation (MCC), the Department of Health and Human Services (HHS), the U.S. Department of Agriculture (USDA) and the Department of Defense (DOD). We asked these agencies to identify or provide all relevant policies and guidance relating to foreign assistance M&E, including, where appropriate, standard operating procedures or other guidance. For USDA, we reviewed the Foreign Agricultural Service’s food assistance; for HHS, the President’s Emergency Program for AIDS Relief; and for DOD, security cooperation programs. To perform these analyses, two analysts assessed agency M&E policy documents against the requirements in the OMB Guidelines. We identified requirements as phrases that included the following language “required,” “must,” “mandatory,” or “should.” The analysts worked iteratively, comparing notes and reconciling differences at each stage of the analysis. In addition, other GAO staff independent of the two analysts reviewed the final analysis, and made modifications as appropriate. We also interviewed relevant OMB staff and agency officials in Washington D.C. involved in developing and implementing the M&E policies and inquired about specific requirements, and plans to ensure their M&E policies are implemented. We conducted this performance audit from July 2018 to July 2019 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. Appendix II: The Office of Management and Budget Monitoring and Evaluation Guidelines (OMB Memorandum M-18-04) Appendix II: The Office of Management and Budget Monitoring and Evaluation Guidelines (OMB Memorandum M-18-04) In January 2018, the Office of Management and Budget (OMB) released (M-18-04) Monitoring and Evaluation Guidelines for Federal Departments and Agencies that Administer United States Foreign Assistance (the “Guidelines”) in response to the Foreign Aid Transparency and Accountability Act of 2016 (FATAA). Table 4 shows the complete description of the requirements noted in the Guidelines. Appendix III: Assessment of the Foreign Aid Transparency and Accountability Act of 2016 and the Office of Management and Budget Monitoring and Evaluation Guidelines The Foreign Aid Transparency and Accountability Act of 2016 (FATAA) has required objectives on monitoring and evaluation for the Office of Management and Budget (OMB) to include in the Guidelines. We compared the 13 required objectives for the Guidelines set forth in the FATAA legislation with those in the OMB Guidelines. We found that all of the monitoring and evaluation requirements set forth in the legislation are included in the OMB Guidelines. Table 5 shows the FATAA legislation requirements, OMB Guidelines, and our assessment of the alignment between the legislation and OMB’s Guidelines. Appendix IV: Comments from the Department of Defense Appendix V: Comments from the Department of State Appendix VI: Comments from the United States Agency of International Development Appendix VII: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the individual named above, James B. Michels (Assistant Director), Farahnaaz Khakoo-Mausel (Analyst-in-Charge), Paulina Maqueda-Escamilla, Mark Dowling, Martin De Alteriis, Benjamin Licht, John Hussey, Neil Doherty, Aldo Salerno, Carolina Morgan and Michael Simon made key contributions to this report. Related GAO Products Government Auditing Standards 2018 Revision (Supersedes GAO-12-331G. GAO-18-568G. Washington, D.C.: July 17, 2018. Foreign Assistance: Agencies Can Improve the Quality and Dissemination of Program Evaluations. GAO-17-316. Washington, D.C.: March 3, 2017. Foreign Assistance: Selected Agencies’ Monitoring and Evaluation Policies Generally Address Leading Practices. GAO-16-861R. Washington, D.C.: September 27, 2016. Program Evaluation: Some Agencies Reported that Networking, Hiring, and Involving Program Staff Help Build Capacity. GAO-15-25. Washington, D.C.: November 13, 2014. Government Efficiency and Effectiveness: Inconsistent Definitions and Information Limit the Usefulness of Federal Program Inventories. GAO-15-83. Washington, D.C.: October 31, 2014. Standards for Internal Control in the Federal Government. GAO-14-704G. Washington, D.C.: September 10, 2014. State Department: Implementation of Grants Policies Needs Better Oversight. GAO-14-635. Washington, D.C.: July 21, 2014. Program Evaluation: Strategies to Facilitate Agencies’ Use of Evaluation in Program Management and Policy Making. GAO-13-570. Washington, D.C.: June 26, 2013. President’s Emergency Plan for AIDS Relief: Agencies Can Enhance Evaluation Quality, Planning, and Dissemination. GAO-12-673. Washington, D.C.: May 31, 2012. Grants Management: Action Needed to Improve the Timeliness of Grant Closeouts by Federal Agencies. GAO-12-360. Washington, D.C.: April 16, 2012. Designing Evaluations: 2012 Revision. GAO-12-208G. Washington, D.C.: January 31, 2012. International School Feeding: USDA’s Oversight of the McGovern-Dole Food for Education Program Needs Improvement. GAO-11-544. Washington, D.C.: May 19, 2011. Program Evaluation: Experienced Agencies Follow a Similar Model for Prioritizing Research. GAO-11-176. Washington, D.C.: January 14, 2011. Managing for Results: Enhancing Agency Use of Performance Information for Management Decision Making. GAO-05-927. Washington, D.C.: September 9, 2005. Program Evaluation: An Evaluation Culture and Collaborative Partnerships Help Build Agency Capacity. GAO-03-454. Washington, D.C.: May 2, 2003. Managing For Results: Federal Managers’ Views Show Need for Ensuring Top Leadership Skills. GAO-01-127. Washington, D.C.: October 20, 2000. Performance Plans: Selected Approaches for Verification and Validation of Agency Performance Information. GAO/GGD-99-139. Washington, D.C.: July 30, 1999. Agency Performance Plans: Examples of Practices That Can Improve Usefulness to Decisionmakers. GAO/GGD/AIMD-99-69. Washington, D.C.: February 26, 1999. Executive Guide: Effectively Implementing the Government Performance and Results Act. GAO/GGD-96-118. Washington, D.C.: June 1, 1996.

The Trump Administration requested $28.5 billion in foreign assistance in fiscal year 2019, to be administered by at least 22 federal agencies. Almost 95 percent of this assistance is administered by six agencies—the Departments of Agriculture (USDA), Defense (DOD), State (State), Health and Human Services (HHS), the Millennium Challenge Corporation (MCC), and the U.S. Agency for International Development (USAID). FATAA required the President to set forth guidelines for M&E of U.S. foreign assistance. In January 2018, OMB issued the required guidelines for federal agencies. FATAA also contained a provision for GAO to analyze the guidelines established by OMB; and assess the implementation of the guidelines by the agencies. In this report, GAO examined the extent to which (1) OMB's M&E Guidelines incorporate GAO leading practices, and (2) agencies incorporate the OMB Guidelines in their M&E policies and plans. GAO assessed the OMB Guidelines against GAO's 28 leading practices identified in GAO-16-861R . GAO also assessed the six agencies' foreign assistance M&E policies against the Guidelines and interviewed OMB and relevant agency officials in Washington, DC. The Office of Management and Budget's (OMB) foreign assistance Guidelines incorporate most of GAO's leading practices for monitoring and evaluation (M&E), but gaps exist (see figure). Monitoring : The Guidelines define monitoring as the continuous tracking of program or project data to determine whether desired results are as expected during implementation. The Guidelines do not require GAO's leading practices on risk assessments, staff qualifications, and program close-out procedures. Evaluation : The Guidelines define evaluation as the systematic collection and analysis of program or project outcomes for making judgments and informing decisions. They do not require GAO's leading practices on developing staff skills and following up on recommendations. OMB officials indicated the Guidelines are focused on elements required in the Foreign Aid Transparency and Accountability Act of 2016 (FATAA), but noted that agencies can add additional requirements to their own M&E policies. FATAA requires the President to set forth guidelines “according to best practices of monitoring and evaluation.” OMB staff acknowledged that GAO's leading practices are important, but stated that there is no singular established standard for best monitoring practices. Nevertheless, all of GAO's leading practices can help agencies address impediments, effectively manage foreign assistance, and meet their goals. When assessing agencies' M&E policies against OMB Guidelines, GAO found that agencies incorporated most of the requirements. However, for monitoring, one of the six agencies GAO reviewed—DOD—did not include the requirements to establish agencies' roles and responsibilities and ensure verifiable data for monitoring activities. For evaluation, agencies required most Guideline requirements, but not all. For example, DOD, HHS, and USDA did not require conducting impact evaluations for pilot programs or projects. Without a clear requirement to do such evaluations, agencies risk duplicating or scaling up programs without fully understanding the factors that could lead to their success or failure. Agencies GAO reviewed have plans or mechanisms in place to oversee the implementation of their M&E policies. For example, State developed a guidance document to operationalize and oversee its M&E policy to ensure the implementation of the Guidelines.

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B order officials are dually responsible for facilitating the lawful flow of people and goods, while at the same time preventing unauthorized entries and stopping illicit drugs and other contraband from entering the United States. As such, policy discussions around border security often involve questions about how illicit drugs flow into the country. These include questions about the smugglers, types and quantities of illicit drugs crossing U.S. borders, primary entry points, and methods by which drugs are smuggled. Further, these discussions often center on the shared U.S.-Mexico border, as it is a major conduit through which illicit drugs flow into the United States. Mexican transnational criminal organizations (TCOs) are a dominant influence in the U.S. illicit drug market and "remain the greatest criminal drug threat to the United States; no other groups are currently positioned to challenge them." They produce and transport foreign-sourced drugs into the United States and control lucrative smuggling corridors along the Southwest border. Drug intelligence and seizure data provide some insight into drug smuggling into the country. Generally, intelligence suggests that more foreign-produced cocaine, methamphetamine, heroin, and fentanyl flow into the country through official ports of entry (POEs) than between the ports. Seizure data from U.S. Customs and Border Protection (CBP) follows this pattern as well. Conversely, more foreign-produced marijuana has historically been believed to flow into the country between the ports rather than through them. However, CBP seizure data indicate that, like cocaine, methamphetamine, heroin, and fentanyl, more marijuana was seized at POEs than between them in FY2019. While indicators suggest that large amounts of illicit drugs are flowing through POEs and that drug seizures are more concentrated at the ports, it is the flows between them that have been a primary topic of recent policy discussions around border security. This report focuses on the smuggling of illicit drugs between POEs. It briefly describes how these drugs are smuggled between the ports and then illuminates the discussion of how border barriers may shift or disrupt smuggling methods and routes. Illicit Drug Smuggling Between Ports of Entry Notably, there are no data that capture the total quantity of foreign-produced illicit drugs smuggled into the United States at or between POEs; drugs successfully smuggled into the country have evaded seizure by border officials and are generally not quantifiable. In lieu of these data, officials, policymakers, and analysts sometimes rely on certain drug seizure data to help understand how and where illicit drugs are crossing U.S. borders. By weight, marijuana continues to be the illicit drug most-seized by border officials both at and between POEs, though total annual marijuana seizures have declined both at and between the ports in recent years. Historically, border officials have reported seizing more marijuana between POEs than at them. However, more marijuana, by weight, was seized at the ports than between them in FY2019. Of the 556,351 pounds of marijuana seized by CBP in that year, 289,529 pounds (52%) were seized at the ports, and 266,822 pounds (48%) were seized by the Border Patrol between the ports. While marijuana remains the primary drug seized by the Border Patrol between POEs, the annual quantity seized, in pounds, has declined since FY2013 (see Figure 1 ). Conversely, the amount of methamphetamine seized by the Border Patrol has increased annually since FY2013, and seizures of cocaine, heroin, and fentanyl have fluctuated. Smuggling Methods Smugglers employ a variety of methods to move illicit drugs into the United States between POEs, through land, aerial, and subterranean routes. These methods include the use of underground tunnels, ultralight aircraft and unmanned aerial systems (UASs), maritime vessels, and backpackers, or "mules." As noted, the smuggling between the official POEs has received heightened attention in policy discussions about border security. Specifically, there has been some debate about how physical barriers along the Southwest border between the POEs may deter or alter the smuggling of foreign-produced, illicit drugs into the country. Border Barriers and Smuggling Since the early 1990s, there have been efforts to build barriers along the Southwest border, in part, to deter the unauthorized entry of migrants and smugglers. More recently, in debates about physical barriers along the Southwest border, the prevention of drug smuggling and trafficking has been cited as a key goal and a reason to expand and enhance the physical barriers. For instance, the January 25, 2017, Executive Order 13767 stated that it is executive branch policy to "secure the southern border of the United States through the immediate construction of a physical wall on the southern border, monitored and supported by adequate personnel so as to prevent illegal immigration, drug and human trafficking, and acts of terrorism." Analysts suggest that smugglers may respond (if they have not already, given the hundreds of miles of border barriers already in place) by moving contraband under, over, or through the barriers, as well as around them—including by changing their concealment techniques to move illicit drugs more effectively through POEs. Under Barriers Mexican traffickers utilize subterranean, cross-border tunnels to smuggle illicit drugs—primarily marijuana—from Mexico into the United States. Since the first one was discovered in 1990, tunnel construction has increased in sophistication. Tunnels may include amenities such as ventilation, electricity, elevators, and railways, and tunnel architects may take advantage of existing infrastructure such as drainage systems. For instance, in August 2019 officials discovered a sophisticated drug smuggling tunnel running more than 4,300 feet in length (over three-quarters of a mile) and an average of 70 feet below the surface from Tijuana, Mexico, to Otay Mesa, CA—the longest smuggling tunnel discovered to date. CBP and Immigration and Customs Enforcement (ICE) have primary responsibility for investigating and interdicting subterranean smuggling. CBP has invested in technology and services to help close certain capability gaps such as predicting potential tunnel locations as well as detecting and confirming existing tunnels—including their trajectories—and tunneling activities. Reportedly, among the challenges in detecting tunnels is the variance in types of soil along the Southwest border, which requires different types of detection sensors. ICE, CBP, and other agencies coordinate through initiatives such as the Border Enforcement Security Task Force (BEST) program, where they have focused Tunnel Task Forces in various border sectors. The Government Accountability Office (GAO) recommended in 2017 that CBP and ICE further establish standard operating procedures, including best practices applicable to all border sectors, to coordinate their counter-tunnel efforts. Policymakers may question whether current agency coordination is sufficient or whether the agencies have implemented or should implement GAO's recommendation. Over Barriers Traffickers have moved contraband over border barriers through a variety of mechanisms, from tossing loads by hand and launching bundles from compressed air cannons to driving vehicles on ramps up and over certain types of fencing, as well as employing ultralight aircraft and unmanned aircraft systems (UASs) and drones. While ultralights are used to transport bulkier marijuana shipments, "UASs can only convey small multi-kilogram amounts of illicit drugs at a time and are therefore not commonly used, though [officials see] potential for increased growth and use." For instance, in August 2017, border agents arrested a smuggler who used a drone to smuggle 13 pounds of methamphetamine over the border fence from Mexico into California. Border officials have tested several systems to enhance detection of ultralights and UASs crossing the border. Currently, CBP uses a variety of radar technology, including the Tethered Aerostat Radar System. These technologies are not, however, focused specifically on detecting illicit drugs being smuggled into the country over barriers; rather, they are more broadly used to help detect unauthorized movement of people and goods. Policymakers may examine technologies acquired and used by border officials, including whether they allow officials to keep pace with the evolving strategies of smugglers moving illicit drugs over the U.S. borders—specifically, over border barriers. In addition, they may examine whether, as GAO has recommended, CBP is assessing its performance in interdicting UASs and ultralights against specific performance targets to better evaluate the outcome of using these technologies. Through Barriers Various forms of physical barriers exist along the Southwest border, generally intended to prevent the passage of vehicles and pedestrians. Barrier styles and materials include expanded metal, steel mesh, chain link, steel and concrete bollards, and others. Smugglers have found ways to defeat them. They have cut holes and driven vehicles through fencing and, in at least one instance, have bribed border officials to provide keys to the fencing and inside knowledge about unpatrolled roads and sensor locations. More recently, smugglers have reportedly sawed through steel and concrete bollards on the newly constructed border barrier; "after cutting through the base of a single bollard, smugglers can push the steel out of the way, creating an adult-size gap" through which people and drugs can pass. Around Barriers Some have noted that border barriers may deter some portion of illegal drug smuggling, while an unknown portion will be displaced to areas without fencing. Specifically, along the Southwest border, barriers may shift some portion of smuggling traffic to other areas of the land border between the United States and Mexico as well as to the ocean. Some of these alternate areas may have terrain that acts as some sort of a barrier, presenting different challenges than those from constructed border barriers. These challenges may, in turn, deter or alter drug smuggling. In addition, there have been reports that the newly constructed border barrier in the San Diego border sector has coincided with an increase of maritime smuggling along that coast. Smugglers use small open vessels ("pangas"), which can travel at high speeds. They also use recreational boats and small commercial fishing vessels that can be outfitted with hidden compartments to "blend in with legitimate boaters." In addition to moving illicit drugs across water or open areas of the land border without manmade barriers, the addition or enhancement of border barriers could lead some smugglers to move their contraband through POEs. The most recent data from CBP indicate that, in pounds, more illicit drugs—specifically marijuana, cocaine, methamphetamine, heroin, and fentanyl—are already being moved through POEs than between them. Policymakers may question whether any drug smuggling displaced to the POEs as a result of additional or augmented border barriers is a substantive change. Border Barriers and Their Influences on Illicit Drug Smuggling Between POEs A question policymakers may ask is what effect, if any, increased miles or enhanced styles of border barriers may have on drug smuggling between the POEs. Specifically, they may question whether additional border barrier construction will substantially alter drug smugglers' routes, tactics, speed, or abilities to breach these barriers and bring contraband into the country. A comprehensive analysis of this issue is confounded by a number of factors, the most fundamental being that the exact quantity of illicit drugs flowing into the United States is unknown . Without this baseline, analysts, enforcement officials, and policymakers rely on other data, albeit selected or incomplete, to help inform whether or how border barriers may affect illicit drug smuggling. Border barriers are only one component of tactical infrastructure employed at the border. Infrastructure, in turn, is only one element (along with technology and personnel) of border security. Isolating the potential effects of changes in border barriers from those of other infrastructure investments, as well as from the effects of changes in technology and personnel, is a very difficult task. The Department of Homeland Security (DHS) has made efforts to estimate the effectiveness of border security on the Southwest border between POEs; however, the department recognizes inevitable shortcomings of these estimates due, in part, to unknown flows of people and goods. Further, its estimates of border security effectiveness do not make precise attributions of effectiveness to personnel, technology, or infrastructure—or even more specifically, the portion of infrastructure that is border barriers. There are also factors beyond the immediate personnel, technology, and infrastructure of border security efforts that may affect drug smuggling. These include "the demand and supply for drugs, the type of drug being shipped, terrain and climate conditions, and smuggler counterintelligence functions." And, it may be difficult to separate the results of border security efforts from the effects of those external factors on drug smuggling. Moreover, changes in drug smuggling cannot always be directly linked to changes in border security efforts. Policymakers may continue to question how DHS is identifying and evaluating any potential changes in drug smuggling between the POEs. More specifically, they may examine whether or how DHS is linking observed changes in drug seizure data—sometimes used as one proxy for drug smuggling—to specific border security efforts such as expanded border barriers. They may also consider how any return on investment in border barriers (measured by effects on illicit drug seizures) compares to the relative return from other border security enhancements. Relatedly, policymakers may continue to examine how DHS defines "success" or "effectiveness" of border barriers in deterring or altering drug smuggling. For instance, is an effective barrier one that deters the smuggling of illicit drugs altogether, or might it be one that slows smugglers, changes their routes, or alters their techniques so that border officials have more time, opportunity, or ability to seize the contraband? In addition, policymakers may question whether or how border barriers contribute to gathering intelligence that can be used by the broader drug-control community and whether that potential outcome is a measure of effectiveness.

Policy discussions around border security often involve questions about how illicit drugs flow into the United States. These include questions about the smugglers, types and quantities of illicit drugs crossing U.S. borders, primary entry points, and methods by which drugs are smuggled. Further, these discussions often center on the shared U.S.-Mexico border, as it is a major conduit through which illicit drugs flow. There are no comprehensive data on the total quantity of foreign-produced illicit drugs smuggled into the United States at or between official ports of entry (POEs) because these are drugs that have generally evaded seizure by border officials. In lieu of these data, officials, policymakers, and analysts sometimes rely on certain drug seizure data to help understand how and where illicit drugs are crossing U.S. borders. Data from U.S. Customs and Border Protection (CBP) indicate that, by weight, more marijuana, cocaine, methamphetamine, heroin, and fentanyl were seized at POEs than between them in FY2019. While available indicators suggest that drug seizures are more concentrated at POEs, it is the flow of drugs between them that have been a primary topic of recent policy discussions around border security. Specifically, there has been some debate about whether, how, and to what extent physical barriers along the Southwest border between the POEs may deter or alter the smuggling of foreign-produced, illicit drugs into the country. Since the early 1990s, there have been efforts to build pedestrian and vehicle barriers along the Southwest border in part to deter the unauthorized entry of migrants and smugglers. Analysts have suggested that in some cases, smugglers have responded by moving contraband under, over, or through the barriers, as well as around them—including by changing their concealment techniques to move illicit drugs more effectively through POEs. Drug smugglers utilize subterranean, cross-border tunnels to move illicit drugs—primarily marijuana—from Mexico into the United States. Their construction has increased in sophistication; tunnels may include amenities such as ventilation, electricity, and railways, and tunnel architects may take advantage of existing infrastructure such as drainage systems. Traffickers move contraband over border barriers through myriad mechanisms, from tossing loads by hand and launching bundles from compressed air cannons to driving vehicles on ramps up and over certain types of fencing, as well as employing ultralight aircraft and unmanned aircraft systems (UASs) and drones. Smugglers may also attempt to go through various types of border barriers; strategies include cutting holes in the barriers and bribing border officials to provide keys to openings in them. Smugglers may also move illicit drugs around border barriers. For instance, along the Southwest border, they may use boats to move contraband around fencing that extends into the Pacific Ocean, move drugs over land areas without constructed barriers, or smuggle goods through the POEs. A key question policymakers may ask is what effect an increase in border barrier length or enhancement of barrier style might have on drug smuggling between the POEs. Specifically, they may question whether or how additional border barrier construction might substantially alter drug smugglers' routes, tactics, speed, or abilities to breach these barriers and bring contraband into the country, and whether or how it has done so in the past. A comprehensive analysis of this issue is confounded by a number of factors, the most fundamental being that the exact quantity of illicit drugs flowing into the United States is unknown . Without this baseline, analysts, enforcement officials, and policymakers rely on other data points to help inform whether or how border barriers may affect illicit drug smuggling.

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Introduction On August 1, 2018 , the World Health Organization (WHO) reported a new Ebola outbreak in eastern DRC, about a week after having declared the end of a separate outbreak in the west of the country. As of September 24, 2019, the WHO had reported 3,175 cases in the current outbreak, including 2,119 deaths. About 58% of all cases have been women and 28% children. The current outbreak is the 10 th on record in DRC, the largest to have occurred in the country, and the second largest ever, after the 2014-2016 Ebola outbreak in West Africa. Cases have been concentrated in North Kivu and Ituri provinces ( Figure 1 ), where long-running conflicts had already caused a protracted humanitarian crisis and are complicating Ebola control efforts. The number of new Ebola cases identified per week has fluctuated since the start of the outbreak ( Figure 2 ), but has generally trended downward slowly since peaking in April 2019. The current outbreak has coincided with a fraught political transition process in DRC. A new president, parliament, provincial-level assemblies, and governors were elected between late 2018 and mid-2019, after years of delays, gridlock, political violence, and repression of opposition voices. Election delays in the Ebola-affected areas, an opposition stronghold, heightened tensions and spurred conspiracy theories, arguably hindering Ebola response. President Felix Tshisekedi, inaugurated in January 2019, was previously an opposition figure, but the coalition of his predecessor Joseph Kabila won supermajorities in parliament and at the provincial level. Observers questioned the legitimacy of the election results, and tense negotiations between the two political blocs (Tshisekedi's and Kabila's) delayed the naming of a new cabinet until late August 2019, while complicating relations between the national and provincial/local officials. Several factors have foiled outbreak control efforts, including low Ebola awareness (early symptoms are similar to other common ailments like malaria), community distrust of health interventions, belated visits to health facilities (at which point survival prospects decline rapidly), and infection prevention control lapses in health facilities. Attacks by militia and criminal groups, political protests, health worker strikes, and security force abuses have also disrupted and impeded the response. In mid-September, for example, violent attacks in a new hotspot (Lwemba, Ituri Province) after the death of a local healthcare worker from Ebola prompted the indefinite suspension of Ebola control activities in the area. As a result, new cases continue to stem from unknown chains of transmission, and deaths continue to occur outside Ebola treatment centers. U.S. officials and other health experts have repeatedly raised concerns about broader challenges in DRC related to its health care system, political tensions, local grievances, and instability. USAID Administrator Mark Green testified to Congress in April 2019 that in DRC, "You have a failed democracy in many, many ways…. It will take more than simply a medical approach. It will take a development approach to try to tackle this terrible disease and to contain its outbreak." After traveling to DRC in August 2019, Administrator Green wrote, "Decades of corrupt, authoritarian rule during which communities were denied any meaningful voice in their government have undermined the Congolese people's trust in institutions." Health experts have been troubled by reports of Ebola cases in major DRC cities (including the capital of North Kivu, Goma) and outside of DRC. Between June and August 2019, a total of four cross-border cases were detected in Uganda. Observers expressed optimism about the rapid detection and containment of these cases, but new concerns have arisen about subsequent suspected cases in Tanzania. In mid-September, WHO was informed by unofficial sources of a number of suspected Ebola cases in that country, including in the capital city of Dar es Salaam, while Tanzanian authorities asserted that there were no confirmed or suspected Ebola cases in the country. WHO has reportedly since sent personal protective equipment (PPE) and vaccination supplies to Tanzania, and recommended that the sickened patients (one of whom reportedly died) receive secondary confirmation testing at a WHO facility. As of September 21, none of the cases had received secondary confirmation. Ebola control in other neighboring countries such as South Sudan, Burundi, or Central Africa Republic, which have minimal state capacity and are affected by protracted conflicts and political crises, could be highly challenging if required. The International Response Outbreak control, treatment, and disease surveillance activities are being carried out primarily by DRC government employees (including health workers and frontline workers, who provide routine and essential services), as well as by international nongovernmental organizations, with U.N. agencies (including the WHO), other multilateral entities (including the World Bank), and foreign governments providing funding, expertise, coordination, and logistical assistance. Classic Ebola outbreak control protocol entails infection prevention control (IPC) in health care facilities; management and isolation of patients in Ebola Treatment Centers (ETCs); fever surveillance with rapid diagnosis; tracing of Ebola cases and their contacts; and community awareness and adherence to IPC protocols, safe patient and body transport, safe burials, and household and environmental decontamination. The extraordinary conditions on the ground in affected areas of eastern DRC have limited the effectiveness of conventional control measures, however, and are requiring ever-evolving strategies for containment, including aggressive vaccination campaigns (see text box below). Since the WHO declared the outbreak to be a Public Health Emergency of International Concern (PHEIC) in July 2019, it has sought to garner additional donor funds, as well as international support for addressing the political and security issues affecting Ebola control. In July 2019, the WHO and the DRC Ministry of Health (MoH) released a fourth strategic response plan to "definitively defeat" the Ebola epidemic ( Table 1 ). The strategic plan is expected to cost over $462 million, including about $288 million for the public health response portion ( Table 1 ). In July 2019, the World Bank announced that it would provide $300 million toward the plan, about half of which would support the public health response, on top of prior funding commitments (discussed below). The public health portion of the strategic plan, covering July 1 through December 31, 2019, purportedly takes into account lessons learned from the third strategic response plan (February through July 2019). This portion of the plan is based on strengthening political commitment, security, and operational support to improve acceptance of the response and access to insecure areas; deepening support for addressing the varied needs of communities affected by Ebola (beyond a single-minded focus on containment efforts), as a means toward fostering community ownership and involvement in Ebola responses; improving financial planning, monitoring and reporting; and bolstering preparedness of neighboring provinces and countries. The World Bank has urged other countries to provide additional support, and the WHO Director-General has urged donors to address disbursement delays. As of September 11, 2019, the WHO had received less than $60 million of the $288 million it sought for the current phase of the public health response. The United States is the top country donor for the public health response and has provided almost $158 million for the Ebola humanitarian response, largely supporting activities by nongovernmental organizations (NGOs), as discussed below. DRC Government Role DRC government employees and other Congolese nationals are the primary responders to the Ebola epidemic on the ground. As WHO Executive Director for Health Emergencies Dr. Michael Ryan noted in June 2019, "If you go into the treatment facilities now it is Congolese doctors and nurses in the front line. There may be NGO or WHO badges on the tents but the doctors and nurses are Congolese; surveillance officers are Congolese; 80% of the vaccinators in this response are Congolese." The DRC government has provided health workers and administrative personnel, hired local frontline workers, organized volunteers, and conducted information awareness campaigns. The government has also offered certain health services free of charge in selected government health facilities, with donor support (discussed below). From the start of the current outbreak, the DRC government's health responses were coordinated by the MoH, as in past Ebola outbreaks in DRC. In July 2019, however, President Tshisekedi transferred coordination responsibilities to an expert committee headed by the director of DRC's biomedical research institute, Dr. Jean-Jacques Muyembe, who reports directly to the president. Dr. Muyembe is a recognized expert on Ebola who helped investigate the first known outbreak of the disease, in DRC in 1976. Then-Health Minister Dr. Oly Ilunga resigned following Dr. Muyembe's appointment, citing a dilution of his authority as well as confusion about the coordination of DRC government Ebola responses, an insufficient focus on the health system, and opposition to utilizing the Johnson & Johnson experimental vaccine (see text box above). Ilunga was subsequently the target of scathing criticism in the leaked report of a DRC government investigative commission, which indicated, among other things, that Ilunga and his team had displayed an "aggressive and ostentatious attitude" when visiting the outbreak area and had squandered Ebola response funds on fancy cars and hotel rooms. These developments have suggested an internal power struggle over policy and control of funds for Ebola response. U.N. and Other Multilateral Organizations Humanitarian experts, including U.S. officials, have repeatedly asserted that broader humanitarian access and security issues have stymied outbreak control efforts, and that international response efforts require increased coordination and transparency. In response to such concerns, in May 2019 U.N. Secretary-General António Guterres appointed MONUSCO Deputy Special Representative David Gressly, a U.S. citizen, to serve as a new U.N. Emergency Ebola Response Coordinator charged with establishing a "strengthened coordination and support mechanism" for Ebola response. While the WHO is to continue to lead "all health operations and technical support activities to the government," Gressly is leading a broader U.N.-wide effort to strengthen political engagement, financial tracking, humanitarian coordination, and "preparedness and readiness planning" for Goma and surrounding countries. Gressly, who continues to report to the head of MONUSCO, portrayed his new role as a reflection of the need for "more than just a public health response." The WHO has deployed some 700 personnel to DRC since the current outbreak began. These personnel are coordinating the public health response and providing operational and technical support to DRC government personnel and other actors. Particular areas of focus include detection and rapid isolation of Ebola cases, intensification of rapid multidisciplinary public health actions for Ebola cases, community engagement, and health system strengthening. In addition, the WHO is coordinating regional readiness exercises and assessments in adjacent areas of DRC and neighboring countries. Vaccination and disease surveillance efforts have been bolstered in Uganda, Rwanda, and Burundi. The World Bank has stepped up its role in supporting the Ebola response effort since mid-2019. On July 24, the World Bank Group announced it was mobilizing up to $300 million—to be financed through the Bank's International Development Association and its Crisis Response Window—on top of $100 million disbursed previously through the International Development Association and the Bank's Pandemic Emergency Financing Facility (PEF). The PEF announced a further $30 million disbursement for DRC on August 23, 2019. World Bank resources have financed free health care and essential medicines in clinics in all affected areas, hazard pay for frontline health workers, handwashing stations, mobile laboratories, decontamination teams, psychosocial support teams, community engagement campaigns, and vaccination efforts. The injection of new resources aims to build on existing World Bank support to strengthen the DRC health system. The African Union (AU) Africa Centers for Disease Control and Prevention (Africa CDC) has supported international response efforts by deploying members of its voluntary response corps to DRC and neighboring countries. Africa CDC voluntary responders include epidemiologists and anthropologists, as well as communication, laboratory, and logistics experts from various African countries who are "on standby for emergency deployment." To date, these responders have trained local health workers and community volunteers, set up laboratories, supplied personal protective equipment, and trained people in port-of-entry screening. The U.S. Government Response USAID and the U.S. Centers for Disease Control and Prevention (CDC) deployed staff to DRC and the region when the outbreak was first detected in August 2018. The United States is also the top country donor to the Ebola response effort, as noted above. As of September 10, USAID had announced more than $148 million for direct support to the Ebola response within DRC and another $9.8 million to support preparedness and prevention activities in neighboring countries. Those funds were drawn primarily ($156.1 million) from unobligated FY2015 International Disaster Assistance (IDA) funds that Congress appropriated on an emergency basis for Ebola response during the West Africa outbreak ( P.L. 113-235 ). According to USAID, the available balance of FY2015 emergency IDA Ebola funds stood at $105.5 million as of September 9. More broadly, the United States is the top bilateral humanitarian donor to DRC and the top financial contributor to MONUSCO, which is providing logistical and security support to Ebola response efforts. USAID Administrator Green testified before Congress in April 2019 that "there is sufficient money for fighting Ebola in DRC," asserting that nonfinancial challenges posed the primary constraint to containment efforts. U.S. funding commitments have continued to grow since then, however, as the outbreak has persisted and broadened. U.S. personnel are providing technical support from Kinshasa, Goma, and neighboring Rwanda and Uganda, while implementing partners (U.N. agencies and NGOs) are administering Ebola response efforts within the outbreak zone with U.S. resources. The Administration has placed strict constraints on the movement of U.S. personnel to and within affected areas, due to security threats. In September 2018, USAID and CDC withdrew personnel from the immediate outbreak zone due to security concerns, despite CDC's stated preference to maintain staff in the field. U.S. support for outbreak control has included the following: USAID has provided grant funding to NGOs and U.N. entities carrying out Ebola response and preparedness activities, drawing primarily on IDA funds (as noted above). In October 2018, USAID deployed a Disaster Assistance Response Team (DART) to coordinate the U.S. response in support of the DRC government, the WHO, and other partners. USAID Ebola response funds have supported disease surveillance, infection prevention and control, safe and dignified burials, water and sanitation aid, prepositioning of medical supplies, humanitarian coordination, and logistics. U.S. bilateral economic and health aid funding for DRC has also supported programs that may ease humanitarian access or otherwise complement Ebola response activities. CDC personnel have provided direct technical support to the DRC government, the WHO, and USAID's DART for disease surveillance, contact tracing, data management, infection protection and control, risk communication and community engagement, laboratory strengthening, emergency management, and surveillance at points of entry. CDC staff also have supported Ebola preparedness efforts in neighboring countries. The Department of Defense has supplied laboratory training to Ugandan researchers and has partnered with them to conduct clinical Ebola vaccine trials. Challenges Security Threats and Political Tensions Security threats have periodically forced the temporary cessation of Ebola case management in some areas, interrupted contact tracing, and frustrated surveillance efforts in high-transmission areas. Dozens of armed groups are active in the areas most affected by the outbreak. These include an array of local militias, along with the Allied Democratic Forces (ADF), a relatively large and opaque group implicated in attacks on U.N. peacekeepers, local military forces, and civilians. Road travel is often dangerous, with frequent reports of militia attacks, armed robbery, and kidnappings. In April 2019, the Islamic State claimed responsibility for an attack on local soldiers previously attributed to the ADF, the latest in a series of signs of emerging ties between the two. State security force personnel reportedly maintain ties with armed groups and have been implicated in atrocities, including civilian massacres in Beni territory since 2014. Local mistrust of government officials and outsiders (including Congolese who are not from the immediate area)—sometimes rooted in conflict dynamics, ethnic tensions, and political friction—has prompted some community resistance to Ebola control efforts and led to attacks on health workers and facilities, including Ebola treatment centers. Some communities in Beni and Butembo have long opposed DRC's central government and complained of neglect and persecution. WHO officials have urged broader international support for "political mediation, engagement with opposition, and negotiated solutions," asserting that "[j]ust purely focusing on community engagement and participation will not fix what are deep seated political issues that need to be addressed at a higher level." Perceptions that outsiders are profiting financially from the outbreak, or that international intervention is driven more by fear of contagion than concern for locals' wellbeing, appear to have fueled conspiracy theories and community resistance. At a July 15 donors event on Ebola response in Geneva, WHO Director-General Dr. Tedros Adhanom Ghabreyesusi said that Congolese in the outbreak zone had asked him, "Are you here to help us, or to prevent this thing from coming to you? Are you doing this for us, or for yourself?" He added, "It embarrasses me.… We should not appear to be seen as if we are parachuting in and out because of Ebola." DRC's then-Health Minister argued in the same meeting that local perceptions that the response was bringing cash into the region had fueled threats to health workers, including kidnappings. Health System Constraints Local perceptions that donors are more concerned with preventing the spread of Ebola to their countries than with helping Congolese communities are rooted, in part, in enduring health challenges. Maternal and infant deaths, for example, have for years regularly exceeded the current count of Ebola deaths but have received comparatively little attention. Authorities have redirected health resources in some areas for Ebola control, deepening local frustrations. Vaccination campaigns have also been interrupted in some Ebola hotspots. In Ituri province, for example, inadequate supply of measles vaccine has limited containment of a measles outbreak that began in January and has infected over 161,000 people, claiming over 3,000 lives. Health workers also are fighting a cholera outbreak that has infected over 15,000 people and killed at least 287. The WHO has reported that Ebola transmission is likely occurring in ill-equipped and understaffed health facilities. Inconsistent adherence to infection prevention and control, periodic disruptions in supply chain systems, and limited access to water for handwashing in some health facilities have complicated Ebola control efforts. In addition, some health workers have refused to wear personal protective equipment in health facilities or perform rudimentary infection prevention and control measures due to threats of violence by some members of the community. As of August 27, 2019, 156 health workers had contracted Ebola, at least 34 of whom had died. The MoH, WHO, and other partners have identified health facilities of concern and are addressing lapses in triage, case detection, and infection prevention and control. Reported Progress Community Engagement. The WHO and implementing partners have worked to deepen local engagement, with some reported positive results. Local Ebola committees in Butembo and Katwa (at the center of the outbreak zone in North Kivu), for example, are chaired and managed by community members who plan Ebola awareness and sensitization campaigns. Improved community engagement has reportedly contributed to increased participation in vaccine campaigns and safe and dignified burial practices. For example, the WHO reported in July 2019 that a high-risk contact in Katwa had sought vaccination and offered to bring other contacts. In an effort to reduce the risk of transmission and broaden access to Ebola treatment and case finding, the WHO also plans to establish smaller patient transit centers closer to communities. Replicating engagement activities in emergent hot spots remains a challenge, however. Ebola Therapeutics Advance. In August 2019, a clinical trial of four investigational Ebola treatments in DRC identified two "strong performers," leading the WHO to state that "these are the only drugs that future patients will be treated with." The trial, launched in late 2018, was co-sponsored by DRC's national biomedical research institute and the U.S. National Institutes of Health, and was carried out by an international research consortium coordinated by the WHO. Issues for Congress U.S. Funding for DRC Ebola Response In FY2015, in the context of the West Africa outbreak, Congress appropriated $5.1 billion for Ebola response and preparedness on an emergency basis, including $1.436 billion in multiyear International Disaster Assistance (IDA) funds (Title IX of Division J, P.L. 113-235 ). U.S. funding for responding to the current outbreak has drawn primarily on the unobligated balance of these IDA funds. According to USAID, $105.5 million of these funds remained available for expenditure as of September 9, 2019. Should the outbreak continue or expand in new ways, Congress may consider what funding mechanisms, if any, the United States might use to support Ebola control. At the same time, the United States remains the lead country donor to the current Ebola response effort. Members may examine the U.S. role, vis-à -vis other actors (including other countries, multilateral entities, and private sources), in financing Ebola response activities, and may debate strategies for securing additional contributions from other donors. U.S. Aid Restrictions Related to Trafficking in Persons DRC is ranked as "Tier III" (worst) under the Trafficking Victims Protection Act (TVPA, P.L. 106-386 , as amended), which triggers prohibitions on certain types of U.S. aid absent a full or partial presidential waiver. In FY2019, in a departure from previous practice, President Trump did not partially waive the restrictions for DRC. Thus, pursuant to the TVPA, no "nonhumanitarian, nontrade-related" assistance may be provided "to the government" of DRC. IDA funds, the core source of funding for U.S. Ebola response support to date, are exempt from the TVPA restrictions (22 U.S.C. §7102[10]). The TVPA further exempts economic and development assistance "in support of programs of nongovernmental organizations." In practice, the Administration has interpreted the TVPA restrictions to apply broadly to various programs funded through the Development Assistance (DA) and Economic Support Fund (ESF) accounts, including some that would be implemented by NGOs, though it has not publicly provided a full account of affected activities. Some Members of Congress have expressed concern that some U.S. assistance that could help promote humanitarian access in Ebola-affected areas has been held up as a result. Testifying before the Senate in July 2019, a senior USAID official affirmed that some FY2018 aid resources that could help with Ebola control remained restricted in connection with the TVPA, but he and other Administration witnesses did not provide further details. Two bills introduced in the 116 th Congress ( S. 1340 , the Ebola Eradication Act of 2019, and H.R. 3085 , a House companion bill) would authorize assistance for a range of activities that could help lower community resistance or otherwise support Ebola control efforts in DRC and neighboring states, "notwithstanding" the TVPA restrictions. S. 1340 passed the Senate on September 23, 2019. Similar language was included in a draft FY2020 State, Foreign Operations Appropriations bill circulated by the Senate Appropriations Committee on September 18, 2019. That bill would also broadly provide at least $298.3 million in U.S. bilateral assistance for "stabilization, global health, and bilateral economic assistance" to DRC—slightly higher than the U.S. allocation for DRC in recent years, not counting food aid—"including in areas affected by, and at risk from, the Ebola virus disease." Global Health Security The current Ebola outbreak has prompted resumption of discussions about strengthening health systems worldwide, particularly with regard to pandemic preparedness. In 2014, during the Obama Administration, the United States and the WHO co-launched the Global Health Security Agenda (GHSA) to improve countries' ability to prevent, detect, and respond to infectious disease threats. The United States, the largest donor to this multilateral effort, pledged to support it with $1 billion from FY2015 through FY2019. The Trump Administration has built on these efforts. In May 2019, the White House released the United States Government Global Health Security Strategy , which outlined the U.S. role in extending the Global Health Security Agenda and improving global health security worldwide. Although the Trump Administration, through the strategy and public statements, has supported extending the GHSA through 2024, officials have not provided comprehensive information on what that support would entail. Members of Congress may continue to debate what role, if any, the United States should play in supporting global health system strengthening efforts to bolster global health security, and whether to adjust funding levels to meet ongoing and future infectious disease threats. Through regular appropriations, disease outbreak prevention and global health security efforts are funded through USAID pandemic influenza and CDC global health protection line items ( Table 2 ). On September 19, 2019, the House passed the Continuing Appropriations Act, 2020, and Health Extenders Act of 2019 ( H.R. 4378 ), which would authorize the transfer to the CDC of up to $20 million for Ebola preparedness and response activities from the Infectious Disease Rapid Response Reserve Fund. Other relevant bills introduced in the 116 th Congress include H.R. 2166 , which would codify U.S. engagement in the GHSA as specified in an executive order issued by the Obama Administration, and H.R. 826 , which seeks to facilitate research and treatment of neglected tropical diseases, including Ebola.

The Ebola outbreak in the Democratic Republic of Congo (DRC) that began in August 2018 has eluded international containment efforts and posed significant challenges to local and international policymakers. The current outbreak is the 10 th and largest on record in DRC, and the world's second largest ever (after the 2014-2016 West Africa outbreak). On July 17, 2019, the World Health Organization (WHO) declared the current DRC outbreak to be a Public Health Emergency of International Concern (PHEIC) and called for increased donor funding. To date, the U.S. Agency for International Development (USAID) has announced nearly $158 million to support the response to the outbreak in DRC and neighboring countries, most of which has been funded through USAID-administered International Disaster Assistance (IDA) funds appropriated by Congress in FY2015. Challenges Broad challenges in DRC—including unresolved armed conflicts, shortfalls in the local health care system, political tensions, community grievances, and criminal activities—have hindered outbreak control. The main outbreak zone is an area of eastern DRC where long-running conflicts had already caused a protracted humanitarian crisis. In addition, the outbreak has coincided with a fraught political transition process in DRC, where a former opposition figure, Felix Tshisekedi, was inaugurated president in January 2019. The electoral process and tense negotiations over a coalition government have complicated Ebola response efforts, as well as coordination between national and provincial officials. Ebola and related response efforts have also diverted or interrupted already limited local health resources in affected areas. This phenomenon, in turn, has been linked to interruptions in routine immunization campaigns. Inadequate measles vaccine supplies have limited capacity to control a measles outbreak in DRC that began in January 2019 and has claimed more than 3,000 lives. Since June 2019, a handful of Ebola-infected individuals have been identified in the large city of Goma in eastern DRC (a staging area for humanitarian operations and U.N. peacekeeping activities in the country), in the city of Bukavu (south of the main outbreak zone), and in Uganda. Suspected cases were reported, but not confirmed, in Tanzania in mid-September 2019. Transmission outside the outbreak zone has been limited to date, which may be attributable to internationally supported surveillance and prevention efforts, as well as the use of an investigational vaccine. Concerns nevertheless persist that cases could spread to new areas and/or countries. Uganda (which borders the most affected areas in DRC) has prior experience in Ebola control, but Rwanda, Tanzania, and Burundi do not. Minimal state capacity and protracted conflict in South Sudan and the Central African Republic suggest that a coordinated disease control response in either setting could be highly challenging. Issue s for Congress A potential issue for Congress is the level of funding allocated for global health security and pandemic preparedness versus outbreak response, with funding for outbreak response to date outweighing support for global outbreak prevention. Separately, the State Department's designation of DRC as a "Tier III" (worst-performing) country under the Trafficking Victims Protection Act (TVPA, Division A of P.L. 106-386 , as amended) triggers restrictions on certain types of U.S. aid (not including IDA-funded activities). Several bills would authorize U.S. funding for programs intended to lower community resistance and otherwise support Ebola control in DRC and neighboring states, "notwithstanding" the TVPA restrictions. These include S. 1340 , the Ebola Eradication Act of 2019, which passed the Senate in September 2019; H.R. 3085 , a House companion bill; and a Senate committee draft of the FY2020 Department of State, Foreign Operations, and Related Programs appropriations bill circulated on September 18, 2019. Some Members of Congress have also monitored State Department security policies that have restricted U.S. government experts' travel to and within the outbreak zone.

CRS_R45996

Introduction This report focuses on selected precision-guided munitions (PGMs) fielded by the Air Force, Army, Navy, and Marine Corps. Over the years, the U.S. military has relied on PGMs to execute ground, air, and naval military operations. PGMs have become ubiquitous in U.S. military operations; funding for these weapons has increased dramatically from FY1998 to the present as depicted in. In FY2021, the Department of Defense (DOD) requested approximately $4.1 billion for more than 41,337 weapons in 15 munitions programs. DOD projects requesting approximately $3.3 billion for 20,456 weapons in FY2022, $3.9 billion for 23,306 weapons in FY2023, $3.9 billion for 18,376 weapons in FY2024, and $3.6 billion for 16,325 weapons in FY2025. Congress, through the defense authorization and appropriations bills, has historically exercised its role in the decision to approve, reject, or modify DOD's proposals for PGMs. In addition, these programs pose a number of potential oversight issues for Congress. Congress's decisions on these issues could affect future U.S. military capabilities and funding requirements. Potential issues for Congress include planned procurement quantities and stockpile assessments, defense industrial base production capacity, development timelines, supply chain security, affordability and cost-effectiveness, and emerging factors that may affect PGM programs. Background DOD defines a PGM as "[a] guided weapon intended to destroy a point target and minimize collateral damage." In addition to these virtues, PGMs also offer other advantages over unguided weapons, namely range and the reduction in numbers of combat sorties required to deliver the desired effects on the battle field. The main disadvantage of these weapons is cost; particularly long range missiles. PGMs include air- and ship-launched missiles, multiple launched rockets, and guided bombs. Current munitions typically use a combination of radio signals from the global positioning system (GPS), laser guidance, and inertial navigation systems (INS)—using gyroscopes—to improve a weapon's accuracy to reportedly less than 3 meters (approximately 10 feet). PGMs have transformed attack operations from the air; instead of using hundreds of bomber sorties to attack a single target, a single sortie from a PGM-carrying platform can attack multiple targets while minimizing collateral damage. Guided munitions were first developed in the 1940s, when the U.S. Army Air Corps tested radio guidance to glide bombs onto a target. Prior to precision guidance, bomber missions reported an accuracy of 1,200 feet; 16% of munitions dropped by crews landed within 1,000 feet of their intended target. According to defense analyst Barry Watts, guidance systems showed promise in improving weapon accuracy; however, these systems were not fully fielded during the Second World War. This can partly be attributed to technological challenges in developing guidance systems, as well as relatively large unit costs per munition used. Guidance systems during this era used television signals, and required a chase aircraft to provide command and control for the weapon to strike its target. DOD continued to develop PGMs through the 1950s and 1960s, where they gained prominence during the Vietnam War with the introduction of the laser-guided bomb. Laser-guided bombs became a preferred munition for bombing operations; an Air Force study in 1973 found that the U.S. military used more than 10,500 laser-guided bombs the previous year, with 5,107 weapons achieving a direct hit and another 4,000 achieving a circular error probable of 25 feet. During the 1970s and 1980s, all of the military services developed guided missiles capable of attacking fixed and moving targets. Laser-guided bombs gained prominence during Operation Desert Storm in 1991. Although PGMs represented only 6% of the total munitions used during the campaign, they struck a number of critical targets, reduced the number of combat sorties required, and limited collateral damage to civilian structures. Operations over the past decade in Afghanistan, Iraq, and Syria have demonstrated DOD's increasing reliance on PGMs and how important they have become for modern military operations. The Air Force reports that nearly 139,000 weapons have been used in combat operations in the Middle East since 2014. Counter-Islamic State (IS) operations in Iraq and Syria have used numerous weapons: in 2015, coalition air forces used more than 28,000 weapons; in 2016, the campaign used an additional 30,700 weapons; and in 2017 (the height of operations), the campaign used 39,500 weapons (see Figure 2 for a graphical representation of operational usage compared to DOD procurement). Nearly all of the weapons employed were PGMs, particularly Joint Direct Attack Munitions (JDAMs) and Hellfire Missiles. In addition to PGM use in current operations, the proliferation of anti-access/area denial (A2/AD) systems is likely to increase the operational utility of PGMs. Anti-access systems can be defined as capabilities "associated with denying access to major fixed-point targets, especially large forward bases." Area denial systems can be defined as capabilities "that threaten mobile targets over an area of operations, principally maritime forces, to include those beyond the littorals." Peer competitors like China and Russia have developed sophisticated air defenses, such as the S-300PMU (SA-20) and S-400 (SA-21), the HQ-9 surface-to-air missile (China), the DF-21D and DF-26 anti-ship ballistic missiles (China), and the 3M-54 Kaliber anti-ship cruise missile (Russia). Figure 3 illustrates ranges of potential A2/AD systems. These systems outrange U.S. weapons systems at what experts assess as unacceptable risk—some of these weapons have reported ranges in excess of 1,000 nautical miles. As a result, U.S. ships and aircraft would need to engage targets at long ranges in order to not put themselves in danger. For instance, naval ships could be threatened at ranges of 809 nautical miles from bases that field DF-21D anti-ship ballistic missiles. The effectiveness of these missiles is often debated, as is the amount of risk an anti-ship ballistic missile presents to naval forces. Some analysts argue that in a combat situation, aircraft carriers would not enter these weapons' engagement zones because of the threat. Others argue that while there is some risk posed to naval forces, aircraft carriers and major surface combatants would nonetheless be able to operate effectively. Similarly, an S-400 (SA-21) presents risks to aircraft at ranges of up to 215 nautical miles. Many weapons in the U.S. inventory have relatively short ranges. Figure 4 illustrates the impact that A2/AD systems have on potential military operations. Some analysts argue that U.S. forces would substantially increase their operational risk at ranges in excess of 500 nautical miles (NM). Air-Launched Precision-Guided Munitions Paveway Laser-Guided Bombs The Paveway is a family of guidance kits that attach to unguided bombs. The assembly includes a guidance seeker on the nose of the bomb, which looks for a laser to mark a target, and a tail kit to guide the bomb onto the target. The Paveway series was originally developed during the Vietnam War to enable tactical aircraft—like the F-4 Phantom and the A-6 Intruder—to deliver precise munitions onto a target. Paveway has received several upgrades, with the development of Paveway III (in the 1990s), which improves low-altitude guidance, and Paveway IV (in the late 1990s), which adds satellite guidance to improve accuracy. The U.S. military predominately uses Paveway II (see Figure 5 and Figure 6 ) and Paveway III kits; Paveway IV is used exclusively by foreign militaries. According to IHS Janes, Raytheon has produced more than 350,000 Paveway kits, with Lockheed Martin producing an additional 200,000 kits. Funding for Paveway procurement appears in the Air Force's General Purpose Bomb line item; however, the Air Force does not report procurement quantities in its budget justification documentation. DOD has exported Paveway II kits to more than 30 countries, and exported Paveway III kits to at least 9 countries. Paveway IV is used by the United Kingdom, the Philippines, Saudi Arabia, and Qatar. Joint Direct Attack Munition (JDAM) JDAM modifies unguided bombs—such as the 500-pound Mk-82, the 1,000-pound Mk-83, and the 2,000-pound Mk-84—with GPS guidance. (For a fully assembled JDAM, see Figure 7 ; for a JDAM tail kit, see Figure 8 .) When a JDAM kit is attached, the weapon is designated as GBU-31/32/38 depending on the weight of the bomb. These weapons have a reported range of 13 nautical miles. The Air Force and Navy began studying how to deliver such weapons in a program known as the Advanced Bomb Family during the 1980s. The first JDAMs were delivered in 1997, and underwent operational testing between 1998 and 1999. JDAM kits are reported to have an accuracy to within 3 meters (approximately 10 feet). The first operational use of a JDAM was during Operation Allied Freedom in Kosovo by a B-2 Spirit bomber. Since their development, JDAMs have been integrated with all U.S. fixed-wing strike platforms. JDAMs have received several upgrades since their introduction into service. One of the major developments has been developing a laser guidance system in addition to receiving GPS guidance. Adding laser guidance enables JDAMs to strike both moving and fixed targets. In February 2020, Boeing announced its intention to develop a "powered" JDAM to provide a low-cost alternative to cruise missiles. According to Air Force Magazine, this new JDAM would use a 500-pound bomb, and would be the size of a 2,000-pound bomb. Boeing has not stated a unit cost for this new development. DOD has procured more than 371,000 JDAM kits since 1998, and it plans to procure an additional 75,000 between FY2020 and FY2024. According to IHS Janes, the Air Force originally projected procuring 270,000 JDAM kits. Production peaked at 30,000 kits prior to 2007 before declining until 2015. Increased operational use in Iraq and Syria, in particular, resulted in a reduction in JDAM stockpiles, leading to increased procurement from FY2016 through FY2020. Table 1 outlines the FY2020 request, along with the programmed force between FY2021 through FY2024. The DOD projects to reduce JDAM procurement in the future years defense program (FYDP); the current programmed force for FY2021 reduces procurement from more than 40,000 tailkits in FY2020 to approximately 10,000 tailkits in FY2021 and ends the FYDP with approxmately 3,700 tailkits in FY2024. In addition to U.S. military use, JDAMs have been exported to 26 countries, including Australia, Bahrain, Denmark, Finland, Israel, Italy, Japan, Kuwait, Pakistan, Saudi Arabia, Singapore, South Korea, Taiwan, Turkey, and the United Arab Emirates. Small Diameter Bomb (SDB) and Small Diameter Bomb II The Small Diameter Bomb, designated as GBU-39 ( Figure 9 ), is a 250-pound guided bomb. The SDB can use both GPS and laser guidance, enabling it to strike both fixed and moving targets. In 1997, responding to improvements in accuracy due to GPS, the Air Force stated a need to develop a smaller bomb to reduce collateral damage. The SDB reached initial operating capability in 2006. According to the Air Force, the SDB has a range of approximately 40 nautical miles. The SDB was specifically designed around space constraints in both the F-22 Raptor and F-35 Lightning II aircraft to enable these fighter aircraft to carry SDBs internally, while protecting their low observable signature. The Air Force developed a second small diameter bomb, the GBU-53 laser-guided smaller diameter bomb, or SDB II (see Figure 10 ). The added laser guidance enables the SDB II to strike both fixed and moving targets. SDB II uses Link 16 and ultra-high frequency datalinks, along with infrared guidance, to provide course corrections. Development for the SDB II began in 2005, and the Air Force declared initial operating capability in 2019. The U.S. exports SDB II to Australia and South Korea as of 2019. The Air Force procures SDBs as of 2019. From FY2005 through FY2019, the Air Force purchased more than 28,000 SDBs for more than $1.7 billion. Both the Air Force and the Navy requested more than 7,000 SDBs in FY2020 (the second-largest procurement on the line) for $275 million, and plan to procure an additional 8,400 SDBs from FY2021 through FY2024. In addition both services are procuring SDB IIs. Procurement of the SDB II began in FY2018 with 80 bombs, increasing to 1,200 bombs in FY2019. DOD requested 1,900 bombs in FY2020 for approximately $331 million, and it plans to purchase more than 10,500 SDB IIs from FY2021 through FY2024 for $1.6 billion (see Table 2 ). AGM-114 Hellfire Missile In the early 1970s, the Army developed a requirement for an anti-tank missile, which resulted in the AGM-114 Hellfire (see Figure 11 ). The first Hellfire was introduced into service in 1982 on the Army's AH-64 Apache, using laser guidance to target tanks, bunkers, and structures. Hellfire missiles have a maximum effective range of 4.3 nautical miles. By the mid-1980s, the Marine Corps had introduced Hellfire missiles to its attack helicopter fleet. Hellfire missiles have received continual upgrades over the past decades, including integrating infrared sensors, warheads to target small boats, and integration with the Apache's Longbow radar. During the late 1990s and early 2000s, Hellfire missiles were introduced to the MQ-1 Predator, and later to the MQ-9 Reaper, enabling unmanned aerial vehicles to provide a strike capability. Hellfire missiles have become a preferred munition for operations in the Middle East, particularly with increased utilization of unmanned aircraft like MQ-1s and MQ-9s. Hellfire missiles have been exported to a number of countries, including Australia, Bahrain, Egypt, India, Iraq, South Korea, Kuwait, Qatar, Saudi Arabia, Taiwan, Turkey, United Arab Emirates, and the United Kingdom. The Army and the Marine Corps identified the need to replace the Hellfire missile. During the mid-2000s, the two services started a new development project called the Joint Air-to-Ground Missile (JAGM), which entered testing in 2012. Both services plan to replace the Hellfire with the JAGM; however, it is unclear when they plan to make the transition. All three military departments procure Hellfire missiles. From 1998 through 2018, DOD procured more than 71,500 missiles at a cost of $7.2 billion. Congress appropriated nearly $484 million for approximately 6,000 missiles in FY2019. For FY2020, DOD requested approximately $730 million for 9,000 Hellfire missiles, and it plans to purchase 13,100 missiles at a cost of $1.2 billion between FY2021 and FY2024 ( Table 3 ). In its FY2020 recent budget request, DOD states that it is requesting to procure the maximum production of Hellfire missiles. AGM-169 Joint Air-to-Ground Missile (JAGM) The Joint Air-to-Ground Missile is designed to replace the Hellfire, TOW, and Maverick missiles. JAGM uses a new warhead/seeker paired with an existing AGM-114R rocket motor—which is the latest model—to provide improved target acquisition and discrimination (see Figure 12 ). The JAGM has a maximum effective range of 8.6 nautical miles when launched from a helicopter and 15.1 nautical miles when launched from fixed-wing aircraft. JAGM underwent testing starting in 2010, and the missile entered initial operating capability in 2019, having been successfully integrated on the AH-64E Apache and AH-1Z Super Cobra attack helicopters. JAGM is expected to be integrated on other platforms as well, including the FA-18E/F Super Hornet, MQ-1C Grey Eagle, MH-60M Defensive Air Penetrator, MH-60S Seahawk, F-35 Lightning II, and P-8 Poseidon. In addition, the Air Force has begun procuring JAGMs but has not announced publicly what platforms will employ the missile. JAGM entered low-rate initial production in FY2017. All three services are procuring JAGM, though the Air Force is requesting only 60 missiles in FY2020, with no projections of additional procurement. DOD requested more than $339 million and 1,000 missiles for FY2020, and it projects procuring approximately 4,600 additional missiles through FY2024 for about $1.5 billion (see Table 4 ). AGM-158A/B Joint Air-to-Surface Strike Missile (JASSM) and AGM-158C Long-Range Anti-Ship Missile (LRASM) The Joint Air-to-Surface Strike Missile was conceived in the mid-1990s as a stealthy cruise missile designed to strike targets in heavily defended airspace. The JASSM is a 14-foot-long, 2,250-pound missile that can be carried internally on B-1B Lancer and B-52 Stratofortress aircraft and carried externally on a number of tactical fighters, including the F-16 Falcon, F-15E Strike Eagle, F/A-18 Hornet, F/A-18E/F Super Hornet, and F-35 Lightning II (see Figure 13 ). The AGM-158A JASSM has a stated range of more than 200 nautical miles. Initial operating capability was declared in 2005 (see Figure 14 ). AGM-158As have been exported to Australia, Finland, and Poland. In 2004, the Air Force decided that it required additional range on the JASSM and developed an extended range version, the AGM-158B JASSM-ER. The JASSM-ER uses the same body as the previous version with an improved infrared seeker, a two-way datalink, and enhanced anti-jam GPS receiver. The range of the JASSM-ER increased from more than 200 nautical miles to 500 nautical miles. This munition reached initial operating capability in 2014 on the B-1B Lancer. It reached full operating capability in 2018 with integration onto the F-15E Strike Eagle, and it is in full-rate production. The Air Force originally planned to procure 2,866 JASSMs and JASSM-ERs, but it has since changed the requirement to 7,200 missiles; as of 2019 the Air Force has procured more than 4,000 JASSMs. Japan has expressed interest in procuring JASSM-ERs, and Poland was approved to receive 70 missiles in 2016. The Air Force announced plans in September 2019 to increase JASSM production to a maximum rate of 550 missiles per year. The Service intends to grow the total JASSM inventory to approximately 10,000 missiles. In February 2020, the Air Force announced an $818 million contract to produce the latest version of the JASSM-Extreme Range Missile. According to Inside Defense, this new contract will produce 790 JASSM-ER missiles over two production lots. The new production contract includes 40 JASSM missiles to support foreign military sales; however, it is unclear which country will receive these missiles. The Long Range Anti-Ship Missile (LRASM) was conceived by the Defense Advanced Research Projects Agency (DARPA) as a concept to use a JASSM body to replace the AGM-88 Harpoon. Flight testing for LRASM began in 2012 on board a B-1B, and the missile was tested on an F/A-18E/F Super Hornet. LRASM uses a combination of passive radio-frequency sensors, and electro-optical/infrared seekers for terminal guidance. Japan has expressed interest in procuring the LRASM. In September 2019, the Air Force announced its intent to procure up to 410 LRASM missiles, changing its plan from an original estimate of 110 missiles. The JASSM-ER and the LRASM are produced in the same facility. According to budget documents, DOD states that JASSM and LRASM procurement in FY2020 is at maximum production rate. The Air Force and Navy are procuring JASSM-ER and LRASM as of 2019. In FY2020, DOD requested to procure 430 JASSM-ER missiles and an additional 48 LRASMs (see Table 5 ). In September 2019, the Air Force announced plans to increased JASSM production to 500 missiles per year, with additional capacity to up produce 96 LRASMs. DOD projects reduced procurement quantities of JASSM-ER, while maintaining procurement quantities of LRASM through FY2024. AGM-88E Advanced Anti-Radiation Guided Missile (AARGM) The Advanced Anti-Radiation Guided Missile is designed to target enemy integrated air defenses, specifically guidance radars (see Figure 15 ). AARGM was conceived in 2001 to replace the High-Speed Anti-Radiation Missile (HARM). DOD identified several deficiencies in the HARM that limited its operational effectiveness during Operation Iraqi Freedom. Thus, AARGM incorporated a new solid-propellant rocket motor that improved its range over the HARM, along with new guidance and seeker systems—using GPS inertial navigation for guidance and millimeter wave and W-band (higher than 40 GHz) sensors. AARGM entered operational testing in 2010 and initial operational capability in 2012. AARGM has been integrated on the F/A-18C/D Hornet, F/A-18E/F Super Hornet, E/A-18G Growler, F-16C/D Falcon, and the F-35 Lightning II. Both the Navy and the Air Force have procured the AARGM or its predecessor the HARM; however, neither service is procuring additional missiles as of FY2020. The Navy, however, has requested $183 million of procurement appropriations to modify its current stockpile of AARGMs. The Air Force has not requested appropriations to modify its stockpile of HARMs since FY2016. Table 6 describes the total DOD request for AARGM. AARGM has been exported to a number of countries, including Australia, Italy, Finland, Germany, and Poland. Ground-Launched Guided Munitions Guided Multiple Launch Rocket System (GMLRS) GMLRS (see Figure 16 ) is a GPS-guided 227-millimeter rocket that was jointly developed by the United States, France, Germany, Italy, and the United Kingdom. Development began in 1999, and the U.S. military began procuring GMLRS in FY2003. GMLRS is capable of being launched from the M270 multiple launch rocket system (MLRS) and the M142 High Mobility Artillery Rocket System (HIMARS). GMLRS has a 200-pound unitary warhead and a maximum range of 70 kilometers. Both the Army and the Marine Corps have procured GMLRS. Since 1998, DOD has spent nearly $5.4 billion to procure more than 42,000 rockets. DOD has requested more than $1.2 billion for approximately 9,900 rockets in FY2020, and it plans to spend an additional $4.3 billion for nearly 29,000 GMLRS between FY2021 and FY2024. In addition, GMLRS is being exported: Bahrain, United Arab Emirates, Poland, and Romania are procuring GMLRS, as are the development partners (France, Germany, Italy, and the United Kingdom). See Table 7 for an overview of the current DOD request for GMLRS. Army Tactical Missile System (ATACMS) ATACMS (see Figure 17 ) is a 610-millimeter rocket that can be launched from either the M270 MLRS (two rockets) or the M142 HIMARS (a single rocket). This rocket was originally developed in the 1980s and was later updated to provide GPS guidance. ATAMCS underwent a second upgrade in 1991, which allowed ATACMS warheads to seek and attack armored targets. Other upgrades have improved target discrimination and new penetrating warheads for hardened targets. In 2016, then-Secretary of Defense Ash Carter announced that the Strategic Capabilities Office had developed a new seeker that allowed the ATACMS rocket to target ships. The Army has stated that it intends to retire the ATACMS and replace it with the new Precision Strike Missile. The Army is procuring ATACMS in FY2020, though this procurement will curtail as the Precision Strike Missile enters service. DOD requested to procure 240 missiles for $340 million in FY2020; it plans to procure 492 missiles for $611 million between FY2021 and FY2024. Table 8 provides an overview of the most recent request for ATACMS. Five hundred and six ATACMS have been exported to a number of countries, including the United Arab Emirates and Romania. Precision Strike Missile (PrSM) The PrSM is a new development program intended to replace ATACMS. PrSM is designed to be launched from the M270 and the M142 HIMARS multiple rocket launcher system. The Army states that PrSM is designed to launch two missiles in a launcher pod compared to ATACMS single missile, has a range in excess of 400 kilometers, and has an anti-jam GPS antenna. PrSM is in development and is planned to enter early operational service in FY2023. The Army has not stated when it intends to begin testing the PrSM. The Army states that although this missile might be sold to foreign militaries in the future, there are no purchase commitments from foreign governments as of 2019. The Army tested the PrSM at White Sands, NM, in its first flight test in December 2019. In its second test in March 2019, the Army successfully tested the PrSMs short-range capabilities. Naval Precision-Guided Munitions Tomahawk Cruise Missile The Tomahawk cruise missile was originally developed during the early- to mid-1970s. It was designed to be launched by submarines and from surface combatants. Designed to fly at 570 miles per hour (Mach 0.74, or 74% of the speed of sound) for up to 870 nautical miles, the Tomahawk has received a number of upgrades since it entered service. The Tomahawk Block IV is the current cruise missile in production and comes in two versions—one for surface ships and another for submarines (see Figure 19 ). Upgrades have included improvements to GPS guidance, satellite datalink communications, and propulsion. The first operational use of the Tomahawk was during Operation Desert Storm, where the Navy launched 290 missiles from 12 submarines. Since then, IHS Janes reports that the Navy has used more than 1,600 missiles in Iraq, Bosnia, Serbia, Afghanistan, and Syria. The United Kingdom is the only export customer of the Tomahawk Block IV. From FY1998 through FY2018, the Navy spent $5.87 billion on 4,984 Tomahawk cruise missiles. The Navy has requested nearly $387 million for 90 missiles in FY2020, and it projects to procure an additional 90 missiles for nearly $374 million in FY2021, with no plans to procure additional missiles in FY2022-FY2024. The Navy projects requesting $819 million for additional procurement appropriations. (See Table 10 for the most recent Tomahawk request.) Standard Missile-6 (SM-6) The Standard Missile-6 was originally designed in 2004 as an anti-aircraft missile, derived from the Navy's SM-2 Block IV (see Figure 20 ). Since its development, the SM-6 has been integrated into the Navy's Naval Integrated Fires-Counter Air (NIF-CA) program to strike enemy surface ships. The missile was designed to receive targeting information from AEGIS radars and has been upgraded to receive target information from the E-2D Advanced Hawkeye. In addition to anti-air and anti-surface missions, the SM-6 is also capable of performing anti-ballistic missile missions. SM-6 entered low-rate initial production in FY2009 and full rate production in FY2013. The SM-6 is funded under the Navy's procurement line item 2234 Standard Missile. According to the latest Selected Acquisition Reports, DOD increased the requirement for SM-6 missiles from 1,800 to 2,331. DOD requested $488 million for 125 missiles in FY2020; it is projected that DOD will procure an additional 615 missiles between FY2021 and FY2024 at a cost of nearly $2.9 billion. Table 11 provides an overview of the current DOD request for SM-6 missiles. Naval Strike Missile (NSM) The Naval Strike Missile was originally developed by the Norwegian company Kongsberg as a replacement for the Penguin anti-ship missile (see Figure 21 and Figure 22 ). This missile is an anti-ship, low-observable cruise missile capable of flying close the surface of the ocean to avoid radar detection. IHS Janes states that "[t]he NSM  airframe materials and missile shape are intended to minimise its infrared (IR) and radar signatures and radar cross section." The NSM is designed to fly multiple flight profiles—different altitudes and speeds—with effective ranges of between 100 and 300 nautical miles at a cruise speed of up to 0.9 Mach. The Navy has integrated the NSM on its Littoral Combat Ship, which deployed into the Pacific region in September 2019. The Navy began procuring the NSM in FY2019 under the Littoral Combat Ship Over-the-Horizon Missile procurement line (see Table 12 ). The Navy has requested $38 million for 18 missiles, and it plans to spend approximately $166 million for an additional 83 missile through FY2024. According to its budget justification, the Navy does not have a specific requirement for the number of missiles it plans to procure. Potential Issues for Congress Planned procurement quantities and stockpile assessment. One potential issue for Congress is whether DOD's desired quantities of standoff munitions are appropriate. Current operations have demonstrated a large demand for all types of PGMs. A potential high-intensity conflict would potentially require large stockpiles of all types of weapons. Several of these types of munitions—particularly JASSM, LRASM, and AARGM—are being procured in relatively small quantities, given their potential use rates in a high-intensity conflict scenario, along with the time it would take for replacement spent munitions once initial inventories are exhausted. A related issue is whether DOD has adequately assessed the sufficiency of existing and planned PGM stockpiles, particularly in light of recent use rates for such weapons. Congress has from time to time required DOD to assess munitions requirements, as well as to report on combatant command munitions requirements. More recently, Congress required DOD to provide an annual report on the munitions inventory, along with an unconstrained assessment of munitions requirements. Defense industrial base production capacity. Another potential issue for Congress concerns the defense industrial base's capacity for building PGMs, particularly for meeting increased demands for such weapons during an extended-duration, high-intensity conflict. The question is part of a larger issue of whether various parts of the U.S. defense industrial base are adequate, in an era of renewed great power competition, to meet potential wartime mobilization demands. Supply chain security. Another potential issue for Congress concerns supply chain security, meaning whether U.S. PGMs incorporate components, materials, or software of foreign origin. Supply chain security could affect wartime reliability of these weapons as well as the ability of the U.S. industrial base to build replacement PGMs in a timely manner during an extended-duration, high-intensity conflict. Development timelines. Congress may be concerned about the development timeline of PGMs compared with development timelines of adversary A2/AD capabilities. China and Russia have developed sophisticated systems over the past 10 years, while DOD has developed relatively few systems. Some analysts argue that these systems can exceed DOD munitions capabilities (such as range and speed). Can and, if so, should DOD develop new systems and at a pace that can match or exceed that of Chinese or Russian weapons systems? Affordability and cost-effectiveness. Congress may also be concerned about the affordability of DOD's plans for procuring various PGMs in large numbers, and the cost-effectiveness of PGMs relative to other potential means of accomplishing certain DOD missions, particularly in a context of finite DOD resources and competing DOD program priorities. Another aspect of cost-effectiveness concerns the cost of the weapon compared to the cost of a target. For instance, in 2017 a U.S. ally used a $3 million Patriot missile to engage a $300 quadcopter drone. Emerging factors that may affect PGM programs. Another potential issue for Congress is how DOD's programs for developing and procuring PGMs might be affected by emerging factors such as the U.S. withdrawal from the Intermediate Nuclear Force (INF) treaty; new U.S. military operational concepts for countering Chinese A2/AD forces in the Indo-Pacific region, such as the Army's new Multi-Domain Operations (MDO) operational concept and the Marine Corps' new Expeditionary Advanced Base Operations (EABO) concept, both of which possibly feature the potential use of such weapons from island locations in the Pacific as a way of countering China's A2/AD forces; and emerging technologies such as hypersonics and artificial intelligence (AI). Appendix A. Prior Year Procurement by Service Appendix B. Prior Year Procurement by Program

Over the years, the U.S. military has become reliant on precision-guided munitions (PGMs) to execute military operations. PGMs are used in ground, air, and naval operations. Defined by the Department of Defense (DOD) as "[a] guided weapon intended to destroy a point target and minimize collateral damage," PGMs can include air- and ship-launched missiles, multiple launched rockets, and guided bombs. These munitions typically use radio signals from the global positioning system (GPS), laser guidance, and inertial navigation systems (INS)—using gyroscopes—to improve a weapon's accuracy to reportedly less than 3 meters (approximately 10 feet). Precision munitions were introduced to military operations during World War II; however, they first demonstrated their utility operationally during the Vietnam War and gained prominence in Operation Desert Storm in 1991. Since the 1990s, due in part to their ability to minimize collateral damage, PGMs have become critical components in U.S. operations, particularly in Afghanistan, Iraq, and Syria. The proliferation of anti-access/area denial (A2/AD) systems is likely to increase the operational utility of PGMs. In particular, peer competitors like China and Russia have developed sophisticated air defenses and anti-ship missiles that increase the risk to U.S. forces entering and operating in these regions. Using advanced guidance systems, PGMs can be launched at long ranges to attack an enemy without risking U.S. forces. As a result, DOD has argued it requires longer range munitions to meet these new threats. The Air Force, Army, Navy, and Marine Corps all use PGMs. In FY2021, the Department of Defense (DOD) requested approximately $4.1 billion for more than 41,337 weapons in 15 munitions programs. DOD projects requesting approximately $3.3 billion for 20,456 weapons in FY2022, $3.9 billion for 23,306 weapons in FY2023, $3.9 billion for 18,376 weapons in FY2024, and $3.6 billion for 16,325 weapons in FY2025. Previously DOD obligated $1.96 billion for 13,985 weapons in FY2015, $2.98 billion for 35,067 weapons in FY2016, $3.63 billion for 44,446 weapons in FY2017, $5.05 billion for 68,988 weapons in FY2018, and $4.3 billion in FY2019 for 60,62 munitions. In FY2020, Congress authorized $5.30 billion for 56,067 weapons. Current PGM programs can be categorized as air-launched, ground-launched, or naval-launched. Air-Launched: Paveway Laser Guided Bomb, Joint Direct Attack Munition (JDAM), Small Diameter Bomb, Small Diameter Bomb II, Hellfire Missile, Joint Air-to-Ground Missile, Joint Air-to-Surface Strike Missile (JASSM), Long Range Anti-Ship Missile (LRASM), and Advanced Anti-Radiation Guided Missile. Ground - Launched: Guided Multiple Launch Rocket System (GMLRS), Army Tactical Missile System (ATACMS), and Precision Strike Missile (PrSM); Naval PGMs: Tomahawk Cruise Missile, Standard Missile-6 (SM-6), and Naval Strike Missile. Congress may consider several issues regarding PGMs, including planned procurement quantities and stockpile assessments, defense industrial base production capacity, development timelines, supply chain security, affordability and cost-effectiveness, and emerging factors that may affect PGM programs.

GAO_GAO-19-254

Background HUD created REAC in 1997 to obtain consistent information on, among other things, the physical condition of its public and multifamily properties. REAC generally inspects properties every 1 to 3 years, using a risk-based schedule (discussed in detail below). REAC developed a standardized protocol to inspect properties, referred to as the Uniform Physical Condition Standards. As part of the protocol, REAC also inspects properties to identify health and safety deficiencies, including exigent health and safety deficiencies, which are life-threatening and require immediate action or remedy (such as exposed electrical wires or blocked access to windows or doors in case of a fire). REAC’s data system automatically generates an overall inspection score for the property from 0 to 100 based on the information an inspector records. At the end of each day of an inspection, an inspector is required to inform a property manager or other representative if the inspection identified exigent health and safety issues. Before releasing the inspection score, REAC reviews the inspection through a quality assurance process to ensure it is accurate. Following verification of the inspection score, REAC releases an inspection report to the property owner or PHA and the relevant HUD program office. The inspection report contains the overall inspection score, as well as more detailed information on physical deficiencies identified during the inspection. REAC primarily uses contractors—who are trained and certified in REAC’s Uniform Physical Condition Standards protocol—to conduct inspections of multifamily and public housing properties. In addition to these contract inspectors, REAC uses quality assurance inspectors, who are HUD employees, to oversee and monitor contract inspectors, as well as to ensure that REAC provides accurate and reliable inspections. Both contract and quality assurance inspectors complete several phases of training on the inspection protocol, including online, classroom, and field- based training. To procure inspections of HUD-assisted properties, REAC primarily uses an auction process to award contracts either to eligible contract inspectors or to companies that employ contract inspectors. This process, called a reverse auction program, occurs at least once a quarter. Contract inspectors or companies bid to inspect properties across the United States and its territories in a web-based auction. At the close of the auction, REAC awards the inspection to whoever bids the lowest price and is eligible to conduct inspections. The contract inspector then schedules and performs the property inspections in accordance with Uniform Physical Condition Standards protocol. According to REAC officials, this process is designed to increase cost savings and small business participation. REAC Roles and Responsibilities REAC is situated within PIH. Several departments within REAC are involved in facilitating the physical inspection process: Physical Assessment Subsystem (PASS): PASS has three primary divisions that are responsible for different aspects of the inspection process. The PASS Physical Inspection Operations division coordinates the procurement of inspections. The PASS Quality Assurance division evaluates and monitors REAC’s inspection program to ensure reliable, replicable, and reasonable inspections; trains contract and quality assurance inspectors; and provides technical assistance to HUD-assisted properties and other relevant stakeholders. The PASS Inspector Administration division monitors the performance of inspectors and takes administrative actions, such as decertifying inspectors who do not meet REAC’s standards for inspectors. Research and Development: REAC’s Research and Development division produces data analysis and statistical reports on REAC’s information products (e.g., physical inspection reports and Public Housing Assessment System scores) and assesses these products to ensure they are accurate and valid. REAC is also responsible for evaluating additional conditions, beyond physical conditions, of multifamily and public housing properties. Specifically, REAC evaluates the financial conditions of multifamily properties and assesses the financial and management performance of public housing properties. This performance assessment is conducted through the Public Housing Assessment System. REAC uses several data systems to collect, score, and report on the financial and management conditions of public housing properties, along with evaluating the utilization of property modernization and development funds (capital funds). We describe this process in more detail later in the report. HUD Offices Involved in Monitoring and Enforcement of Physical Condition Standards HUD’s PIH, Multifamily Housing, and Departmental Enforcement Center are responsible for ensuring that the owners of REAC-inspected properties (including PHAs) correct the identified physical deficiencies. PIH: This office helps low-income families by providing rental assistance through three programs; our review focuses on physical inspections of the public housing program. In 2018, HUD’s public housing program provided low-rent housing units to over 1 million eligible households. Public housing consists of reduced-rent developments owned and operated by local PHAs and subsidized by the federal government. About 3,300 PHAs own and manage public housing properties. These properties can include high-rise and low-rise buildings and scattered single-family properties, or they can be part of mixed-income housing developments, and they can range in size from fewer than 100 units to more than 30,000 units. PHAs typically have an executive director to manage their operations, as well as a governing board—called a Board of Commissioners—to approve policy, clarify goals, and ensure compliance with federal regulations. PHAs have contracts, called Annual Contributions Contracts, with the federal government. Under the terms of their contracts, PHAs agree to administer their properties according to federal regulations, in exchange for federal funding in the form of operating and capital grants. PIH is organized into six geographic networks, each with several field offices. Multifamily Housing: This office manages HUD’s portfolio of multifamily properties and provides rental assistance through several programs, including Section 8 project-based rental assistance, in which HUD contracts with private property owners to rent housing units to eligible low-income tenants for an income-based rent. Multifamily Housing also oversees the Federal Housing Administration’s multifamily mortgage insurance on loan originations and administers supportive housing for the elderly and programs for persons with disabilities. Collectively, the properties that Multifamily Housing oversees provided affordable rental housing to more than 1.2 million low-income households in 2017. Property owners or management agents of multifamily properties sign business agreements with HUD. Under these agreements, owners or agents agree to administer their properties according to federal rules and regulations, and in exchange, among other benefits, they receive federal assistance through mortgage insurance or housing assistance payments. Multifamily Housing has 12 field offices across five geographic regions. Departmental Enforcement Center: The Departmental Enforcement Center is located within HUD’s Office of General Counsel and works with several of HUD’s program offices, including PIH and Multifamily Housing, to ensure that program funds are used according to federal regulations. These program offices make referrals for the Departmental Enforcement Center to review the financial and other conditions of properties receiving rental assistance from HUD. Based on these reviews, the Departmental Enforcement Center can take various enforcement actions, such as imposing administrative sanctions to bar individuals from participating in HUD programs or civil money penalties for violations. Inspection Frequency REAC conducts inspections on multifamily and public housing properties using a risk-based schedule defined in federal regulations. According to our analysis of REAC inspection data, REAC conducted 44,486 inspections of multifamily properties and 15,156 inspections of public housing developments from fiscal years 2013 through 2017. For multifamily properties, REAC inspects properties every 1 to 3 years. Generally, properties that receive an inspection score below 80 are inspected within 1 year of the previous inspection; between 80 to 89 within 2 years; and 90 to 100 every 3 years. The inspection frequency for public housing developments varies depending on the overall size of the PHA (that is, the number of units and properties that they manage), an individual housing development’s inspection score, and the PHA’s overall performance on the Public Housing Assessment System. For PHAs with 250 housing units or more, REAC inspects developments every 1 to 3 years, using the same risk- based thresholds as Multifamily Housing. For small PHAs with fewer than 250 units, their score on the Public Housing Assessment System determines the inspection frequency, with higher scores associated with less frequent inspections. However, all developments—regardless of the number of units—that receive an overall performance assessment score (as part of the Public Housing Assessment System) of less than 60 out of 100 are designated to have a physical inspection every year. REAC’s Inspection Process Has Some Weaknesses That May Hinder Its Ability to Identify Physical Deficiencies REAC Has a Standardized Inspection Process for Identifying Physical Deficiencies at HUD- Assisted Properties REAC’s Uniform Physical Condition Standards inspection protocol is designed to help provide assurance that physical deficiencies will be identified at HUD-assisted properties. Under the protocol, contract inspectors inspect five areas of a property using a handheld data collection device to help identify and record deficiencies (see fig. 1). The devices have embedded software that provides step-by-step instructions on conducting the inspection. The software helps to ensure consistency between inspectors and consistency with the protocol, according to REAC staff. The software includes a decision-tree model to guide the inspectors on recording and classifying the severity of deficiencies they identify. For example, if an inspector identifies a deficiency with a door in a dwelling unit, the software will ask the inspector to identify which door has the deficiency and the nature of the deficiency (e.g., door lock does not work). The software then assigns a severity level to the deficiency and, if it is severe enough, requires the inspector to take a photo (see fig. 2). REAC has a number of quality assurance processes intended to ensure that contract inspectors identify deficiencies and conduct quality inspections: Collaborative quality assurance (CQA) review. In CQA reviews, REAC quality assurance inspectors observe contract inspectors to help ensure their inspections are accurate and consistent with protocol. REAC uses CQA reviews to coach contract inspectors to help improve their performance. Post-inspection review process. Completed inspections receive two levels of review by REAC quality assurance staff, who use software that compares certain aspects of the current and previous inspections—such as inspection scores, property profiles (for example, number of units), site measurements, and time taken to complete the inspection—and highlights large variances. Quality control inspection (QCI). If REAC reviewers find large variances in current and previous inspection scores and other aspects, they may reject the inspection and schedule a QCI. The QCI is a review of a previously inspected property to evaluate an inspector’s performance and identify potential weaknesses in the quality of the inspection. This review process requires a REAC quality assurance inspector to conduct a second inspection of the same property, including selecting the same sample of buildings and units of the original inspection. Once the QCI is completed, REAC’s reviewers, in collaboration with REAC’s Research and Development division, identify any deficiencies missed and determine whether the contract inspector was complying with REAC’s physical inspection standards. Property owners may appeal deficiencies REAC has identified during the physical inspection. For example, an owner might appeal a deficiency resulting from a window air conditioner blocking egress by providing evidence that this is permitted by local building code. If the appeal is successful, REAC removes the deficiency and the inspection software updates the score. Contract inspectors, REAC quality assurance inspectors, and representatives of property owner associations with whom we spoke had mixed views on REAC’s inspection process. Participants in three of the five discussion groups we held with contract and quality assurance inspectors said that the inspection process provides a comprehensive review of a property and that the inspection software helps promote consistency in inspections. Likewise, representatives from one property owner association we met with said that the inspection process was more standardized and less subjective than in the past. Representatives from another association said that the inspection process effectively identified deficiencies. However, participants in three of the same five discussion groups with contract and quality assurance inspectors noted inconsistent application of protocols and standards, noting that some cases were unclear and required judgment in identifying deficiencies. REAC’s inspection process has features similar to those of home inspection organizations such as the American Society of Home Inspectors (ASHI) and the International Association of Certified Home Inspectors (InterNACHI). For example, ASHI and InterNACHI have developed standards of practice that guide their inspectors on conducting inspections, similar to the role of REAC’s Uniform Physical Condition Standards inspection protocol. In addition, ASHI and InterNACHI require their inspectors to inspect the same five areas of a property that REAC does. Finally, ASHI and InterNACHI have codes of conduct that specify what constitutes ethical conduct for their inspectors; similarly, REAC has developed business rules that define ethical conduct for contract inspectors. REAC has made two major changes to the inspection process over the past 6 years. First, in 2012, REAC updated its inspection software to include the decision-tree model previously discussed and established a point-loss cap to limit the amount by which a single deficiency in an inspectable area could reduce the overall property score. For example, if an inspector found numerous tripping hazards within the same inspectable area, the inspector would record all instances of this hazard, but the software would only deduct from the inspection score once rather than multiple times, according to REAC staff. Second, in 2017, REAC updated its compilation bulletin to address concerns that property owners were making cheap, non-industry-standard repairs to disguise deficiencies during a REAC physical inspection. REAC now requires its inspectors to determine if deficiencies have been corrected consistent with industry standards. For example, property owners cannot use materials such as asphalt, caulking, spray foam, or screws to cover or fill a crack or opening in an electrical panel because that repair would not be consistent with industry standards (see fig. 3). As shown in table 1, from fiscal years 2013 through 2017, the median inspection scores for multifamily and public housing properties were in the mid- to high-80s, with scores trending downward toward the end of that time frame. (See apps. II and III for additional data on REAC scores.) However, a small percentage of multifamily properties scored below 60, which for multifamily properties is defined as a failure and triggers enforcement actions that Multifamily Housing or the Departmental Enforcement Center can take to require the correction of physical deficiencies. Of 27,486 multifamily properties that were inspected during fiscal years 2013 through 2017, 1,760 properties (6 percent) failed at least one inspection, and 272 properties (1 percent of the total) failed two or more inspections. Staff in Multifamily Housing field offices said multiple failed inspections are a sign of serious owner noncompliance, such as an owner who plans to sell and thus lacks motivation to make needed repairs. Multifamily Housing staff said that they take enforcement action in these cases. A higher percentage of public housing properties scored below 60 during this same period. Of the 7,699 public housing properties that were inspected during this period, 887 (11 percent) scored below 60 for at least one inspection, and 291 (4 percent) scored below 60 for two or more inspections. REAC Has Not Conducted a Comprehensive Review of Its Inspection Process since 2001 REAC has not conducted a comprehensive review of its inspection process since 2001, even though new risks to its process have emerged since then. A concern of REAC staff is that some property owners have taken advantage of the scoring system and others have misrepresented the conditions of their properties. Specifically, because more points are deducted for deficiencies on the property site than for deficiencies in a dwelling unit, some property owners prioritize site repairs over unit repairs. Additionally, some property owners attempt to cover up, rather than address, deficiencies—such as by using mulch on a building exterior to hide erosion. REAC staff have also raised concerns about property owners employing current or former REAC contract inspectors to help prepare for an inspection, sometimes by guiding owners to repair just enough to pass inspection rather than comprehensively addressing deficiencies. REAC also continues to find that some contract inspectors are conducting inspections that do not meet REAC’s quality standards (discussed later in the report). Property owner associations we met with also raised concerns about the fairness of the inspection process. Specifically, representatives of two property owner associations said that REAC’s inspection process penalizes properties for items that do not affect the livability of a unit (e.g., property receives severe deficiency for chips on exterior bricks even though the dwelling units are in good condition). Representatives from one property owner association said that some properties’ scores have fluctuated even though the condition of the property has not changed. HUD’s Office of Inspector General (OIG) also identified some weaknesses in the inspection process. Specifically, the OIG found that REAC did not verify the accuracy of sampled units for public housing agencies. Further, REAC fundamentally changed the entities that conduct inspections. In 1998, REAC employed a few large inspection companies to conduct the inspections. However, in 2005, REAC introduced the reverse auction program and opened up the inspection process to a larger number of small businesses, which resulted in a change in the composition of inspectors conducting the inspections. One of the subgoals of REAC’s strategic plan for 2011–2015 was for REAC to produce inspections of HUD-assisted properties that are reliable, replicable, and reasonable. To meet this subgoal, the plan states that REAC should assess its inspection process and apply lessons learned over the last 10 years in order to improve the process. The plan also states that REAC should conduct independent, internal audits and reviews of the inspection process to identify strengths and weaknesses and develop recommendations for improvement. Further, federal internal control standards state that management should implement control activities through policies, such as by periodically reviewing policies, procedures, and related control activities for continued relevance and effectiveness in achieving the entity’s objectives or addressing related risks. REAC officials stated that they understand the importance of conducting a comprehensive review of the inspection process similar to what they did in 2001 but that they have focused their staff and resources on other priorities—for example, upgrading their technology and quality assurance processes, hiring and training quality assurance inspectors, and conducting targeted assessments of their inspection process in reaction to specific events or risks. For example, REAC staff worked on an intra- agency team to develop recommendations to address weaknesses in the inspection process that were identified as part of the assessment of Eureka Gardens. (We describe this effort later in the report.) REAC staff also said that they updated the compilation bulletin in reaction to property owners who were making cheap, non-industry-standard repairs to disguise deficiencies during a REAC physical inspection. In addition, REAC staff noted that they meet biweekly to address certain parts of the inspection process, such as the appeals and quality assurance processes. However, these efforts help identify weaknesses in the inspection process related to specific risks and were not comprehensive enough to identify and address broader risks. For example, REAC has not assessed how changes to one part of its inspection process (for example, changing how many points are deducted for a particular inspectable area) can affect other parts of the process or result in unintended consequences. Without a comprehensive review to assess its inspection process, REAC cannot determine if it is meeting the goal of producing inspections that are reliable, replicable, and reasonable. REAC May Not Be Identifying All Properties in Need of More Frequent Inspections or Enforcement Actions REAC may not be identifying all properties that need more frequent inspections or enforcement actions because it does not consider sampling errors of the inspection scores. REAC’s inspection process does not require the inspection of all units and buildings within large properties due to REAC’s limited inspection resources. For these properties, the inspection process provides for inspecting statistical samples of units and buildings. The results for the sample are then used to estimate a score that represents the condition of the entire property. Sampling introduces a degree of uncertainty, called sampling error, which statisticians commonly express as a range associated with numerical results. For example, for a property that scored 62 on its physical inspection, REAC would consider this a passing score that requires an annual inspection and no enforcement action. However, due to sampling error, the range associated with this score could be between 56 on the lower bound and 68 on the upper bound. HUD takes enforcement action for multifamily properties with a score below 60. Federal internal control standards state that management should use quality information to achieve the entity’s objectives. In particular, internal control standards note the importance of using the entity’s objectives and related risks to identify the information requirements needed to achieve the objectives and address the risks. REAC’s property inspection scores are currently presented as numerical results without any information on the range associated with the score. REAC’s prior version of its scoring software automatically calculated the sampling errors in the inspection scores, and this information was available for inspection scores from fiscal years 2002 through 2013. However, according to REAC staff, the current version of its scoring software does not automatically calculate the sampling errors, in part because of a lack of resources and also because they believe there is no need to calculate them. Yet, in a review we conducted of REAC in 2000, officials told us that they planned to adjust the score downward and take appropriate actions for inspection scores with a lower bound that fell under an administrative cutoff, such as 60 points. During our current review, REAC staff told us that they did not implement this plan because they would need to coordinate with other HUD offices, such as the Office of Housing, and issue a notice in the Federal Register for public comment. Based on our analysis of REAC inspection data, HUD potentially could have taken enforcement actions against more properties if REAC had taken sampling errors in inspection scores into account. For example, from fiscal years 2002 through 2013, about 4.3 percent of inspections of multifamily and public housing properties had an inspection score of 60 or slightly above 60 but had a lower bound score under 60. In addition, some multifamily and public housing properties might have been inspected more frequently if the sampling errors were taken into account. For example, federal regulations require inspections of multifamily properties scoring 90 or greater once every 3 years; scoring 80 to 89 once every 2 years; and scoring less than 80 every year. Taking sampling errors into account, about 7.1 percent of multifamily properties inspected from fiscal years 2002 through 2013 might have been inspected 1 year after the most recent inspection rather than 2 years. Likewise, about 7.2 percent of inspections of multifamily properties might have occurred 2 years after the most recent inspection, rather than 3 years. Without reporting on sampling errors and considering the results, REAC will not identify some properties which could require more frequent inspections or enforcement actions. REAC Lacks Comprehensive or Organized Documentation of Sampling Methodology REAC lacks comprehensive or organized documentation of the sampling methodology it uses to make generalizable estimates about the condition of properties with its scoring system. REAC’s documentation supporting its sampling methodology is contained in five documents, none of which provides a comprehensive description of the methodology with all changes to the methodology incorporated. The main document that describes the sampling methodology is a paper presented to the American Statistical Association in 2002. This document provides a very short summary of the sampling methodology, but some key assumptions, calculations, and details are not included. For example, this document does not show how REAC derived one of the variables used to calculate the number of units to sample. When we asked REAC staff to provide us with documentation on how they derived this variable, they could only provide us with an email from 2005 from a former REAC statistician that discussed some of the statistical considerations that went into the derivation of the sample-size formula. The other four documents related to the sampling methodology are dated prior to 2002 and include the initial methodology developed and subsequent changes, but these also do not provide complete information on why key assumptions were used, or the documents lack certain formulas. Further, REAC has not updated any of its documents related to the sampling methodology since 2002 to reflect current practices. Federal internal control standards state that management should establish an organizational structure, assign responsibility, and delegate authority to achieve the entity’s objectives. In particular, the standards note the importance of developing and maintaining documentation of the internal control system. This documentation provides a means to retain organizational knowledge and mitigate the risk of having that knowledge limited to a few personnel, as well as a means to communicate that knowledge as needed to external parties, such as external auditors. Further, this documentation of controls, including changes to controls, is evidence that controls are identified, capable of being communicated to those responsible for their performance, and capable of being monitored and evaluated by the entity. However, REAC does not have a process to ensure comprehensive and organized documentation of the sampling methodology of its inspection process. Instead, REAC relies on the institutional knowledge of individual staff members. For example, when we requested documentation of its sampling methodology, REAC relied on a statistician who had been with the organization for many years to locate and provide us with the documents we requested. In addition, we had to interview this individual to better understand the methodology because key pieces of information were missing from these documents. REAC staff told us that since the inspection process has remained relatively consistent over time, they have not seen the need to ensure that documentation of the sampling methodology is comprehensive and organized. By interviewing multiple individuals, reviewing multiple documents, and conducting our own calculations, we were able to determine that REAC’s sampling methodology is suitable for making generalizable estimates about the condition of a property with the scoring system. However, the lack of comprehensive and organized documentation could affect REAC’s ability to preserve institutional knowledge and make changes or improvements to its inspection process if key staff leave the agency. REAC Does Not Always Meet Its Schedule for Inspecting Multifamily Properties or Track Progress toward Meeting Scheduling Requirements REAC schedules inspections of multifamily properties based on the prior REAC inspection score, but it did not meet its schedule for about 20 percent of inspections from calendar years 2013 through 2017. As discussed earlier, federal regulations require inspections of multifamily properties scoring 90 or greater once every 3 years, those scoring 80 to 89 once every 2 years, and those scoring less than 80 every year. Our analysis of REAC inspection data showed that about 20 percent of the properties were not inspected within 3 months before or after what HUD has identified as the ideal date to conduct the inspection, called an ideal future date. On average, REAC conducted inspections for these properties about 6 months past the ideal future date. REAC staff told us that there may be legitimate reasons for not conducting an inspection according to the ideal future date. For example, Multifamily Housing can delay an inspection because of natural disasters or major rehabilitations to the property, among other reasons. However, REAC maintains limited data on the reasons why inspections have been rescheduled or cancelled. In addition, these data are not readily available to understand retrospectively why an inspection did not occur on schedule. REAC also does not track its progress toward meeting its requirement for inspecting multifamily properties within prescribed time frames. Federal internal control standards state that management should use quality information to achieve the entity’s objectives. In particular, the standards note the importance of designing a process that uses the entity’s objectives and related risks to identify the information requirements needed to achieve the objectives and address the risks. Further, management should obtain relevant data from reliable internal and external sources in a timely manner and process these data into quality information that supports the internal control system. Multifamily Housing depends on REAC inspections to provide assessments of the physical condition of properties under its jurisdiction (discussed in greater detail later in this report). REAC’s inability to adhere to the inspection schedule for multifamily properties could hinder Multifamily Housing’s ability to monitor the physical condition of properties on a timely basis and take enforcement actions when warranted. The lack of a mechanism to track REAC’s progress toward meeting its requirement for inspecting multifamily properties also hinders REAC’s ability to determine what factors are contributing to delays in conducting the inspections. As a result, REAC lacks the information needed to determine the scope of the problem and what actions it can take to ensure multifamily properties are inspected on a timely basis. REAC Is Piloting a Process for Hard-to-Staff Inspections but Lacks Plans to Evaluate Pilot Results REAC has started a pilot program to staff inspections that contractors typically do not bid on, but it has not developed a formal plan to evaluate the results of this pilot. Since 2005, REAC has used the reverse auction program to save money on inspections and increase small business participation. However, under the reverse auction program, REAC has faced challenges in obtaining bids for inspections in some urban areas, such as Chicago, and some remote areas. To address this challenge, for a select number of properties, REAC has implemented a pilot program as an alternative to the reverse auction program. Under this alternative process, REAC has awarded multiple Indefinite Delivery/Indefinite Quantity (IDIQ) contracts to four companies to conduct these inspections. The IDIQ contracts are intended to ensure that REAC obtains physical inspections of all HUD-assisted properties on one task order rather than allowing contractors to selectively choose properties under the current program. The “all or none” approach, a key feature of these IDIQ contracts, eliminates the need to re-auction the same properties multiple times at higher prices to incentivize contractors to bid on the property. The pilot differs from REAC’s current physical inspection process in a number of ways. The pilot requires the companies that have been awarded the IDIQ contract to inspect all properties in a geographic region rather than to select which individual properties they want to bid on. Another difference is that the companies conduct quality assurance functions normally conducted by REAC staff, such as ensuring that inspectors are certified and identifying and addressing any gaps in inspectors’ performance. As of November 2018, REAC had focused its efforts on implementing the pilot but had not developed a formal plan to evaluate its results. GAO’s guide for designing evaluations states that a program evaluation is a systematic study using research methods to collect and analyze data to assess how well a program is working and why. Some key attributes of effective program evaluation design include the following: identification of data sources and collection procedures to obtain relevant, credible information; clear criteria for making comparisons that will lead to strong, defensible evaluation conclusions; and an established evaluation scope that will ensure the evaluation is tied to research questions. Federal internal control standards also state that management should use quality information to achieve the entity’s objectives. In particular, the standards note the importance of management designing a process that uses the entity’s objectives and related risks to identify information requirements needed to achieve the objectives and address the risks. Further, the standards stress the importance of management obtaining relevant data from reliable internal and external sources in a timely manner based on the identified information requirements. REAC staff told us that they plan to measure the success of the pilot program by determining whether companies are completing quality inspections in a timely manner. However, REAC staff did not provide details about how the results of the pilot would be compared to the existing process and how the quality of inspections and the performance of inspectors would be measured and assessed. Absent a formal process that incorporates key attributes for effectively evaluating the results of the pilot program, REAC may lack the information needed to determine if the pilot is a success or whether changes are needed before moving from a pilot to a permanent process. HUD Has Made Limited Progress in Implementing Recommendations from an Internal Review of REAC HUD has made limited progress in implementing recommendations from an internal review of REAC that was conducted in 2016. HUD created the Rapid Response and Resolution team—which consisted of staff from REAC and other units within HUD, including Multifamily Housing—in response to, among other things, problems associated with Eureka Gardens, a multifamily property in Jacksonville, Florida. In 2015, REAC conducted a physical inspection of Eureka Gardens, and the contract inspector gave the property a score of 85. However, REAC later declared that the inspection was out of standard when it learned that the contract inspector had only inspected one of the two properties associated with Eureka Gardens (the better of the two properties). REAC officials told us that property management engaged in some deceptive practices (such as making quick, cheap repairs) in an attempt to influence the inspection score. According to these officials, the inspector did not conduct the inspection consistent with REAC’s standards and was subsequently decertified. REAC then reinspected the entire Eureka Gardens property with its own quality assurance staff and found numerous deficiencies, which resulted in the property receiving an inspection score of 62. The Rapid Response and Resolution team developed 31 recommendations, 8 of which were specific to REAC, in January 2017. As of December 2018, nearly 2 years after the recommendations were developed and 3 years after the initial inspection of Eureka Gardens, REAC had reached concurrence with Multifamily Housing on 3 of these recommendations and asked for Multifamily Housing’s consideration of the funding and rulemaking requirements for the remaining 5. HUD had also not yet implemented the 3 recommendations on which it reached concurrence. Some of these recommendations address REAC’s management of the inspection process. They include the following: Weighting of dwelling units in inspection score. The review team recommended that REAC consider increasing the weight of dwelling- unit deficiencies in the physical condition score. This recommendation attempts to address the issue, discussed earlier, of property owners who focus their repairs on common areas of the property over dwelling units. Notice provided to property owners of impending inspection. This recommendation reduces the time that REAC can take to notify property owners of an upcoming inspection from 15 days to 3 days for properties that have failed their previous REAC inspection. REAC staff said that this change would provide a more accurate picture of the condition of properties since property owners generally address the maintenance of the property just before an inspection. In addition, this recommendation could address the concern discussed earlier of property owners hiring current or former REAC contract inspectors to help them prepare for an inspection. This recommendation should also encourage property owners to maintain properties in good condition at all times, according to REAC staff. Exigent health and safety risks. Another recommendation was that REAC work with Multifamily Housing and PIH to implement a risk- based exigent health and safety abatement verification policy. According to REAC staff, some properties certify that they have corrected exigent health and safety deficiencies when they have not done so. We found that many inspections conducted from fiscal years 2013 through 2017 had at least one exigent health and safety deficiency, and the percentage has been higher in recent years (see table 2). Field office staff from PIH and Multifamily Housing may check to ensure that these repairs have been made when they are onsite. However, neither of these offices has a formal program to ensure that property owners are actually addressing the exigent health and safety issues. As a result, property owners may choose to correct only those deficiencies that they believe will be checked by HUD field office staff, according to REAC staff. Federal internal control standards state that management should identify, analyze, and respond to risks related to achieving the defined objectives. By establishing the Rapid Response and Resolution team, HUD took the steps of identifying the risks to its inspection process and designing responses to these risks. However, the standards also call for remediating identified internal control deficiencies on a timely basis. HUD officials we met with attributed the delay in implementing the recommendations to prior vacancies in some senior leadership positions, including positions in Multifamily Housing. HUD’s delay in implementing most of the recommendations from the Rapid Response and Resolution team affects REAC’s ability to respond to weaknesses it has identified in the inspection process in a timely manner. REAC’s Processes for Selecting, Training, and Developing Inspectors Have Weaknesses REAC Sets but Does Not Verify Qualification Requirements for Contract Inspector Candidates Contract inspector candidates certify through an application that they meet REAC’s qualification requirements, but REAC does not currently verify that candidates have met these requirements before REAC selects them for training and determines them to be eligible to inspect HUD- assisted properties. Before inviting candidates to participate in inspector training, REAC requires them to certify that they meet three main qualifications: Inspections. Candidates must have conducted a minimum of 250 residential or commercial inspections. Building trades knowledge. Candidates must have building trades knowledge, such as knowledge of construction methods or electrical systems. Computer literacy. Candidates must be able to use email, the internet, and Microsoft Windows. However, REAC does not require documentation from contract inspector candidates demonstrating that they successfully conducted 250 inspections. REAC officials told us that they intend to verify a sample of the 250 inspections for each inspector, but as of November 2018 they had not yet developed a process for doing so, such as by developing a methodology for sampling and a timeline for contacting references. In contrast, one of the home inspection associations we met with, ASHI, requires certified inspector candidates to submit a list of 250 fee-paid home inspections that meet or exceed the ASHI standards and to provide a notarized affidavit validating those inspections. In addition, REAC staff told us that some contract inspector candidates have inspection experience based on inspections that are not as rigorous as those conducted using the Uniform Physical Condition Standards protocol. Participants in three of the four discussion groups we held with REAC quality assurance inspectors and supervisors told us that they had trained candidates who had included information on their applications about previous inspection experience that was not well matched to REAC’s inspection process. For instance, some inspector candidates submitted Federal Emergency Management Agency inspections and U.S. Army Office of Housing inspections as evidence of having completed 250 inspections, but REAC officials said these inspections are not as comprehensive as REAC inspections because they do not assess building systems, such as electrical or heating, ventilation, and air conditioning systems. Federal internal control standards call for management to recruit competent individuals so that they are able to accomplish their assigned responsibilities. In addition, key principles for workforce planning state that agencies need to determine the critical skills and competencies necessary to achieve their goals. REAC officials told us that the inspector training program should weed out inspector candidates that may not have the appropriate qualifications. However, although REAC officials told us that inspector candidates have been removed from training for not having the requisite skills, the officials were not able to determine how many candidates had misrepresented their qualifications on their application or had failed training for other reasons. REAC does not verify the inspections submitted by inspector candidates—relying instead on training to screen out unqualified candidates—and does not determine the type of inspection that may count as a qualifying inspection. As a result, REAC may be allowing candidates with insufficient experience to proceed in the training process, which may waste resources by training candidates who are unlikely to become successful inspectors. Training for Contract Inspectors Is Not Consistent with Key Attributes of Effective Training and Development Programs Contract inspector candidates must complete several phases of REAC training—online, in-class, and field—and pass associated examinations, as well as a background check. Online training. Inspector candidates first complete a 6-week online training that includes web-based modules on the Uniform Physical Condition Standards protocol and the use of the software system for the handheld data collection device. Candidates must pass a pre- certification examination to progress to the next phase of training. In-class training. After passing a background check, inspector candidates then begin in-class training. This phase consists of 3 to 4 days of in-class training led by REAC quality assurance inspectors and covers the compilation bulletin, Uniform Physical Condition Standards protocol, best practices, simulations of the inspection software, and hands-on practice exercises using the software. To proceed to field training, inspector candidates must pass a certification examination with a minimum score of 75 percent that covers material from both the compilation bulletin and the Uniform Physical Condition Standards protocol. Field training. The last phase is a 5-day field training course that culminates in a field examination. REAC quality assurance inspectors lead and provide instruction for the first 4 days of field training. Inspector candidates independently conduct a mock inspection using the Uniform Physical Condition Standards protocol on the fifth day, and a quality assurance inspector evaluates the candidate’s performance. REAC has made changes to training in recent years. For example, REAC began using actual HUD-assisted properties, rather than simulated properties, for the mock inspection. Some quality assurance staff and property owner associations told us they regarded the changes made in recent years to be beneficial. Participants in three of the four discussion groups we held with quality assurance supervisors and inspectors, as well as two representatives of property owner advocacy organizations, said that, in addition to classroom training, field training on a physical property helped to assess the competency of inspector candidates. In addition, stakeholders—including property managers, contract inspectors, and REAC staff—told us the mock inspections have been effective at providing training to new inspectors, and that the professionalism of contract inspectors has improved. REAC contracts with a private vendor to provide the contract inspector online training, and the vendor provides data and reports that REAC staff use to track inspector candidates’ progress through the online training modules. REAC officials told us they use this information to identify areas of the training where candidates struggle and to help revise the training material. In addition, REAC solicits feedback from contract inspector candidates on the online training. REAC also uses key performance indicators to track the number of inspector candidates who enroll and whether they pass or fail training. However, REAC does not currently have formal metrics or use data to track the effectiveness of its three phases of training. For instance, REAC does not track key measures of performance that could provide management with information to improve the training process, such as how individuals score in each section of the in-class training examination and their field examinations. REAC also does not track the resources spent on training, either in terms of funds spent or number of quality assurance inspectors who participate. According to key practices we have identified for training and development, agencies should have processes to systematically track the cost and delivery of training and measure the effectiveness of those efforts. REAC officials said that they would like to have such mechanisms and have developed a proposal to consolidate training functions and better align training to REAC’s strategic goals. However, the proposal does not include performance measures for evaluating the effectiveness and efficiency of training. Use of cost-tracking and performance measures tied to its strategic goal of improving the inspection process could improve REAC’s ability to manage scarce resources, evaluate the effectiveness of its training program, and plan for future training. Quality Assurance Inspector Training Requirements May Not Cover All Job Duties and Are Not Documented REAC’s quality assurance inspectors—who train and oversee contract inspectors—must be able to conduct physical inspections of properties as well as assess contract inspectors’ performance. To assess contract inspector performance, quality assurance inspectors oversee and mentor contract inspectors during CQA reviews and provide them feedback in a collaborative manner, an approach REAC management implemented in 2017. Some senior quality assurance inspectors are also responsible for leading classroom and field training for contract inspectors. According to REAC officials, REAC’s quality assurance inspectors receive the same training as contract inspectors on the Uniform Physical Condition Standards inspection protocol. However, REAC’s training for quality assurance inspectors does not include formal instruction on how to coach or provide feedback during CQA reviews. Instead, new quality assurance inspectors are provided with on-the-job training, and they can only conduct CQA reviews independently when quality assurance supervisors are satisfied that they are sufficiently competent. Beyond the on-the-job training, quality assurance inspectors are encouraged to undergo additional online training on coaching, but there are no specific training requirements related to conducting CQA reviews. Participants in two of our three discussion groups with quality assurance inspectors told us they were not sure how to provide the collaborative coaching and mentorship REAC officials said they wanted. REAC also does not specifically train quality assurance inspectors in how to provide classroom and field training to contract inspectors, and participants in all three discussion groups with quality assurance inspectors told us that instructors do not seem to take a consistent approach to classroom and field training. In addition, REAC’s training requirements for quality assurance inspectors are not documented in the quality assurance standard operating procedures or other documents we reviewed. For example, REAC’s new, more collaborative approach to CQA reviews was communicated to quality assurance inspectors during staff meetings, but REAC staff have not documented the approach or developed any specific training. Some contract inspectors told us that quality assurance inspectors often have less experience conducting inspections than they do. They suggested that this gap may affect quality assurance inspectors’ ability to competently oversee CQA reviews and conduct QCIs. REAC officials told us they are considering changing quality assurance inspector training requirements to be more rigorous than contract inspector training. For example, staff from REAC’s Quality Control group, created in 2017, told us that they are considering expanding training on the five inspectable areas and assessing quality assurance inspectors to see if they need additional support in any of these areas. They would also like to require quality assurance inspectors to pass the training examinations with minimum scores of 90 percent, instead of the score of 75 percent that currently applies to both contract and quality assurance inspectors. However, the Quality Control group has not implemented these changes, officials said, because its staff resources are limited, and staff have been reallocated to support other projects within REAC. In comparison, one of the home inspector associations we met with, InterNACHI, has specific requirements for its instructors. According to the association, its instructors are certified master inspectors, have completed a minimum of 1,000 paid inspections or hours of education or some combination thereof, and have conducted inspections for a minimum of 3 years. The instructors also assist in developing the educational material for training courses. Federal internal control standards state that management should demonstrate a commitment to recruit, develop, and retain competent individuals. In particular, the standards note that agency personnel need to possess and maintain a level of competence that allows them to accomplish their assigned responsibilities. The standards also note the importance of management enabling individuals to develop competencies appropriate for key roles and tailoring training based on the needs of the role. Without assessing whether training for quality assurance inspectors is sufficient and requiring additional training as needed, REAC may not have reasonable assurance that these inspectors have the skills required to oversee contract inspectors. Federal internal control standards also state that management should design control activities to achieve objectives and respond to risks, and they note the importance of documenting internal control—for example, in management directives, administrative policies, or operating manuals. These standards also state that management should establish an organizational structure, assign responsibility, and delegate authority to achieve the entity’s objectives. For example, the standards note that effective documentation assists in management’s design of internal controls by establishing and communicating the who, what, when, where, and why of internal control execution to personnel. Without documenting training requirements that encompass all job responsibilities, REAC may not have reasonable assurance that the required skills and competencies are clearly communicated to and understood by quality assurance inspectors and aligned with job duties. REAC Does Not Require Continuing Education for Contract and Quality Assurance Inspectors REAC has ongoing requirements for contract inspectors to maintain their eligibility, but these do not include continuing education requirements. Contract inspectors must conduct at least 25 successful inspections per year—that is, inspections found to be within REAC’s inspection standards—and pass a background check every 5 years to remain certified. REAC also offers optional training through online refresher modules. However, REAC does not know how many contract inspectors use these resources or how effective they are. In comparison, ASHI and InterNACHI have continuing education requirements for their certified inspectors. ASHI requires inspectors to earn 20 continuing education credits annually. The qualifying training courses must be ASHI-approved, the inspector must submit a signed affidavit attesting to having attended the training, and ASHI spot checks to monitor compliance. InterNACHI requires inspectors to earn 24 continuing education credits annually and to pass the InterNACHI Online Inspector Examination with a score of 80 percent or better every 3 years. REAC encourages quality assurance inspectors to take additional training but does not require continuing education. REAC offers optional “dine- and-learn events” to update both contract and quality assurance inspectors on policy and procedure changes and point out errors they commonly observe. In 2017 REAC also began offering limited coaching to contract inspectors by quality assurance inspection reviewers, a process separate from CQA reviews. The reviewers compare physical defects identified by contract inspectors to those that were identified by quality assurance inspectors during QCIs of the same property. Reviewers then provide one-on-one feedback to contract inspectors to address any discrepancies in inspection scores. REAC officials said that for continuing education they prefer self-paced learning to formal instruction because it more appropriately matches the varying education needs of inspectors. REAC’s strategic plan proposes developing REAC-wide policies for staff training and skill development, but it does not include any requirements for continuing education. Key practices we have previously identified for training and development suggest that agencies should encourage employees to take an active role in their professional development, which can include requiring employees to complete a specific level of continuing education. Ongoing training requirements for contract and quality assurance inspectors could help REAC ensure that inspectors are up-to- date on REAC policies and industry standards. Such continuing education could also refresh existing knowledge, helping contract and quality assurance inspectors conduct high-quality inspections consistently. Continuing education could also help quality assurance inspectors to develop their mentoring and coaching skills, which would better enable them to develop and oversee contract inspectors. REAC’s Processes for Monitoring and Evaluating Contract and Quality Assurance Inspectors Have Weaknesses REAC Uses Several Mechanisms to Monitor and Evaluate Contract Inspectors Collaborative Quality Assurance Reviews REAC’s mechanisms to monitor and evaluate its contract inspectors include collaborative quality assurance reviews, quality control inspections, and various other monitoring tools. REAC uses CQA reviews to monitor, evaluate, coach, and provide feedback to contract inspectors. REAC has documented its processes for conducting and reporting on CQA reviews in field training guidance, standard operating procedures, and the compilation bulletin. To determine which inspections will receive a CQA review, REAC combines a risk-based approach—targeting low-performing inspectors—with scheduling needs, based on the timing and geographic location of the inspection. REAC conducted almost 3,000 CQA reviews from fiscal years 2013 through 2017. As shown in table 3, the percentage of inspections each year that received a CQA review ranged from about 3 to 8 percent. Our analysis of CQA review data shows that some contract inspectors are not conducting inspections in accordance with REAC standards. From fiscal years 2013 through 2017, an average of 17 percent of CQA reviews resulted in contract inspectors receiving a rating that was outside of REAC’s physical inspection standards, referred to as an outside standard rating. This rating is based on the contract inspector committing at least 1 of 18 types of performance- or scheduling-related REAC protocol violations, with 8 of the performance violations resulting in an automatic outside standard rating. The percentage of outside standard ratings was significantly higher in fiscal years 2015 through 2017, as compared to 2013 and 2014 (see fig. 4). According to REAC officials, this increase was likely due, in part, to an increase in the number of less experienced contract inspectors. Specifically, from September 2013 through December 2015, REAC attempted to expand the pool of contract inspector candidates by lowering the required number of inspections from 250 to 50. REAC officials confirmed that these inspectors were less experienced and more likely to violate protocols. As previously discussed, REAC has taken steps to make its CQA reviews more collaborative, but some stakeholders said that challenges remain. REAC’s 2015 standard operating procedures stated that the goal for CQA reviews should not be to designate a contract inspector as outside standard, but rather to ensure inspection accuracy and to improve the knowledge of the contract inspector. However, it was not until more recently that REAC management emphasized in several staff meetings the need for quality assurance inspectors to take a collaborative approach, according to REAC staff. Despite this new emphasis, participants in a discussion group we held with contract inspectors told us that they believe a punitive approach persists with some quality assurance inspectors, that repeated pairings of contract and quality assurance inspectors could lead to bias, and that contract inspectors who receive a high number of CQA reviews may feel like REAC is targeting them. Quality Control Inspections REAC uses QCIs to further ensure the accuracy of inspections conducted by contract inspectors. As previously noted, a combination of factors can lead REAC to reject an inspection and trigger a QCI, including significant differences between the current inspection and previous inspections and other contextual factors, such as the inspector’s past CQA review performance. In a QCI, the quality assurance inspector reviews an inspection report and then conducts a new inspection to identify potential weaknesses and evaluate the inspector’s performance. The QCI results in a new inspection score. REAC has standard operating procedures that document requirements for scheduling, conducting, and reporting QCIs. REAC completed 226 QCIs from March 2017 through June 2018. Our review found that more than 50 percent of QCIs resulted in an outside standard rating. On average, contract inspectors gave properties a score that was 16 points higher than the score given subsequently by quality assurance inspectors, indicating that those contract inspectors missed deficiencies. Of these inspections, about 15 percent that had initially received a passing score from the contract inspector failed the subsequent QCI. Other Monitoring Tools for Contract Inspectors REAC also uses ratings and reports to oversee contract inspectors. REAC assigns each contract inspector a rating based on a combination of factors, including CQA results and percentage of inspections rejected, and these ratings help target which inspectors should receive CQA reviews and CQIs. REAC also produces two reports for all contract inspectors to assist in its oversight: Defect Comparison Reports compare the specific deficiencies reported by an inspector to the frequency with which other contract inspectors reported that same deficiency across properties. REAC primarily uses the results to target areas to coach contract inspectors who have been flagged for a QCI. Defect Delta Reports compare deficiencies in a contract inspector report to deficiencies a quality assurance inspector reported in a follow-up inspection (usually a QCI). REAC primarily uses this information to identify the types of deficiencies the contract inspector is missing. REAC Has Not Met Management Targets for Reviews of Contract Inspectors REAC did not meet management targets for the number of CQA reviews to be conducted in any quarter from fiscal years 2013 through 2017 (see fig. 5). REAC officials told us their management target is to conduct three CQA reviews for each high-risk contract inspector and two CQA reviews for lower-risk contract inspectors each quarter. REAC officials told us that in developing the targets, they attempted to balance risks to the quality of inspections and resources available. In addition, as of June 2018, REAC had not met management targets for timeliness of QCIs in any quarter. REAC has no documented timeliness goals for QCIs, but REAC officials told us that QCIs are supposed to take place within 30 days of the original inspection date because the condition of the property can change over time (see fig. 6). REAC officials told us they did not meet these management targets for CQAs and QCIs because they did not have enough quality assurance inspectors. In addition, when quality assurance inspectors are pulled onto other projects, such as supporting HUD’s efforts related to natural disasters, REAC’s ability to conduct CQAs and QCIs is reduced. For example, in fiscal year 2018, 28 quality assurance inspectors were pulled offline to assist HUD in areas affected by hurricanes. REAC officials told us these temporary reassignments have affected their ability to implement the quality assurance process. REAC staff told us that the quality of inspections may have deteriorated because some contract inspectors were aware that quality assurance inspectors would not be conducting CQA reviews or QCIs during those post-disaster periods. REAC has recently hired more quality assurance inspectors to help address staffing shortages. In addition, REAC officials told us that they intend to take into account the likely effects of natural disasters on their ability to conduct quality assurance reviews when planning for these reviews in the future, but REAC has not yet developed a plan to meet its targets that includes, for example, mechanisms to mitigate resource constraints and unforeseen demands on staff. According to REAC’s strategic plan, to produce physical inspections that are reliable, replicable, and reasonable, REAC is to look for patterns and trends in inspection results, such as inconsistencies between inspectors, regional and area differences, and patterns in different inspection criteria. In addition, the strategic plan calls for REAC to assess and improve the quality of contract inspectors. However, if REAC is unable to meet its management targets for CQA reviews, it may not be able to consistently produce high-quality inspections because it is not providing routine opportunities for contract inspectors to receive coaching from quality assurance inspectors, which could include addressing deficiencies that the contract inspectors did not initially identify and record. In addition, if QCIs are not conducted shortly after the original inspections, REAC may not be able to verify the quality of the inspection because the condition of the property could change over time. REAC’s inability to meet management targets for CQA reviews and QCIs could also affect its ability to monitor patterns in inspection results because, for example, the quality of QCI data would be less reliable due to the lapse in time. As a result, REAC may not be using quality assurance inspector resources as effectively as possible. REAC Takes Administrative Actions against Contract Inspectors Who Do Not Meet REAC Requirements REAC’s Inspector Administration division administers a variety of administrative actions and disciplinary sanctions against contract inspectors in response to complaints or CQA reviews and QCIs. Inspector Administration officials said that they acknowledge and follow up on all complaints received from property representatives and residents, among others. Complaints about a contract inspector can relate to conduct, inspection protocol violations, scheduling, and conflicts of interest, among other issues. Inspector Administration uses the Code of Conduct, Uniform Physical Condition Standards inspection protocol, and compilation bulletin as standards for evaluating contract inspector conduct. In order of increasing severity, Inspector Administration can issue a letter of warning, issue a performance deficiency, suspend or decertify the inspector, or refer the inspector to HUD’s OIG, among others. While Inspector Administration can use professional judgement in adjudicating complaints, some actions are automatic. For example, decertification is automatic for inspectors with three or more performance deficiencies, inspectors found to have engaged in egregious misconduct, or inspectors who conduct fewer than 25 inspections annually. Inspector Administration took more than 700 administrative enforcement actions against contract inspectors from fiscal years 2013 through 2017 (see fig. 7). As part of its effort to reform its contract inspector pool, REAC decertified 127 inspectors from fiscal years 2013 through 2017 due to inactivity, conduct, or performance issues. For example, REAC decertified the contract inspector who gave Eureka Gardens a passing inspection score even though it was in poor physical condition. Two advocacy organizations told us they noticed that REAC was decertifying more inspectors than in the past, and one said that the quality of contract inspectors had improved as a result. In response to concerns from contract inspectors, Inspector Administration is proposing changes to, among other things, provide contract inspectors who are subject to potential enforcement actions with more opportunities to present their perspective. For example, Inspector Administration would allow contract inspectors to appeal performance deficiencies earlier in the process. Other proposed changes would make performance deficiencies based on outside standard ratings discretionary instead of automatic and would remove a performance deficiency from a contract inspector’s record after 25 consecutive inspections without a new performance deficiency instead of 30. Inspector Administration officials said the new rules would also adjust decertification sanction periods, which specify the amount of time a decertified contact inspector must wait before reapplying to REAC, to account more appropriately for the reason the contact inspector left REAC (e.g., resignation, performance, or conduct). REAC’s Quality Control Group Has Not Yet Implemented Procedures for Inspector Oversight REAC created the Quality Control group to standardize quality assurance inspector reviews by conducting more frequent oversight and looking for trends across all quality assurance inspectors, according to a Quality Control official. This official said that one type of oversight involves a quality control staff member conducting an identical inspection 1 day after that of a quality assurance inspector to determine how well the inspector recorded deficiencies. Inspections are then rated as either “acceptable” or “unacceptable” based on whether the inspector followed established protocols and observed and accurately recorded 90 percent or greater of the existing deficiencies. According to the official, inspection reviews are expected to be shared with quality assurance management and individual supervisors to support quality assurance inspector development. This official also told us Quality Control plans to conduct reviews of quality assurance inspectors at least once a year, or more frequently as needed. In November 2018, Quality Control developed a mission statement which says that the primary goal of the group is to improve the consistency of inspections. Also in November 2018, Quality Control developed procedures for reviewing quality assurance inspectors, which include processes for conducting field reviews of completed inspections, criteria for acceptable inspections, and processes for providing feedback. An official from Quality Control said that the group worked with other divisions within REAC, such as PASS Quality Assurance and Research and Development, to develop the procedures and criteria for evaluating quality assurance inspectors. The official told us both its mission statement and procedures have not been implemented, in part because Quality Control staff have been repeatedly pulled onto other special projects. The official told us that these documents have been approved by REAC management and that Quality Control intends to implement the procedures in 2019. According to federal internal control standards, management should implement control activities through policies. For example, the standards call for documenting in policies each unit’s responsibility for an operational process’s objectives and related risks. Without finalizing and implementing its policies and procedures for reviewing quality assurance inspectors, Quality Control may not be able to provide consistent reviews of quality assurance inspectors, which could affect the quality of inspections as well as the feedback and coaching quality assurance inspectors provide to contract inspectors. Prioritizing the implementation of Quality Control’s review procedures could help ensure that Quality Control achieves its objectives and provides consistent reviews of quality assurance inspectors. Performance Standards for Quality Assurance Inspectors Do Not Fully Align With Job Duties The standards REAC uses to measure quality assurance inspectors’ performance do not fully align with their job duties. Quality assurance supervisors are primarily responsible for evaluating quality assurance inspector performance using five performance elements, which REAC’s performance appraisal system describes as follows: Collaboration: Provide customer service communication both verbally and in writing to internal and external HUD stakeholders, customers, or anyone who comes in contact with quality assurance services. Individual training: Develop competencies and perform individual training associated with job duties. Personal investment: Improve processes, such as through special projects or self-initiated projects that improve the quality assurance division’s standard operating procedures, the Uniform Physical Condition Standards inspection protocol, the compilation bulletin, or others. Risk management: Maximize scarce resources and be cost efficient to the government in all aspects of job duties and assignment. Meeting the need for quality affordable rental housing: Perform in accordance with all protocols and standard operating procedures, and complete CQA reviews and Uniform Physical Condition Standards inspections. REAC’s performance appraisal system includes descriptions of the standards for each of the five performance elements, as well as supporting behaviors. For example, to be rated fully successful for “meeting the need for quality affordable rental housing,” quality assurance inspectors should independently complete Uniform Physical Condition Standards inspections with no more than two inspections being rejected by REAC within the rating period. Based on the standards, quality assurance inspectors are also expected to conduct CQA reviews and field trainings for contract inspector candidates. However, the performance appraisal system for quality assurance inspectors does not include performance elements with competencies that relate to all of their job duties. For example, the performance appraisal system does not define expectations for performing CQA reviews or QCIs. In addition, it does not include criteria for evaluating the training, coaching, and mentoring that quality assurance inspectors are expected to provide to contract inspectors. Quality assurance supervisors can incorporate information from reviews of quality assurance inspectors by Quality Control in their performance evaluations. However, REAC officials told us that Quality Control does not evaluate inspectors based on the performance elements and standards. Instead, Quality Control’s reviews only evaluate an inspector’s performance as it relates to the QCI being reviewed, such as following established protocols and observing and accurately recording 90 percent or greater of the existing deficiencies. In addition, Quality Control’s reviews do not include evaluations of a quality assurance inspector’s performance for other key job duties, such as training and mentoring contract inspectors. According to key practices we have identified for effective performance management, agencies should use competencies to define the skills and supporting behaviors that individuals need to effectively contribute to organizational results. REAC staff told us they do not know when the performance elements and standards for quality assurance inspectors were last revisited, and new job duties such as conducting QCIs have been added that are not part of the performance elements. Better alignment between the performance competencies and the job responsibilities of quality assurance inspectors would help ensure that inspectors are assessed on all their key duties—including training and mentoring contract inspectors—which could improve the quality of inspections and reviews. HUD’s Key Rental Programs Rely on REAC Physical Inspection Scores as Part of Their Monitoring and Enforcement Processes PIH and Multifamily Housing each have separate processes to monitor the conditions of HUD-assisted properties, including physical conditions, and take enforcement actions if properties are not decent, safe, sanitary, and in good repair. PIH assesses the performance of PHAs on key indicators through a federal regulatory process—the Public Housing Assessment System. PIH also monitors PHAs through a Risk Assessment Protocol, which incorporates qualitative data and determines actions to address identified risks. The Risk Assessment Protocol is intended to be a proactive approach to address risk at PHAs and use resources efficiently. Separately, Multifamily Housing monitors properties that score below 60 on the REAC physical inspection. To account for properties scoring 60 or above on the REAC inspection, as well as to monitor property characteristics other than physical conditions, Multifamily Housing assesses properties through its risk rating system. REAC Scores Factor into PIH’s Assessment of Public Housing Agencies’ Performance and Help Determine Actions to Address Deficiencies Public Housing Assessment System Process The Public Housing Assessment System uses the REAC physical inspection score for each public housing development to determine the physical performance of the PHA. The physical performance of PHAs is one of four indicators within the Public Housing Assessment System, which assesses the performance of PHAs and determines a performance designation. The four indicators are (1) the physical condition of the PHA’s housing developments, (2) the financial condition of the agency, (3) the management operations of the agency, and (4) utilization of property modernization and development funds (capital fund). REAC inspection scores are adjusted to reflect the size of each housing development, and their weighted average is the physical performance indicator for a PHA. The physical indicator score, worth a maximum of 40 points (out of 100 points total) toward the overall Public Housing Assessment System score, has the highest value of the four indicators. To determine the financial, management, and capital fund indicators, PHAs upload information electronically to REAC, and REAC’s data systems generate a score for each indicator and overall. Figure 8 shows the maximum value for each indicator and overall score. Table 4 explains how the indicator and overall assessment scores lead to a performance designation. PHAs are assessed and receive a performance designation every 1 to 3 years, according to their size and prior performance designation. PHAs with at least 250 units receive an assessment annually. PHAs with fewer than 250 units receive an assessment every 3 years if designated as a high performer, 2 years if designated as a standard or substandard performer, and annually if designated as a troubled or capital fund troubled performer. In years that smaller PHAs do not receive an assessment, they must provide financial data to REAC but do not receive a published assessment score or designation. Following REAC’s release of the performance designations, PHAs and PIH each have a role in ensuring that physical deficiencies are corrected. REAC is not responsible for ensuring that PHAs correct physical deficiencies. According to federal regulations, PHAs must take certain actions depending on their performance designation. PHAs designated as troubled must enter into a recovery agreement with PIH to improve their performance within 2 years. PHAs designated as standard or substandard performers must correct deficiencies identified in the assessment within 90 days, or they may develop a plan to correct the deficiency within a specified time frame. PIH officials told us they monitor whether PHAs designated as standard or substandard performers have developed a plan or if field offices are assisting the PHA. PHAs designated as high performers are not required to correct deficiencies. Table 5 shows the number of PHAs in each designation for fiscal years 2013 through 2017, including some PHAs exempt from receiving a performance designation (e.g., small PHA deregulation). If PHAs do not correct deficiencies or improve their performance, PIH officials told us they can initiate a series of actions. First, PIH field offices are to remind PHAs of their obligation to provide housing that is decent, safe, sanitary, and in good condition. If those conversations are not effective, PIH can take administrative or enforcement actions. For example, PIH can refer PHAs to the Departmental Enforcement Center, which can exclude PHA leadership from participating in HUD programs. However, we previously found that PIH refers PHAs to the Departmental Enforcement Center infrequently, making 12 referrals in 2017 and 25 referrals in 2016. In rare instances, PIH also can place the PHA into administrative receivership and take control of the PHA’s operations. These actions also could be part of a recovery agreement for troubled performer PHAs. PIH officials told us they initiate actions specified in the recovery agreement for troubled performer PHAs that do not improve their performance within 2 years. PIH’s Risk Assessment of Public Housing Agencies Incorporates REAC Scores and Determines Actions to Address Physical and Other Risks Risk Assessment Protocol To inform its monitoring efforts, PIH uses the Risk Assessment Protocol to assess PHAs in four risk categories: physical, governance, financial, and management. PIH collects quantitative data from various HUD data systems and qualitative data from a survey administered by PIH field offices. The physical risk category uses a PHA’s Public Housing Assessment System physical indicator score—which is determined using the REAC inspection score—as one factor in determining physical risk. PIH also assesses physical risk using the qualitative survey and location of the PHA. Additionally, the performance designation from the Public Housing Assessment System—which incorporates the REAC inspection score—is included as part of assessing governance risk. The financial and management categories do not incorporate the REAC physical inspection score. For each risk category, PIH assigns points and designates a risk level for each PHA, as shown in figure 9. A higher number of points is associated with higher risk. For example, PIH assigns 25 points to PHAs with a physical indicator score of 25 or below and zero points to PHAs with a physical indicator score of 28 or higher. After assigning points, PIH designates a risk level for each risk category, as well as overall, based on the average PHA score for each category and overall. These risk designations are very high, high, moderate, and low. PHAs furthest from and above the average score are designated as very high risk, and PHAs closest to the average score are designated as low risk. PIH designates a risk level to PHAs every quarter, although some information used to determine the risk level is not updated every quarter. For example, the qualitative survey is updated every other quarter. PIH determines actions—called risk treatments—to address each risk category based on a PHA’s risk level. PIH determines actions each quarter for every PHA newly designated as very high or high risk, and it determines actions every other quarter for all other very high, high, or moderate risk PHAs. To address physical risks, field office staff may provide training or technical assistance to PHAs. For example, field office staff told us they provided technical assistance by explaining the physical inspection standards and policies related to using operating funds to make physical repairs. Risk treatments have a completion date, and PIH field office staff are to monitor whether the treatment is effective. If the risk treatments do not result in improvements, PIH officials told us they can seek technical assistance from subject matter experts within PIH or can elevate the risk treatment, among other actions. For example, PIH can provide on-site assistance rather than remote assistance. Multifamily Housing’s Process for Directing Property Owners to Correct Physical Deficiencies Is Based on REAC Scores Process for Correcting Deficiencies Multifamily Housing is required to direct property owners to correct physical deficiencies based on the REAC inspection score. For properties that score below 60 on the REAC physical inspection, Multifamily Housing issues property owners a notice to take the following actions: (1) provide a copy of the notice to residents; (2) survey 100 percent of the property to identify all physical deficiencies; (3) correct all deficiencies identified during the survey and the REAC inspection; (4) certify that they have corrected all deficiencies; and (5) submit a 100- percent survey of the property and certification of corrected deficiencies to HUD. Property owners should complete these actions within 60 days of receiving the notice but may request an extension if correcting the deficiencies will take longer than 60 days. For example, Multifamily Housing may issue extensions for notices received in winter months because seasonal conditions may make certain repair work, such as pouring concrete, more difficult to complete within 60 days. Multifamily Housing schedules a follow-up inspection depending on whether property owners submit a certification, as well as if the property scores 30 or below on the inspection. For property owners who certify that deficiencies have been corrected, Multifamily Housing schedules the property’s next inspection to take place within 1 year after the date of the last inspection. For property owners who do not submit the certification or for properties that score 30 or below on the REAC inspection, Multifamily Housing or the Departmental Enforcement Center schedules a follow-up inspection as soon as possible. Multifamily Housing uses the REAC score from that next inspection to determine whether the owner corrected deficiencies. Actions for Low-Scoring Properties After issuing a notice, Multifamily Housing can take various actions when properties’ scores on the REAC inspection remain below 60, if owners do not certify or correct physical deficiencies. Table 6 summarizes the actions Multifamily Housing took in fiscal years 2016 and 2017. For example, Multifamily Housing officials initially can place a flag in a data system to indicate that an owner has not met requirements for properties to be decent, safe, sanitary, and in good repair. This flag may prevent the owner from further participation in HUD programs. Another action Multifamily Housing officials can take is to change the property’s management agent. Multifamily Housing officials told us this action has been successful in improving the physical conditions of properties when properties do not require significant repair work. Multifamily Housing also can take more significant actions, such as terminating a rental assistance contract or foreclosing on a loan and relocating tenants from these properties. In addition to taking these actions, REAC and Multifamily Housing refer properties to the Departmental Enforcement Center when they score below a determined threshold. Upon publishing the inspection score, REAC refers properties that score 30 or below on a REAC inspection to the Departmental Enforcement Center automatically. Multifamily Housing officials told us they coordinate with relevant stakeholders to discuss these properties. Multifamily Housing also can refer properties electively to the Departmental Enforcement Center when they score between 31 and 59 on the REAC inspection. Further, Multifamily Housing can recommend specific actions for the Departmental Enforcement Center to take regardless of a property’s inspection score. The Departmental Enforcement Center can impose civil money penalties to encourage compliance with HUD’s regulations or limit a property owner from participating in HUD programs. Our analysis of referral data for physical conditions from fiscal years 2012 through 2017 shows that for 12 referrals, the Departmental Enforcement Center imposed money penalties through a settlement, and that no referrals resulted in a suspension or debarment. However, according to our previous work on the Departmental Enforcement Center, most referrals result from financial reviews rather than physical inspections. HUD’s Threshold for Issuing Notices for Property Owners Is Inconsistent with Requirements of Appropriations Legislation The Office of Multifamily Housing’s current practice of issuing notices to property owners when the REAC score is 59 or below is inconsistent with the legal requirement. As previously discussed, for properties that score 59 or below on the REAC inspection, HUD issues notices for property owners to certify that deficiencies have been identified and corrected within 60 days. However, the 2017 and 2018 Consolidated Appropriations Acts state that HUD must provide a notice to owners of properties that score 60 or below on the REAC physical inspection. Multifamily Housing officials told us that they believe language in the appropriations acts is not clear regarding the threshold to issue notices to property owners. Specifically, the appropriations acts state that HUD should issue a notice for properties that score 60 or below, and also that HUD may withdraw the notice to property owners when they successfully appeal their inspection score to 60 or above. Additionally, Multifamily Housing officials told us that HUD’s long-standing and current practice is to issue notices when a property receives a score of 59 or below. According to our analysis of inspection data, 30 properties received a score of 60 from May 2017 to December 2017 and would not have received a notice to correct physical deficiencies under HUD’s approach. Unless Congress changes the threshold identified in appropriations acts from 60 to 59 or HUD changes its practice to issue notices to properties that score 60 or below, HUD’s actions will continue to be inconsistent with the legal requirement. Other Multifamily Housing Monitoring Processes Also Incorporate REAC Scores Multifamily Housing also uses other processes to monitor the physical condition of properties, including properties that score 60 or above on the REAC inspection. These other processes incorporate additional aspects of properties beyond physical conditions. Risk Rating System Multifamily Housing’s risk rating system uses information on properties’ physical, financial, and management conditions to assign one of three risk ratings—troubled, potentially troubled, or not troubled—to each property. The REAC inspection score, along with actions taken to correct deficiencies, is one factor that determines the risk rating. Specifically, properties that score between 30 and 70 on the REAC inspection are rated as potentially troubled if the property owner is addressing physical deficiencies. Properties that score between 30 and 59 are rated as troubled if the owner has not certified that deficiencies have been corrected. Properties that score below 30 are rated as troubled and maintain that rating until the next REAC inspection. Multifamily Housing field office and headquarters staff told us they provide greater monitoring and oversight to properties rated as troubled and potentially troubled. Properties rated as troubled are required to develop an action plan to identify and document steps to address their risk, including physical risk. For example, a plan to improve the physical condition of a property may direct property owners to rehabilitate units. Properties rated as potentially troubled may develop such a plan but are not required to do so. Additionally, Multifamily Housing headquarters staff conduct a monthly call with field office staff to discuss properties rated as troubled. Multifamily Housing officials told us they review properties every 3 to 12 months based on the risk rating and can take actions if properties are not correcting issues. If property owners do not correct issues outlined in their plan, Multifamily Housing can take many of the actions listed previously, such as changing the management agent. Other Monitoring Processes Multifamily Housing can also monitor properties through other processes, such as site visits or other reviews. According to Multifamily Housing officials, field office staff conduct site visits of properties if they receive multiple complaints from tenants or notice a particular concern, or if the property receives media attention. Multifamily Housing also can conduct site visits of properties through a Management and Occupancy Review. Multifamily Housing officials told us they are moving toward a risk-based approach, using results from prior reviews and a property’s risk rating to determine how often to conduct these Management and Occupancy Reviews. However, Multifamily Housing officials told us that budget and staffing constraints continue to limit the number of reviews completed annually, with less than half of project-based rental assistance properties reviewed in 2017. To complete Management and Occupancy Reviews, HUD staff or contractors review documentation to monitor whether properties are adhering to requirements for receiving HUD funding and to target potential issues. This review gathers information on seven factors of property management, including management of a property’s physical condition. As part of gathering information, HUD staff or contract administrators interview the property owner or agent and may visit a sample of housing units to verify that deficiencies identified in the REAC inspection have been corrected. The Management and Occupancy Review specifies—in a summary report for owners and agents— corrective actions to take within targeted completion dates, not to exceed 30 days, based on the documentation review and on-site visit. Properties that perform poorly on the review also must provide proof of taking these actions. If properties do not provide proof of taking these corrective actions, Multifamily Housing can take some of the previously listed actions, such as changing the agent of a property. Conclusions REAC’s inspection process annually identifies properties that are in poor physical condition and contain life threatening health and safety issues. With over 2 million moderate- and low-income households living in public housing or multifamily properties assisted or insured by HUD, it is imperative that these properties are decent, safe, sanitary, and in good repair. Our review of REAC found areas for improvement in its inspection process: Review of inspection process. A comprehensive review of the inspection process could help REAC identify risks and ensure it is meeting the goal specified in its strategic plan that inspections be reliable, replicable, and reasonable. Sampling errors in inspection scores. If REAC were to resume reporting on sampling errors and develop a process to address properties that fall below certain cutoff scores when the sampling error is taken into account, it would have the information it needs to identify properties that may require more frequent inspections or enforcement actions. Sampling methodology documentation. Comprehensive and organized documentation of the sampling methodology could help REAC preserve the institutional knowledge of important features of its inspection process, particularly when key staff leave the agency. Timing of housing inspections. Improvements in REAC’s on-time performance of multifamily property inspections could provide HUD with more timely information on the physical condition of these properties and the information it needs to take any enforcement actions. Further, by developing mechanisms to track its progress on meeting the schedule for inspections and improving its collection of data on why inspections are delayed, REAC could better determine what factors are contributing to delays in conducting inspections. Staffing inspections. A formal evaluation plan could help REAC determine if its pilot program for staffing inspections in difficult geographic areas is a success or whether changes are needed before moving from a pilot to a permanent process. Implementation of open recommendations. Taking timely actions on internal-review recommendations could help HUD to improve REAC’s inspection process and the safety of HUD-assisted properties. We also found areas for improvement in REAC’s processes for selecting, training, and overseeing contract and quality assurance inspectors: Inspector candidates’ qualifications. A more robust process for verifying contract inspectors’ qualifications could reduce the number of candidates with insufficient experience who participate in REAC’s training program, which could help REAC to expend fewer resources on training candidates who are unlikely to become successful inspectors. Contract inspector training. Evaluating the effectiveness of its training program for contract inspectors could help REAC better assess the quality of the program and plan for future training. Quality assurance inspector training. By developing and documenting training for quality assurance inspectors that encompasses all of their job responsibilities, REAC can better ensure that inspectors have the skills required to oversee contract inspectors. Continuing education requirements. Continuing education requirements for contract and quality assurance inspectors could help REAC ensure that inspectors are up-to-date on REAC policies and industry standards. Targets for reviews of contract inspectors. Improving its ability to meet management targets for CQA reviews and QCIs could help REAC better ensure that contract inspectors are receiving the feedback needed to improve their performance, thereby improving the quality of inspections. Formal policies for Quality Control group. By implementing policies and procedures for the Quality Control group, REAC can help ensure that the group achieves its objective of providing consistent reviews of quality assurance inspectors that will enable these inspectors to improve their oversight roles. Performance standards for quality assurance inspectors. Reviewing and updating REAC’s performance standards for quality assurance inspectors so that they align with their job duties can help REAC ensure that staff understand how their duties are prioritized within REAC’s mission and improve the quality of performance reviews. Finally, Multifamily Housing’s current practice of taking actions against property owners when the REAC score is 59 or below is inconsistent with the legal requirement to take action when the score is 60 or below. While in practice this affects very few properties, without either Congress changing the threshold identified in appropriations acts from 60 to 59 or HUD changing its practice to issue notices to properties that score 60 or below, HUD’s actions will continue to be inconsistent with the legal requirement. Recommendations for Executive Action We are making the following 14 recommendations to HUD: The Deputy Assistant Secretary for the Real Estate Assessment Center should conduct a comprehensive review of the physical inspection process. (Recommendation 1) The Deputy Assistant Secretary for the Real Estate Assessment Center should resume calculating the sampling error associated with the physical inspection score for each property, identify what changes may be needed for HUD to use sampling error results, and consider those results when determining whether more frequent inspections or enforcement actions are needed. (Recommendation 2) The Deputy Assistant Secretary for the Real Estate Assessment Center should develop comprehensive and organized documentation of REAC’s sampling methodology and develop a process to ensure that documentation is maintained going forward. (Recommendation 3) The Deputy Assistant Secretary for the Real Estate Assessment Center should track on a routine basis whether REAC is conducting inspections of multifamily housing properties in accordance with federal guidelines for scheduling and coordinate with the Deputy Assistant Secretary for Multifamily Housing to minimize the number of properties that can cancel or reschedule their physical inspections. (Recommendation 4) The Deputy Assistant Secretary for the Real Estate Assessment Center should design and implement an evaluation plan to assess the effectiveness of the Indefinite Delivery/Indefinite Quantity pilot in ensuring timely and quality inspections for properties in hard-to-staff geographic areas. (Recommendation 5) The Deputy Assistant Secretary for Multifamily Housing and the Deputy Assistant Secretary for the Real Estate Assessment Center should expedite implementation of the recommendations from the Rapid Response and Resolution Team. (Recommendation 6) The Deputy Assistant Secretary for the Real Estate Assessment Center should follow through on REAC’s plan to create a process to verify candidate qualifications for contract inspectors—for example, by calling references and requesting documentation from candidates that supports their completion of 250 residential or commercial inspections. The plan should also consider whether certain types of inspections—such as Federal Emergency Management Agency inspections and U.S. Army Office of Housing inspections—satisfy REAC’s requirements. (Recommendation 7) The Deputy Assistant Secretary for the Real Estate Assessment Center should develop a process to evaluate the effectiveness of REAC’s training program—for example, by reviewing the results of tests or soliciting participant feedback. (Recommendation 8) The Deputy Assistant Secretary for the Real Estate Assessment Center should revise training for quality assurance inspectors to better reflect their job duties. Revised training should be documented, include expanded subject matter training, and address skills that may not be included in training for contract inspectors—for example, instructing contract inspector candidate trainings and coaching and providing feedback. (Recommendation 9) The Deputy Assistant Secretary for the Real Estate Assessment Center should develop continuing education requirements for contract and quality assurance inspectors. (Recommendation 10) The Deputy Assistant Secretary for the Real Estate Assessment Center should develop and implement a plan for meeting REAC’s management targets for the timeliness and frequency of CQA reviews and QCIs. The plan should include consideration of resources of and demands on quality assurance inspectors, including the effect of natural disasters and other special assignments. (Recommendation 11) The Deputy Assistant Secretary for the Real Estate Assessment Center should ensure that Quality Control’s policies and procedures for overseeing quality assurance inspectors are implemented. (Recommendation 12) The Deputy Assistant Secretary for the Real Estate Assessment Center should review quality assurance inspector performance standards and revise them to better reflect the skills and supporting behaviors that quality assurance inspectors need to effectively contribute to REAC’s mission. (Recommendation 13) The Deputy Assistant Secretary for Multifamily Housing should report to Congress on why the agency has not complied with the 2017 and 2018 Consolidated Appropriations Acts requirement to issue notices to properties when the REAC score is 60 or below, including seeking any statutory flexibilities or exceptions believed appropriate. (Recommendation 14) Agency Comments and Our Evaluation We provided a draft of this report to HUD for review and comment. In written comments, reproduced in appendix V, HUD agreed with 11 recommendations, partially agreed with 2, and neither agreed nor disagreed with 1. In its written comments, HUD noted that it largely agreed with the findings and has been examining how it can develop, pilot, and evaluate an alternate approach to its inspection model that will address the issues raised in our report. Consistent with our report, HUD recognized that after 20 years, its physical inspection process has become susceptible to manipulation. HUD said it plans to pilot a new physical inspection process in one of HUD’s administrative regions later this year. HUD stated that given its limited resources, it will be unable to simultaneously develop the new process and implement all of the recommendations to its current process. We maintain that implementing the recommendations will help REAC to ensure that properties are decent, safe, sanitary, and in good repair. HUD agreed with 11 recommendations and provided specific information about planned steps to implement them. For example, for our first recommendation on conducting a comprehensive review of REAC’s physical inspection process, HUD noted in its written comments that it plans to develop new standards, protocols, scoring approaches, and software to be validated through a demonstration. In addition, if resources are available, HUD plans to contract with an external vendor to assess the accuracy and effectiveness of the new inspection process and the statistical validity of scoring. For our eighth and ninth recommendations on evaluating and revising training for contract and quality assurance inspectors, HUD noted that it would evaluate its internal training program for contract inspectors as it pilots its new inspection process and compare the results with its evaluation of an outsourced training approach. In addition, HUD noted that it would identify the subject matter expertise needed for quality assurance inspectors and provide training to address any skills gaps among these inspectors. HUD partially agreed with our fourth and sixth recommendations and noted some considerations for addressing them. HUD partially agreed with our fourth recommendation regarding tracking its progress on conducting inspections of multifamily properties in accordance with federal guidelines, but did not identify the reason for its partial agreement. In written comments, HUD described actions it plans to take that we consider consistent with the intent of the recommendation. We maintain that this recommendation should be implemented to achieve benefits, including better understanding of the factors that contribute to inspection delays. HUD also partially agreed with our sixth recommendation regarding expedited implementation of recommendations from the Rapid Response and Resolution Team. In written comments, HUD noted that in order to balance resources invested in the current approach with those needed to design future operations, it would consider whether the remaining recommendations from the Rapid Response and Resolution Team fit with the new inspection model that it plans to pilot. Whether in the current inspection model or a future one, we maintain that expediting implementation of the recommendations from the Rapid Response and Resolution Team will support that team’s intention to address conditions at troubled multifamily properties. HUD neither agreed nor disagreed with our second recommendation to resume calculating the sampling error associated with the physical inspection for each property, identify the changes that may be needed for HUD to use sampling error results, and consider those results when determining whether more frequent inspections or enforcement actions are needed. In response to this recommendation, HUD noted in its written comments that it is examining resource implications, regulations and policies that would need to be changed, and the viability and effectiveness of making the changes included in our recommendations. We maintain that implementing this recommendation would improve REAC’s inspection process by identifying properties that may require more frequent inspections or enforcement actions. We are sending copies of this report to the appropriate congressional committees and the Secretary of Housing and Urban Development. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8678 or GarciaDiazD@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 VI. Appendix I: Objectives, Scope, and Methodology This report examines (1) the Department of Housing and Urban Development’s (HUD) Real Estate Assessment Center’s (REAC) process for identifying physical deficiencies; (2) REAC’s processes for selecting, training, and developing contract and quality assurance inspectors; (3) REAC’s processes for monitoring contract and quality assurance inspectors; and (4) HUD’s monitoring and enforcement processes for addressing physical deficiencies and how REAC’s information is used to support these processes. To address the first objective, we reviewed regulations and policies and procedures related to REAC’s physical inspection process. Specifically, we reviewed the final notice on REAC’s physical inspection scores and the 2017 update to REAC’s compilation bulletin, which is the guidance document for inspectors conducting physical inspections. We also reviewed REAC’s user guide, which explains how REAC’s inspection software and handheld data collection devices are used to conduct the inspection and record deficiencies. To describe the quality assurance processes for physical inspections, we reviewed REAC’s quality assurance standard operating procedures, which provide instructions to REAC’s quality assurance inspectors on how they are to conduct various monitoring activities over contract inspectors to assess the quality of inspections. We also reviewed REAC’s standard operating procedures for post-inspection reviews. As part of our assessment of the physical inspection process, we reviewed the statistical methodology used by REAC to determine the sample size for dwelling units and buildings. We reviewed REAC’s documentation describing the sample-size calculations for units and buildings and interviewed a REAC statistician to obtain information on the statistical approach and assumptions used in the sample size calculations. With this information, we were able to conduct our own calculations on the sample-size and compare our results to REAC’s. To report on the number of physical inspections conducted from fiscal years 2013 through 2017, as well as other data on inspections over this period, we accessed REAC’s Record and Process Inspection Data database. This database contains information related to physical inspections, such as the types and locations of properties inspected, dates of inspection, and inspection scores. To assess the reliability of the database, we first identified the various tables in the database that held the relevant data we needed for our analysis. We also identified the common identifier in each of these tables to construct records of inspections with the relevant data. We met with REAC’s staff to confirm that our selection of the tables and our construction of records was correct. We then performed our analysis and developed various descriptive statistics, such as the number of inspections per year by property type from fiscal years 2013 through 2017, the number of multifamily properties that failed their REAC inspection (scored below 60) for fiscal years 2013 through 2017, the percentage of multifamily property inspections that occurred on time given their inspection score, and various inspection score ranges by state. We compared our statistics on the number of inspections per year with comparable statistics developed by REAC. In cases where we had differences, we obtained explanations from REAC for these differences and revised our analysis where appropriate. Based on our overall assessment of the REAC data we used, we found them to be sufficiently reliable for analyzing the number and timing of inspections and trends in scoring. To obtain the views of various stakeholders on the inspection process, we held discussion groups with contract inspectors and REAC’s quality assurance inspectors and supervisors. Each discussion group had between 6 and 13 participants and was facilitated by a GAO staff member. We covered a number of topics in these discussion groups, including the inspection and quality assurance processes. We held one discussion group with contract inspectors, three with REAC quality assurance inspectors, and one with REAC quality assurance supervisors: Contract inspectors. For the discussion group with the contract inspectors, we invited all of the contract inspectors who were attending a conference at REAC’s headquarters in Washington, D.C. Thirteen contract inspectors attended the discussion group. Quality assurance inspectors. For the discussion groups with the quality assurance inspectors, we reached out to all quality assurance staff and coordinated with REAC to arrange specific meeting times to maximize the number of participants. We held two separate discussion groups with experienced inspectors. The first of these groups had 11 participants, and the second group had 6. We also held a separate discussion group with 11 newly hired quality assurance inspectors. Quality assurance supervisors. For the last discussion group, we reached out to all quality assurance supervisors and met with 6 of them. We recorded all of the discussion groups to help transcribe the conversations. In order to analyze the discussion group transcripts, we identified phrases that represented key themes across the groups. One GAO analyst reviewed one of the transcripts to identify any additional phrases we should add to our analysis. Once we arrived at our final set of key themes, one GAO analyst reviewed all of the transcripts and matched responses in the transcripts to the key themes. A second GAO analyst then checked the work to determine if he agreed with the coding of the first analyst. If there were any disagreements on the coding, the two analysts met to reach consensus on the appropriate coding. Finally, to obtain the perspectives of property owners on REAC’s inspection process, we met with four organizations representing multifamily or public housing property owners. These organizations were the Council for Large Public Housing Authorities, the National Affordable Housing Management Association, the National Leased Housing Association, and the Public Housing Authorities Directors Association. Also, to understand how private home inspection associations developed their inspection processes, we interviewed staff from the American Society of Home Inspectors and the International Association of Certified Home Inspectors. To address the second and third objectives, we reviewed REAC’s policies and procedures for selecting, training, developing, and monitoring contract and quality assurance inspectors. We reviewed the contract inspector candidate assessment questionnaire and construction analyst job announcement, which describe the requirements to become a contract and quality assurance inspector, respectively. We also reviewed documents describing the online (Phase Ia), classroom (Phase Ib), and field (Phase II) training courses. We also reviewed an assessment that Deloitte, a management consultant firm, conducted of REAC’s training, quality assurance, and inspector oversight processes. We compared REAC’s training processes for inspectors with key attributes of effective training and development programs. In our discussion groups with contract and quality assurance inspectors, we also asked their views on REAC’s selection, training, and monitoring processes. In addition, we interviewed REAC management officials to discuss their processes for the selection, training, monitoring, and oversight of contract and quality assurance inspectors. We spoke with staff from the American Society of Home Inspectors and the International Association of Certified Home Inspectors to understand how their selection and training requirements for inspectors who are members of home inspection associations compared with REAC’s. To examine REAC’s processes for monitoring contract inspector performance, we reviewed REAC’s quality assurance standard operating procedures, REAC’s strategic plan, and various tools REAC has developed to assess how contract and quality assurance inspectors perform relative to their peers. We obtained data on collaborative quality assurance reviews for fiscal years 2013 through 2017 and data on quality control inspections for January 2017 through June 2018. We analyzed the data to determine, for example, how often contract inspectors were conducting inspections in accordance with REAC’s Uniform Physical Conditions Standards protocol and its quality assurance standard operating procedures, and how often REAC was meeting its goals for timeliness and frequency of reviews. We assessed the reliability of the data by interviewing knowledgeable officials and conducting manual testing on relevant data fields for obvious errors. Based on these steps, we found the data to be sufficiently reliable for the purposes of our analyses. To examine REAC’s processes for monitoring and overseeing quality assurance inspector performance, we reviewed the performance standards and performance elements REAC uses to evaluate quality assurance inspectors. We interviewed staff from REAC’s Quality Control department, which conducts inspection reviews on quality assurance inspectors. We compared REAC’s performance management processes to key practices we have identified for effective performance management. We also compared REAC’s policies for oversight and monitoring of quality assurance inspectors to criteria in Standards for Internal Control in the Federal Government. To address the fourth objective, we reviewed documentation related to monitoring and enforcement processes for HUD’s Office of Multifamily Housing (Multifamily Housing), Office of Public and Indian Housing (PIH), and the Departmental Enforcement Center. For example, we reviewed relevant protocols and guidance documents on PIH’s and Multifamily Housing’s processes to address physical risk, among other risks. We also reviewed the relevant legal authorities in the 2014 through 2018 Consolidated Appropriations Acts and federal regulations for these HUD program offices to take enforcement actions for properties with physical deficiencies. We interviewed officials from Multifamily Housing, PIH, and the Departmental Enforcement Center on their processes to monitor the physical condition of properties and take enforcement actions. We further selected two Multifamily Housing and four PIH field offices throughout the United States to understand actions they take to monitor properties and ensure that physical deficiencies are corrected. We developed a two- stage process to select field offices with a higher percentage of inspections with scores 70 and below. We first selected HUD regions based on our score criteria and then selected specific field offices within those regions using similar score criteria. Because we selected a nonprobability sample of field offices, the information we obtained cannot be generalized more broadly to all field offices. However, the information provides important context and insight into how the enforcement process for physical deficiencies works across the country. In addition, we obtained data on performance designations for public housing agencies within PIH, actions taken by Multifamily Housing for properties scoring below 60 on the REAC inspection, and actions taken by the Departmental Enforcement Center for Multifamily Housing properties. We assessed the reliability of the data by reviewing relevant HUD guidance and obtaining written responses from agency officials on how the data were collected, maintained, analyzed, and presented. Based on these steps, we found the data to be sufficiently reliable for the purposes of our analyses. Finally, we reviewed prior reports from GAO and from the HUD Office of Inspector General that discussed efforts to monitor the physical condition of properties, among other conditions. We conducted this performance audit from July 2017 to March 2019 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. Appendix II: Number of Multifamily Housing Inspections and Percentage of Inspections in Selected Score Ranges, Fiscal Years 2013– 2017 The Real Estate Assessment Center (REAC) conducted 44,486 inspections of Office of Multifamily Housing (Multifamily Housing) properties from fiscal years 2013 through 2017, according to our analysis of REAC’s inspection data. Properties received a score from 0 to 100, with a score below 60 considered as failing. Table 7 shows the percentage of inspections conducted in each state across three score ranges. States varied in the percentage of inspections that fell within the score range considered failing (0 to 59), from a low of 1 percent to a high of 10 percent. REAC inspects properties with lower scores more frequently than properties with higher scores. For example, properties that scored below 80 would have been inspected annually over this period, while properties that scored 90 or above would have been inspected every 3 years. Appendix III: Number of Public Housing Inspections and Percentage and Number of Inspections in Selected Score Ranges, Fiscal Years 2013–2017 The Real Estate Assessment Center (REAC) conducted 15,156 inspections of public housing properties from fiscal years 2013 through 2017, according to our analysis of REAC’s inspection data. Properties received a score from 0 to 100, with a score below 60 considered as failing. Table 8 shows the percentage of inspections conducted in states or U.S. territories across three score ranges. States varied in the percentage of inspections that fell within the score range considered failing (scores 0 to 59), from a low of 1 percent to a high of 34 percent. REAC generally inspects properties with lower scores more frequently than properties with higher scores. According to our analysis, REAC conducted fewer than 100 inspections of public housing properties in 18 states or territories. Table 9 shows the number of inspections conducted within three score ranges for these 18 states or territories. Appendix IV: Recommendations to the Real Estate Assessment Center from the Rapid Response and Resolution Team The Rapid Response and Resolution Team was created by the Department of Housing and Urban Development (HUD) in May 2016 to address troubled multifamily properties by improving HUD’s internal processes for assessing properties and analyzing risk so that properties do not become troubled; improving HUD’s processes for inspecting properties so that troubled ones are identified earlier and more reliably and communicating the results to stakeholders; and improving HUD’s processes for enforcing corrective actions and resolving troubled properties and working with owners so that HUD resources are used only on safe and healthy housing. The team consisted of staff from the Real Estate Assessment Center (REAC) and other units within HUD, including the Office of Multifamily Housing (Multifamily Housing). In January 2017, the team presented 31 recommendations, 8 of which were specific to REAC. As of December 2018, REAC had not yet implemented any of these recommendations. REAC had reached concurrence with Multifamily Housing on 3 of these recommendations and asked for Multifamily Housing’s consideration of the funding and rulemaking requirements for the remaining 5 recommendations. The 8 recommendations that were specific to REAC are as follows: 1. Implement a risk-based exigent health and safety abatement verification policy. 2. Inspect properties that have a REAC physical inspection score of less than 60 after a 3-day notice. 3. Increase the scoring weights of units and reexamine point deduction caps. 4. Expand photo capability in the inspection process to level 1 and level 2 deficiencies and a panoramic photo of the property. 5. Inspect carbon monoxide detectors in the inspection process. 6. Develop health and safety abatement requirements, including focusing on water ponding and missing lead-based paint disclosure forms and inspection reports. 7. Take enforcement action to protect tenants before the 45-day appeal period is over for properties that score under 30 points and that have exigent health and safety deficiencies. 8. Require electronic exigent health and safety certifications and abatements within 24 hours of the inspection. Appendix V: Comments from the Department of Housing and Urban Development Appendix VI: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Andy Pauline (Assistant Director), José R. Peña (Analyst in Charge), Carl Barden, Chloe Brown, Hannah Dodd, Juan Garcia, Jeff Harner, Emily Hutz, Jill Lacey, Jerry Sandau, Jessica Sandler, Jennifer Schwartz, and Jena Sinkfield made key contributions to this report.

Over 2 million low- and moderate-income households live in HUD-assisted (subsidized) or -insured multifamily housing. HUD's REAC uses contractors to inspect the physical condition of these properties to determine that they are decent, safe, sanitary, and in good repair. The 2017 Consolidated Appropriations Act, Joint Explanatory Statement, included a provision for GAO to review REAC's policies and processes. This report discusses, among other things, (1) REAC's process for identifying physical deficiencies and (2) REAC's selection, training, and monitoring of contract inspectors and its own quality assurance inspectors. GAO reviewed HUD documents and data related to REAC's physical inspection process, use of contract and quality assurance inspectors, and enforcement processes. GAO also interviewed HUD officials and housing industry stakeholder groups and conducted discussion groups with contract and quality assurance inspectors. The Department of Housing and Urban Development's (HUD) Real Estate Assessment Center's (REAC) standardized process to identify physical deficiencies at HUD multifamily properties (including public housing) has some weaknesses. For example, REAC has not conducted a comprehensive review of its inspection process since 2001, even though new risks to its process have emerged, such as property owners misrepresenting the conditions of their properties. A comprehensive review could help REAC identify risks and ensure it is meeting the goal of producing inspections that are reliable, replicable, and reasonable. In addition, REAC does not track its progress toward meeting its inspection schedule for certain properties, which could hinder HUD's ability to take enforcement actions. Finally, in the wake of concerns that inspections were not always identifying troubled properties, REAC and other HUD units, including the Office of Multifamily Housing, made eight recommendations in January 2017 to enhance the inspection process, but HUD had only approved three of these recommendations and had not implemented any of them as of December 2018. REAC uses contractors to inspect properties; these contract inspectors are trained and overseen by quality assurance inspectors hired directly by REAC. However, REAC's processes to select, train, and monitor both contract inspectors and quality assurance inspectors have weaknesses. Selection. REAC does not verify the qualifications of contract inspector candidates before they are selected to begin training to become certified inspectors. Formal processes to verify qualifications may help REAC identify unqualified candidates before they begin training and avoid expending resources on training these candidates. Training. REAC lacks formal mechanisms to assess the effectiveness of its training program for contract and quality assurance inspectors. In addition, unlike other professional inspection organizations, REAC does not have continuing education requirements. Formal mechanisms to assess the effectiveness of its training program could help REAC ensure that its program supports the development needs of inspectors. Further, requiring continuing education could help REAC ensure that inspectors are current on any changes in REAC's policies or industry standards. Monitoring. REAC has not met management targets for the number and timeliness of its inspection oversight reviews of contract inspectors. For example, REAC has not met its target of conducting three quality assurance reviews of poor-performing contractors per quarter. As a result, if deficiencies are not identified and recorded by contract inspectors, they may not be addressed in a timely manner. In addition, REAC's performance standards for its quality assurance inspectors have not been updated to reflect their broader job duties, such as conducting inspector oversight reviews and coaching and mentoring contract inspectors. Performance standards that are directly linked to these job duties would help ensure that inspectors are assessed on all of their key responsibilities.

GAO_GAO-19-530

Background Travel Pay Roles and Responsibilities DOD’s travel pay program is comprised of payments made by the department to active, reserve, and National Guard service members and civilian employees for temporary and permanent travel expenses. DOD travel is generally documented using authorizations and vouchers. Travel authorizations direct an individual or group of individuals to travel and provide information regarding what travel expenses are authorized to be paid. Travelers submit travel vouchers after the travel is completed to claim reimbursement for the official travel expenses they have incurred. There are a number of DOD entities involved in creating, reviewing and approving, paying, and reporting on DOD travel payments: Travelers are the service-members and civilian employees engaging in travel who create, amend, and digitally sign travel authorizations and vouchers and are legally liable for submitting false or fraudulent claims for payment. Authorizing officials are responsible for authorizing travel and controlling the use of travel funds. The DTS Regulations state that authorizing officials must review, verify, and approve authorizations prior to travel. Certifying officers certify vouchers for payment. According to the DOD guidance on DTS, known as the DTS Regulations, certifying officers must implement, maintain, and enforce internal procedures and controls to minimize erroneous payments; they are presumed negligent and may be pecuniarily liable for all improper payments that they certify. Authorizing officials who are also certifying officers review and certify travel vouchers and verify all required supporting documentation before the vouchers are paid. The Defense Travel Management Office (DTMO) oversees and facilitates DTS, including any necessary changes or enhancements to the system. It establishes and maintains the DTS Regulations, which define the responsibilities of users by role and the minimum required training for each user role, among other things. DTMO also maintains DTS travel payment data that are used for estimating and reporting on improper payments. The Defense Finance and Accounting Service (DFAS), as part of DOD’s efforts to reduce improper travel payments, is responsible for reviewing a sample of paid DTS travel vouchers to estimate and report improper travel payments. DFAS also provides data on improper travel payments to DOD components on a quarterly basis. The Office of the Under Secretary of Defense (Comptroller) compiles DOD-wide data on improper payments annually as part of DOD’s Agency Financial Report. It also oversees and facilitates DOD efforts to reduce improper travel payments. Improper Payments Information Act (IPIA) The Improper Payments Information Act of 2002, which was later amended by the Improper Payments Elimination and Recovery Act of 2010 (IPERA) and the Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA), defines an improper payment as any payment that should not have been made or that was made in an incorrect amount (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements. In accordance with OMB guidance, DOD has identified travel pay as susceptible to improper payments based on the large volume of transactions and high dollar amount of the program. As a program considered susceptible to significant improper payments, DOD travel pay is subject to certain IPIA requirements. Specifically, IPIA, as amended, requires federal executive branch agencies to (1) develop a statistically valid estimate of the annual amount of improper payments for programs identified as susceptible to significant improper payments, (2) implement corrective actions to reduce improper payments and set reduction targets, and (3) report on the results of addressing these requirements. IPERA also requires executive agencies’ Offices of Inspector General to annually determine and report on whether their agencies complied with certain IPERA-related criteria. These criteria include the requirements to publish a report for the most recent fiscal year that meets OMB reporting requirements, publish statistically valid improper payment estimates, publish and meet reduction targets for improper payment rates, and publish corrective action plans. If an agency does not meet one or more of the six IPERA criteria for any of its programs or activities, the agency is considered noncompliant with IPERA. The DODIG reported that in fiscal year 2018, DOD travel pay was not in compliance with IPIA, as amended, for the seventh consecutive year. Specifically, DOD met three of the six IPERA-related criteria for its travel pay program, by publishing all required information in the Payment Integrity section of its Agency Financial Report; conducting program-specific risk assessments; and reporting an improper payment rate of less than 10 percent for each of the eight programs that included an improper payment estimate in the fiscal year 2018 Agency Financial Report. However, the DODIG reported that DOD did not publish reliable improper payment estimates, include all required elements for the descriptions of corrective action plans, or meet its targets for reducing improper payments. OMB Guidance To meet IPIA requirements, agencies follow guidance issued by OMB for estimating improper payments. OMB Circular No. A-123, Appendix C instructs agencies to obtain the input of a statistician to prepare a statistical sampling and estimation method that produces statistically valid estimates of improper payments. Agencies are required to meet a number of requirements on the content of the sampling plans, including providing clear and concise descriptions of the methods used that also address the assumptions used, sample sizes, and precision, among other aspects. The guidance also says that agencies should incorporate refinements to their methods based on recommendations from agency staff or auditors, such as their agency Inspector General or GAO, whenever possible. OMB guidance also includes requirements for annual reporting on improper payment estimates. According to the guidance, when calculating a program’s annual improper payment amount, agencies should use only the amount paid improperly. For example, if a $100 payment was due, but a $110 payment was made erroneously, then the amount applied to the annual estimated improper payment amount should be $10. In addition, when an agency’s review is unable to discern whether a payment was proper as a result of insufficient or lack of documentation, this payment must also be considered an improper payment. OMB also requires agencies to identify and report on the root causes of the improper payments and implement corrective actions to prevent and reduce these causes for programs that have been identified as susceptible to significant improper payments, including DOD’s travel pay program. OMB emphasizes that, in identifying root cause, it is important to distinguish between what constitutes a root cause that created an error and an internal control problem that failed to catch an error. The guidance instructs agencies to implement corrective actions that are responsive to root causes, are proportional to the severity of the associated amount and rate of the root cause, and are measurable. It also instructs agencies to annually review their existing corrective actions to determine whether any action can be intensified or expanded to achieve its intended result. Methodology DOD Uses to Calculate Improper Payment Amounts and Rates To comply with IPIA and OMB requirements, and in response to our prior recommendations, DFAS updated its statistical sampling plan in fiscal year 2017 to develop and report improper payment estimates for DTS. The plan is designed to estimate the dollar amount of improper payments, which includes both travel payments that were made in excess of the correct amount (overpayments) and those that were made for less than the correct amount (underpayments). When DOD is unable to discern whether a travel payment is proper because there is insufficient or no documentation to support it, that payment is also included in the improper payment estimate. On a monthly basis, DFAS statistically samples paid travel vouchers, stratified first by component and then by dollar amount. DFAS officials then conduct a review of the sampled post-payment vouchers to identify erroneous travel vouchers and the types of errors that were made. Based on the errors found during the review, DFAS calculates an estimate of the improper payments for each component. The military services process a small portion of their travel payments through other disbursing systems and are responsible for conducting their own post-payment reviews to estimate the improper payments for those systems. The DOD improper payment rate is the estimated total of improper payments from all post- payment reviews divided by the total number of payments. For example, in fiscal year 2018, DOD reported an improper payment rate of 4.59 percent, or $365.32 million of the $7.96 billion total travel payments. DOD Spent $18.3 Billion on DTS Travel Payments for Fiscal Years 2016 through 2018, Including an Estimated $965.5 million in Improper Travel Payments for Those Years DOD Data Show an Average of $6.1 Billion a Year in DTS Travel Payments for Fiscal Years 2016 through 2018, and Travel Spending Increased during that Period Using DTS data, we calculated that DOD had spent an average of $6.1 billion annually on DTS travel payments in fiscal years 2016 through 2018—a total of about $18.3 billion in travel payments for those years. Travel for active duty servicemembers accounted for the largest portion of those travel payments. We calculated that DOD components reported over $9.5 billion in DTS travel payments for active duty servicemembers in fiscal years 2016 through 2018, accounting for approximately 52 percent of the total travel payments. For the same time period, DTS travel payments for DOD civilian employees totaled about $5.3 billion (29 percent of the total), and travel payments for Reserve and Guard members totaled about $3.5 billion (19 percent of the total) (see fig. 1). DOD data on DTS travel payments show that out of 10 different categories used to identify the purpose of travel, the category representing “training” accounted for the largest percentage of the travel payments. Payments for “training attendance” accounted for about $6.6 billion (36 percent) of the $18.3 billion in total travel payments for fiscal years 2016 through 2018 (see table 1). Payments for the trip purpose “other travel” accounted for about $3.1 billion (17 percent) of the total travel payments for that time period. “Other travel” is any travel for reasons not covered by the other trip purpose categories; the purpose must be further specified in the travel authorization. Based on our analysis, most travel categorized as “other travel” was further specified with the trip type “routine TDY,” which refers to a travel assignment to a location other than the employee’s permanent duty station. The two other trip purposes that accounted for the highest percentage of travel payments, based on our analysis of the DTS data, are “special mission” and “site visit,” which each accounted for about $2.9 billion (16 percent) of the total travel payments for fiscal years 2016 through 2018. Using DTS data, we also calculated that DOD’s reported total travel payments increased from fiscal years 2016 through 2018, for a total increase of approximately $1 billion (16 percent) in nominal dollars and $0.68 billion (11 percent) in constant dollars during fiscal years 2016 through 2018 (see fig. 2). The DOD officials we interviewed were unable to explain why travel payments increased during fiscal years 2016 through 2018 but speculated that overall increases in DOD’s budget likely corresponded with additional travel expenses. Officials also stated that travel expenses are tied to DOD’s mission requirements. For instance, DOD military and civilian personnel provided support to civil authorities in areas such as humanitarian assistance and disaster recovery during the period of our review, according to these officials. Travel by DOD personnel to locations for these missions would contribute to DOD’s travel expenses. DOD Estimated an Annual Average of $322 Million in Improper Travel Payments for Fiscal Years 2016 through 2018 According to data provided by DFAS, the annual average of DOD improper travel payments was about $322 million for fiscal years 2016 through 2018, totaling $965.5 million (or 5.3 percent of total DTS travel payments) for those years. For fiscal year 2016, DFAS calculated that an estimated $416.6 million in travel payments (7.3 percent of total fiscal year 2016 DTS travel payments) were improper. For fiscal year 2017, DFAS’s estimate of improper payments was $252.4 million (4.2 percent of total fiscal year 2017 DTS travel payments). However, data availability issues limited the scope of that year’s post-payment review, which is used to estimate the improper payment rate. For fiscal year 2018, DFAS’s estimate of improper payments was $296.6 million (4.5 percent of total fiscal year 2018 DTS travel payments). These improper payment amounts include both overpayments and underpayments and do not necessarily indicate a monetary loss to the government. According to DOD’s Agency Financial Report, payments identified as improper do not always represent a monetary loss. For instance, an otherwise legitimate payment that lacks sufficient supporting documentation or approval is reported as improper but is not considered a monetary loss if documentation or approval is subsequently provided. Monetary loss is an amount that should not have been paid and could be recovered. With respect to monetary loss, DFAS calculated that of the DTS improper payments, the department incurred an estimated $205 million (1.6 percent of total DTS travel payments) loss to the government for fiscal years 2017 and 2018 (see fig. 3). Specifically, for fiscal year 2017, DFAS calculated an estimated monetary loss of $97.7 million (1.6 percent of total DTS travel payments), and for fiscal year 2018, it calculated an estimated monetary loss of $107.3 million (1.6 percent of total DTS travel payments). According to DFAS officials, the monetary losses estimated by DFAS were a result of travel voucher errors such as claiming an expense that is automatically generated by DTS during the booking process, rather than updating the travel voucher with the amount actually paid. Other errors that DFAS considers to indicate a monetary loss to the government include duplicate paid vouchers, mileage paid incorrectly, lodging expenses paid twice, and expenses that do not match the receipts (e.g., lodging). DOD Has Taken Steps to Implement Its Remediation Plan, but Its Approach May Not Manage Risk Sufficiently, Many Actions Remain Incomplete, and Communication of Requirements Was Lacking DOD established and has taken steps to implement a Remediation Plan aimed at reducing improper travel payments that includes specific requirements for all DOD components as well as a committee to monitor the efforts of 10 components that DOD identified as key to addressing improper travel payments. However, DOD did not consider available data on improper travel payment rates in its selection of these 10 components to implement its risk-based approach. Further, the 10 components have not fully implemented the Remediation Plan requirements, and other components were generally unaware of the requirements in the Remediation Plan and DOD’s broader efforts to resolve and mitigate improper travel payments. DOD Established a Remediation Plan to Address Improper Travel Payments and a Committee to Monitor Implementation by Key DOD Components In October 2016, DOD established a Remediation Plan for improper payments in its travel pay program. The memorandum establishing the plan specified that it applied to the Military Departments, Defense Agencies, Joint Staff, and Combatant Commands. The Under Secretary of Defense (Comptroller) noted in the memorandum that the rate of improper travel payments had reached an unacceptable level, causing the department’s program for preventing improper payments to be non- compliant with IPERA. Accordingly, the Remediation Plan specified steps that DOD components were required to take to reverse the department’s poor performance. Specifically, it stated that the military services, defense agencies, DOD field activities, Joint Staff, and combatant commands must each designate in writing a Senior Accountable Official (SAO) responsible for implementing the plan’s requirements for that component, train travelers and approving officials, issue guidance on holding approving officials pecuniarily liable for improper travel payments, and prepare component-specific remediation plans and identify corrective actions, among other things. DOD specified that certain steps were to be completed by November 1, 2016. The requirements specified in DOD’s Remediation Plan are listed in table 2. DOD officials informed us that they also established a Senior Accountable Official Committee (SAO committee) consisting of the SAOs from the 10 components. The committee provided a mechanism for DOD’s Deputy Chief Financial Officer to monitor the implementation of the Remediation Plan’s requirements by those components. The SAO committee included the four military services and six additional components: the U.S. Special Operations Command, the Defense Logistics Agency, the Defense Contract Management Agency, the Defense Information Systems Agency, the Missile Defense Agency, and the Defense Contract Audit Agency. An Office of the Under Secretary of Defense (OUSD) (Comptroller) official told us that DOD did not monitor the implementation of other components’ efforts to implement the Remediation Plan’s requirements. The SAO committee met four times from January 2017 through September 2017, with a fifth meeting in May 2018. At these meetings, components represented on the committee discussed approaches they had taken to prevent improper travel payments and highlighted examples of best practices to educate travelers and approving officials about how to avoid improper travel payments. In addition, DFAS officials presented the results of monthly post-payment reviews to identify the most common errors associated with improper travel payments. In June 2018, DOD broadened the scope of the SAO committee and chartered the DOD Improper Payments Senior Accountable Officials Steering Committee, which was established to address all programs included in DOD’s improper payments reporting—not just travel pay. As of May 2019, this steering committee had met twice, in December 2018 and again in March 2019. DOD Selected Components for the SAO Committee Based on Total Travel Payments, but Did Not Consider Components’ Improper Payment Rates DOD identified components to include on the SAO committee based on fiscal year 2016 DTS travel payments but did not consider components’ improper payment rates as selection criteria. According to OUSD (Comptroller) officials, DOD used a risk-based approach to select the 10 components to include in the SAO committee, because these components accounted for the significant majority of the department’s DTS travel payments. However, as a result of the way in which DOD reports its estimated rates of improper travel payments, it is unclear whether there is an association between the volume of DTS travel payments and improper travel payment rates. DOD officials told us that they did not use estimated improper travel rates as a selection criterion because DFAS does not report estimated improper payment rates for all DOD components in its annual agency financial report. Instead, DFAS uses a stratified sampling method for the post-payment review of travel vouchers, which means that the sample sizes for certain individual components—such as smaller defense agencies—may be too small to be statistically reliable. As a result, DFAS reports improper payment rates for the individual military services and U.S. Special Operations Command, but it reports an aggregate rate for the defense agencies that DFAS officials told us also includes “joint commands.” Notwithstanding DOD’s current sampling approach for determining improper payment rates, DOD has previously reported discrete improper payment rates for components that are not represented on the SAO committee, and there may be additional data sources on component- specific improper payment rates. First, a 2016 DODIG report on improper travel payments presented the results of a DFAS review of DTS vouchers for 58 DOD components for July through December, 2014, including 48 components not represented on DOD’s SAO committee. Second, DOD has reported improper payment rates for specific components other than the military services as part of the Remediation Plan effort. Specifically, DFAS has reported an improper payment rate for U.S. Special Operations Command in the quarterly reports it provided to the SAO committee separately from the aggregate rate it reports for other “joint commands.” Third, we found that other sources of data on estimated improper travel payment rates may be available to the department. For example, of the non-SAO components that responded to our survey, 7 of 28 indicated that they track their rate of improper travel payments. Because DOD’s approach to monitoring specific components’ implementation of the Remediation Plan was based solely on the amount of DTS travel payments, DOD lacks assurance that the components it selected for greater scrutiny were the ones most at risk for improper travel payments. Standards for Internal Control in the Federal Government notes that management can define risk tolerances for defined objectives, specifically the acceptable level of variation in performance relative to the achievement of objectives. Federal internal control standards also state that agencies should evaluate whether a risk-based approach is appropriately designed by considering whether it is consistent with expectations for the defined objectives. If the approach is not consistent with expectations, agencies should revise the approach to achieve consistency. In this case, DOD decided to accept the risk associated with targeting its Remediation Plan efforts to only those components that accounted for most of the department’s total travel payments in fiscal year 2016. However, without including improper payment rates in its analysis, DOD may have excluded components with lower overall travel payments that had significant improper payment rates. As a result, DOD cannot be assured that it has implemented the Remediation Plan in a way that is both efficient and effective in reducing improper travel payments. Components that DOD Identified as Key to Addressing Improper Travel Payments Did Not Fully Implement the Remediation Plan The 10 components that make up the SAO committee and were identified as key to the effort to reduce improper payments took some steps to address the Remediation Plan requirements but did not complete all of the requirements outlined in the Plan. For example, 7 of the 9 components that responded to our survey reported that they had designated an SAO. Further, these components indicated that their SAOs had completed some required steps, such as issuing guidance to ensure that front-end internal controls were in place to prevent improper travel payments; reviewing training plans to determine their effectiveness in preventing improper travel payments; and providing initial or refresher training to all travelers and approving officials, among other actions. However, none of the components that responded to our survey had completed all of the requirements by the due date of November 1, 2016. As of March, 2019, when we surveyed the 10 DOD components, only four of the 9 components that responded to our survey had completed all of the requirements (see table 3). For instance, 1 component (the Defense Information Systems Agency) had not developed a component-level remediation plan, and 6 of the 10 components had not developed corrective action plans to address the improper travel payments they identified, as required by the Remediation Plan. OUSD (Comptroller) officials told us that they required only the military services to complete corrective action plans, because these components accounted for about 92 percent of DTS travel payments. We found that, while DOD established specific milestones for certain actions in the Remediation Plan, it did not establish milestones for completing most of the actions. Specifically, as shown in table 2 earlier in this report, only 5 of the 11 requirements in the Remediation Plan had an associated due date. Further, while DOD established a mechanism to monitor whether the components had implemented the Remediation Plan requirements through the SAO committee, this mechanism was not effective in holding them accountable for doing so. For example, at the first SAO committee meeting (January 18, 2017), the SAOs were told to complete the Remediation Plan requirements by March 1, 2017, and to be prepared to discuss them at the next SAO committee meeting. However, at the next meeting (March 29, 2017), only 3 components—the Navy, the Defense Information Systems Agency, and the Defense Logistics Agency—were prepared to present their component-level remediation plans to the committee. At the meeting, the DOD Deputy Chief Financial Officer, serving as the chair of the committee, emphasized that components needed to document progress in order to demonstrate that the department was working toward identifying root causes and implementing corrective action plans to prevent and reduce improper travel payments. At the May 24, 2018 SAO committee meeting, 3 additional components—the Air Force, the Defense Contract Management Agency, and the Missile Defense Agency— presented their plans to the committee. However, as of March 2019, the U.S. Special Operations Command and the Defense Contract Audit Agency had still not presented their plans to the committee. Standards for Internal Control in the Federal Government states that management should evaluate performance and hold individuals accountable for their internal control responsibilities. Accountability is driven by the tone at the top of an organization and supported by the commitment to integrity and ethical values, organizational structure, and expectations of competence, which influence the control culture of the entity. In addition, the standards state that management should establish and operate monitoring activities to monitor the internal control system and evaluate the results. As we stated earlier in this report, DOD has been challenged by inaccurate and inconsistent estimates of improper payment rates, which do not allow for reliably tracking the rate of improper travel payments over time. By establishing milestones, monitoring progress, and holding component leadership accountable for the implementation of the requirements of the Remediation Plan, DOD would have greater assurance that it has taken sufficient actions to reduce improper travel payments. Non-SAO Committee Components Took Some Steps to Implement the Remediation Plan Requirements but Were Generally Unaware of DOD’s Actions in this Area As we noted above, the department memorandum outlining the Remediation Plan was addressed to all components, and DOD officials confirmed that, although they monitored implementation of the Remediation Plan for the 10 components represented on the SAO committee, the 42 components not represented on the SAO committee (non-SAO committee components) were still required to complete the actions specified in the Plan. However, we found that, based on our survey results, half of the components that responded to our survey were unaware of the requirements established in the Remediation Plan. Of the 28 non-SAO committee components that completed our survey, 14 (50 percent) responded that they were either not at all familiar with the Remediation Plan requirements or only slightly familiar with the requirements. Our survey results and review of DOD documentation also indicate that many of the 42 non-SAO committee components had taken some steps to reduce improper payments, consistent with the Remediation Plan requirements, but had not completed all of the Plan’s requirements. For example, of the 28 non-SAO committee components that completed our survey, 10 (36 percent) responded that they had not designated an SAO or other lead entity in writing, and 8 (29 percent) did not know whether their component had designated a SAO. Our survey results also indicate that most of the components not represented on the SAO committee who responded to our survey were unaware of department efforts to prevent and reduce improper travel payments. Specifically, many of the non-SAO committee components had not been made aware of efforts to implement the Remediation Plan across the department through mechanisms such as the SAO committee meeting minutes or quarterly DFAS reports. Sixteen of the 28 non-SAO committee components who responded to our survey reported that no one from their organization had ever attended an SAO committee meeting, and 11 responded that they did not know if anyone from their component had attended. Further, 15 of the 28 components who responded to our survey reported that they had never received a copy of the official SAO committee meeting minutes, and 13 responded that they did not know whether they had. Nine of the 28 components responded that they did not receive copies of the DFAS quarterly reports on improper payments, which are used to track the types of errors that occur in travel payments and help components to target actions to address them. Standards for Internal Control in the Federal Government states that management should internally communicate the necessary quality information to achieve the entity’s objectives. Communicating quality information down, across, up, and around reporting lines to all levels of an entity contributes to the design, implementation, and operating effectiveness of this principle. An OUSD (Comptroller) official confirmed that DOD did not take action to share information on the Remediation Plan requirements or implementation efforts with components not represented on the SAO committee. When DOD made the decision to focus the SAO committee on 10 components, it did not establish a mechanism or document how information on Remediation Plan efforts would be communicated to the non-SAO committee components, which are also required to implement the Plan. As a result, the components that are not represented on the SAO committee have not benefited from information on the Plan’s requirements or lessons learned and best practices that were identified during the SAO committee effort—which may have helped them to reduce their improper payments. Providing opportunities for all components to benefit from the Remediation Plan efforts would give DOD greater assurance that it has taken steps to reduce its overall improper payment rate. DOD Has Implemented Mechanisms to Identify Errors Leading to Improper Travel Payments, but these Efforts Do Not Clearly Identify the Root Causes of These Errors or the Cost-Effectiveness of Addressing Them DOD Identified Errors Leading to Improper Travel Payments but Did Not Clearly Identify the Root Causes of These Errors DOD has established mechanisms to identify and address the errors that most frequently lead to improper travel payments, but we found some limitations with these mechanisms because they did not consistently identify the root causes of the errors. DTMO Compliance Tool. In response to a requirement in the National Defense Authorization Act for Fiscal Year 2012, DTMO developed a compliance tool that uses a set of digital queries to automatically review vouchers submitted for payment through DTS to determine whether they meet criteria that indicate the potential for improper payment. According to DTMO, as of fiscal year 2018, the tool had recovered $25 million over 5 years. If a voucher is flagged by this tool, an email is automatically generated to the traveler and approving official associated with that voucher with instructions for correcting the error. For example, the compliance tool flags vouchers with duplicate expenses, such as expenses for lodging or rental cars. However, the tool does not flag all potential improper payments, because it does not identify all types of voucher errors. For instance, according to DTMO officials, the tool cannot identify vouchers that have been submitted without required receipts. For fiscal year 2018, the average rate for DTS vouchers identified as erroneous by the DTMO compliance tool was 0.044 percent. In contrast, DOD reported an improper payment rate of 4.5 percent for DTS vouchers in fiscal year 2018. In addition, the tool does not identify the root causes leading to those errors. Rather, the tool simply notifies the traveler and approving official associated with a specific voucher with characteristics indicative of a potential improper payment and requests that they amend the voucher to remove any errors. DFAS Sampling. Each month, DFAS selects a sample of vouchers that have been processed in DTS and assigns staff to review those vouchers to determine whether any resulted in an improper payment. According to DFAS officials, DFAS provides the results of these reviews to the components represented on the SAO committee. DFAS also prepares quarterly reports that summarize the most frequent errors that lead to improper travel payments and presents these reports for discussion at SAO committee meetings. DFAS reports the frequency of voucher errors for each military service and U.S. Special Operations Command and an aggregate rate for defense agencies and joint commands. The DFAS reports also suggest corrective actions to address the identified errors. For example, in November 2018, DFAS reported that the voucher error leading to the third largest amount of improper payments was “Lodging—Paid Without a Receipt,” which accounted for a total of $21,810 in improper payments in that month. The corrective action DFAS suggested was for reviewers or approving officials to verify that receipts were uploaded to DTS and that any uploaded receipts met the criteria for valid receipts. If either of these conditions was not met, the reviewer was to return the voucher to the traveler to correct and resubmit. However, these corrective actions did not address the root causes of those errors. Specifically, neither DFAS nor the SAO committee determined why travelers were not uploading receipts for lodging expenses or why officials were approving vouchers without receipts. According to DFAS reports, errors related to missing lodging receipts were among the top 5 errors from October 2016 through June 2017. By December 2018, these were was the most common errors DFAS identified—accounting for a total of $53,125 in improper payments in that month—yet DOD did not develop corrective actions to address the root cause (i.e., why travelers were continuing to submit vouchers without lodging receipts). SAO Committee Effort. As we discussed earlier in this report, beginning in January 2017, OUSD (Comptroller) convened five meetings of the SAOs from 10 components that, according to officials, accounted for the majority of DOD travel payments in fiscal year 2016. At these meetings, representatives from the components discussed approaches they were using to reduce improper travel payments. In addition, representatives from DTMO and DFAS presented trends resulting from their efforts to identify improper travel payments using the DTMO Compliance Tool and DFAS post-pay sampling. These presentations conveyed information about the types of voucher errors that were leading to improper travel payments, and SAOs in attendance discussed how to mitigate those errors. However, our review of SAO Committee meeting minutes and the remediation plans prepared by those components represented on the committee found that the components did not identify the root causes of errors leading to improper travel payments. Military Services’ Corrective Action Plans. The military services, in coordination with OUSD (Comptroller), developed corrective action plans to address improper travel payments. OUSD (Comptroller) provided the military services with guidance on developing the corrective action plans that states that corrective action plans are required to reduce improper payments, as well as to address specific audit recommendations and issues of IPERA non-compliance. OUSD (Comptroller) also provided the military services with a corrective action plan template that instructs them to describe what the plan is intended to address, i.e., improper payments, a specific audit recommendation, or noncompliance issues. The template also defines root causes as “underlying issues that are reasonably identifiable, can be controlled by management, and require implementing corrective actions to mitigate.” As of May 2019, the military services had prepared 12 corrective action plans for the travel pay area. However, we found that only 4 of them included specific corrective actions addressing the root causes of improper travel payments. We also found that the plans varied in terms of their sophistication in discussing and identifying root causes. For example, none of the corrective action plans prepared by the Air Force targeted the root causes of improper travel payments. By contrast, one of the Navy’s corrective action plans clearly identified the root cause of an error (vouchers being approved without the required forms) and specified 10 milestones and associated corrective actions to address the root cause. Of the Army’s two corrective action plans, one addressed weaknesses in the Army’s sampling plan for determining improper payments at overseas offices but did not discuss identifying the root causes of improper travel payments, and the other required Army travel management officials at overseas offices to improve their reporting of improper travel payments to more clearly link corrective actions with root causes. While DOD has taken some positive steps to identify the errors that most frequently lead to improper travel payments, our review found that component officials do not have a clear understanding of what constitutes the “root cause” of an improper travel payment. For example, component officials who responded to our survey consistently mischaracterized root causes as the specific errors leading to improper payments (e.g., missing receipts) rather than the underlying reasons for those errors. Our survey asked respondents if their component had taken steps to identify the root causes of voucher errors that led to improper travel payments in fiscal year 2018 and, if so, to provide examples of root causes they had identified. While 31 of the 37 (84 percent) components that responded to the question indicated that they had taken steps to identify root causes, and 28 (76 percent) indicated that they had taken steps to address those identified root causes, open-ended survey responses indicated that the components did not understand the term “root cause.” Specifically, 24 of the 31 (77 percent) components that provided open-ended responses with examples of the root causes they identified cited voucher errors—such as missing receipts—rather than identifying the root causes for why those errors occurred. This indicates that the 31 components that responded to this question did not understand the term “root cause”. It also suggests that the number of components that actually took actions to address root causes is likely significantly lower than the numbers reported by the survey respondents. OMB guidance specifies that agencies should ensure they have identified a true root cause of an improper payment, because it is critical to do so in order to formulate effective corrective actions. DOD’s Financial Management Regulation (FMR) states that root causes of improper payments must be identified and corrective plans developed and monitored on a regular basis to ensure that future improper payments will be reduced and eliminated. However, neither DOD’s FMR nor the June 2018 charter for the DOD Improper Payments SAO Steering Committee defines the term “root cause.” And while DOD has established some mechanisms to try to help components identify root causes, our survey demonstrates that many travel management officials at DOD components do not clearly understand the meaning of root cause. Specifically, of the 31 components that provided examples of what they believed to be the root causes of voucher errors, only 7 provided examples of actual root causes. Until DOD defines the term “root cause” to ensure a common understanding of the term across the department, DOD travel management officials will likely miss opportunities to make changes that could help to address the underlying causes of improper travel payments. DOD Has Not Determined How to Assess the Cost- Effectiveness of Addressing Root Causes Once They Have Been Identified All of the corrective action plans prepared by the military services that are intended to identify root causes of improper travel payments specified the costs associated with implementing the corrective actions. While many of the actions do not fully address root causes, as previously discussed, it is important that the department weighs the cost-effectiveness of its actions. However, we found that the services had not incorporated a consideration of cost-effectiveness into their decisions on whether to implement those actions, at least in part because OUSD (Comptroller) had not provided guidance on how they should assess the cost-effectiveness of potential corrective actions. Specifically, the template OUSD (Comptroller) provided to the military services for preparing corrective action plans neither asked for information on costs nor specified how to determine the cost-effectiveness of specific corrective actions. In May 2019, an OUSD (Comptroller) official told us that DOD is considering formulating guidance on how components should determine cost-effectiveness. OMB guidance states that agencies should be able to measure the effectiveness and progress of each individual corrective action on an annual basis. The guidance further states that agencies should annually review their existing corrective actions to determine if any existing action can be intensified or expanded so that it results in a high return on investment in terms of reduced or prevented improper payments. Addressing the root causes of improper travel payments can be costly, requiring investments in technology changes, among others. For example, component officials whom we interviewed and who responded to our survey indicated that several of the root causes for improper travel payments were related to design flaws in DTS. According to DOD officials, a feature of DTS called “Trip Workbook” is used by travelers to upload and attach receipts to vouchers. However, “Trip Workbook” is not visible to approving officials when they process the voucher for approval and payment. As a result, vouchers are being approved without the required receipts, because approving officials cannot determine whether or not the receipts have been attached. Officials stated that changes to DTS are often costly and can take a long time, and in some instances they can be more costly than the improper payment amounts they are intended to reduce. Without clear guidance to assist components in determining whether proposed corrective actions are cost-effective to implement, DOD travel management officials will be hampered in making informed decisions about which actions to implement and which to leave unfunded. Conclusions DOD spent about $6 billion annually in DTS travel payments from fiscal years 2016 through 2018 for its personnel to travel in support of its mission, but since 2012 the DODIG has consistently found the DOD travel program to be non-compliant with statutory requirements to mitigate improper payments. In 2016, DOD began implementing a Remediation Plan to address weaknesses in its management of improper travel payments. However, DOD did not consider component-specific improper payment rates in addition to overall travel payments when developing its risk-based approach to monitoring the implementation of the Plan. Thus, DOD lacks assurance that the components it selected for greater scrutiny were the ones most at risk for improper travel payments. Further, even the components that DOD determined were critical to implementing the Remediation Plan did not fully implement the Plan’s requirements, because DOD had not established milestones for completing all of the requirements, monitored whether the components had completed them on time, or held them accountable for completing the requirements. In addition, DOD did not establish a mechanism to share the results of the SAO committee’s initiatives to reduce improper payments with travel management officials across the department, limiting opportunities for the components that were not represented on the SAO committee to benefit from Remediation Plan efforts. DOD has taken some positive steps to identify the errors associated with improper travel payments but can do more to effectively and efficiently address the underlying root causes. First, DOD has not established a common definition of root cause so that travel management officials across the department can clearly identify actions needed to address improper travel payments. In the absence of such a definition, the department is limited in its ability to address the underlying reasons for improver travel payments. Second, DOD components lack guidance to assist them in determining the cost-effectiveness of addressing root causes of improper travel payments. Such guidance would help to provide assurance that investments are targeted to actions that are cost effective to implement. Recommendations for Executive Action We are making five recommendations to DOD. The Secretary of Defense should ensure that the Under Secretary of Defense (Comptroller) revises the approach for selecting components to implement the DOD Travel Pay Improper Payments Remediation Plan to consider available improper payment rate data in addition to data on the components’ amount of travel payments. (Recommendation 1) The Secretary of Defense should ensure that the Under Secretary of Defense (Comptroller) expedites completion of the remaining Travel Pay Improper Payments Remediation Plan requirements by establishing milestones for the requirements, monitoring whether the components have completed them on time, and holding components accountable for completing the requirements. (Recommendation 2) The Secretary of Defense should ensure that the Under Secretary of Defense (Comptroller) establishes a mechanism to share the results of the SAO committee’s initiatives to reduce improper travel payments with all appropriate travel management officials across the department. (Recommendation 3) The Secretary of Defense should ensure that the Under Secretary of Defense (Comptroller) takes action to ensure a common understanding of the concept of root cause across the department. This could be done by, among other actions, revising the Financial Management Regulation or the charter for the DOD Improper Payments SAO Steering Committee to include a definition of the term and including a definition of the term in the mechanism used to share the results of the SAO committee’s initiatives to reduce improper travel payments with travel management officials across the department. (Recommendation 4) The Secretary of Defense should ensure that the DOD Deputy Chief Financial Officer directs the chairs of the SAO Committee, with the input of OUSD (Comptroller), DTMO and DFAS, to provide guidance to the components on how to determine whether actions that would address root causes are cost effective to implement. (Recommendation 5) Agency Comments and Our Evaluation We provided a draft of this report to DOD for review and comment. In its written comments, reproduced in appendix III, DOD did not concur with our first recommendation, partially concurred with our second and fifth recommendations, and concurred with our third and fourth recommendations and outlined its plan to address them. DOD also provided technical comments, which we incorporated in the report where appropriate. In non-concurring with our first recommendation that OUSD (Comptroller) revise the approach for selecting components to implement the DOD Travel Pay Improper Payments Remediation Plan (Remediation Plan) to consider available improper payment data in addition to the amount of travel payments of DOD components, DOD stated that OUSD (Comptroller) had focused implementation of its remediation efforts on the 10 components that accounted for approximately 95 percent of the department’s travel pay disbursements in DTS. DOD added that this approach achieved maximum coverage of travel payments, given its time and resource limitations. DOD also stated that improper payment metrics reported by DFAS supported this approach, as these data show that the military services accounted for 92 percent of DTS travel payments and a majority of improper travel payments. We acknowledge in our report that DOD identified the 10 components to include on the SAO committee because these components accounted for the significant majority of the department’s fiscal year 2016 DTS travel payments. However, our report also states that it is unclear whether there is an association between the volume of DTS travel payments and improper travel payment rates (measured in terms of the percentage of DTS travel payments made improperly), because DOD does not routinely collect data on improper travel payment rates for all components even though—as we also note in our report—such data are available. As a result, DOD may have excluded components with relatively lower travel payments but higher rates of improper payments. DOD’s approach can serve to reduce DOD’s total improper travel payment amounts, but it may not fully support a key goal of DOD’s Remediation Plan—to reduce the risk of improper travel payments. Thus, we continue to believe that DOD should incorporate improper payment rates into its approach to oversee the implementation of its remediation efforts. In partially concurring with our second recommendation that OUSD (Comptroller) expedite completion of the remaining Remediation Plan requirements by establishing milestones for the requirements, monitoring whether the components have completed them on time, and holding components accountable to completing the requirements, DOD stated that OUSD (Comptroller) will expedite completion of the Remediation Plan requirements for the six components that have not yet completed them. DOD specified that OUSD (Comptroller) will establish milestones for the remaining requirements, monitor their progress, and hold components accountable for their completion. DOD stated that it would complete these actions by January 31, 2020. DOD also reiterated that it does not believe detailed oversight beyond the largest components is cost-effective, but noted that it would continue to monitor the non-SAO components and their impact on improper travel payments. The intent of our recommendation is to ensure that DOD expedites completion of the Remediation Plan requirements for, at a minimum, the 10 components that accounted for a significant majority of DOD’s DTS travel payments. We believe the planned actions that DOD outlined in its response will meet the intent of our recommendation. Further, as discussed in our report, requiring additional components to complete the Remediation Plan requirements may be warranted if those components have relatively high improper payment rates. Therefore, DOD’s stated plan to monitor other components and their impact on improper travel payments would be responsive to our recommendation, provided the department holds non- SAO committee components accountable for addressing high improper payment rates. In partially concurring with our fifth recommendation that the DOD Deputy Chief Financial Officer direct the chairs of the SAO Committee, with the input of OUSD (Comptroller), DTMO and DFAS, to provide guidance to the components on how to determine if actions that would address root causes are cost-effective to implement, DOD stated that OUSD (Comptroller) will revise the improper payments corrective action plan template to require reporting components to perform a cost-benefit analysis to determine the best or most cost-effective solution, resulting in savings to the department. DOD added that OUSD (Comptroller) will not provide specific steps to the components on how to determine whether their actions are, in fact, cost-effective to implement. DOD further stated that it believes that the criteria and/or appropriate steps to determine whether corrective actions are cost-effective for a component must be identified and agreed upon internally within the component. DOD stated that it would complete these actions by October 31, 2019. The intent of our recommendation is to ensure that DOD components determine the cost-effectiveness of actions to address the root causes of improper travel payments. DOD’s stated plan to require the reporting components to perform a cost-benefit analysis will meet the intent of our recommendation, provided that the department ensures that the components are evaluating the cost-effectiveness of planned corrective actions that address the root causes of improper travel payments. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the DOD Chief Management Officer, the Under Secretary of Defense (Comptroller), the Secretary of the Army, the Secretary of the Air Force, the Secretary of the Navy, the Commandant of the Marine Corps, the Chairman of the Joint Chiefs of Staff, the Director of the Defense Finance and Accounting Service, and the Director of the Defense Travel Management Office. In addition, the report is available at no charge on our website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2775 or FieldE1@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: DOD Components Included in GAO’s Web-Based Survey Defense Media Activity (DMA) Missile Defense Agency (MDA) Defense Acquisition University (DAU) Defense Advanced Research Projects Agency (DARPA) Defense Commissary Agency (DECA) Defense Contract Audit Agency (DCAA) Defense Finance and Accounting Service (DFAS) Defense Intelligence Agency (DIA) Defense Logistics Agency (DLA) Defense Security Service (DSS) Defense Technical Information Center (DTIC) Defense Technology Security Administration (DTSA) Defense Threat Reduction Agency (DTRA) Department of Defense Education Activity (DODEA) National Defense University (NDU) National Geospatial-Intelligence Agency (NGA) Defense POW/MIA Accounting Agency (DPAA) Defense Health Agency (DHA) Court of Appeals for the Armed Forces (CAAF) Uniformed Services University of Health Sciences (USU) DOD Inspector General (DOD IG) Defense Contract Management Agency (DCMA) Defense Security Cooperation Agency (DSCA) White House Military Office (WHMO) Defense Microelectronics Activity (DMEA) Test Resource Management Center (TRMC) Office of the Secretary of Defense (OSD) Office of Economic Adjustment (OEA) Office of General Counsel (OGC) Defense Human Resources Activity (DHRA) Component Name Washington Headquarters Service (WHS) Pentagon Force Protection Agency (PFPA) Joint Chiefs of Staff (JCS) U.S. Africa Command (AFRICOM) U.S. Central Command (CENTCOM) U.S. European Command (EUCOM) U.S. Northern Command (NORTHCOM) U.S. Indo-Pacific Command (INDOPACOM) U.S. Special Operations Command (SOCOM) U.S. Strategic Command (STRATCOM) U.S. Transportation Command (TRANSCOM) Inter American Defense Board (IADB) Joint Interagency Task Force – West (JIATF-W) North Atlantic Treaty Organization (NATO) United Nations Command/US Forces Korea (USFK) U.S. Military Entrance Processing Command (USMEPCOM) Components represented on the Senior Accountable Official Committee (SAO committee) since establishment of the committee. The SAO committee had a total of 13 member components, but DOD officials told us that 3 components (the Office of the Under Secretary of Defense (Comptroller), the Defense Finance and Accounting Service, and the Defense Travel Management Office) served in support roles and were not held accountable for completing the Remediation Plan requirements. Appendix II: Objectives, Scope, and Methodology Our objectives were to examine (1) the amount the Department of Defense (DOD) spent on Defense Travel System (DTS) travel payments for fiscal years 2016 through 2018 and how much of those payments DOD estimated to be improper; (2) the extent to which DOD implemented its Remediation Plan; and (3) the extent to which DOD established mechanisms to identify errors leading to improper travel payments, the root causes of those errors, and the cost effectiveness of addressing root causes. To address our first objective, we collected DTS data on travel payments for fiscal years 2016 through 2018, by DOD component and trip purpose, from the Defense Travel Management Office (DTMO). We used this time period because DOD issued its plan to remediate improper payments in 2016. We calculated the total payments for that time period, as well as the average annual payments and subtotals for various categories—such as the military services and the trip purposes—that represented the top three highest percentages of payments. We discussed with DTMO officials how the data were generated and what the data points represented. We chose to focus on DTS because it is the primary system for processing travel vouchers for DOD, and the vouchers it processes account for the majority of DOD travel. We also collected data from the Defense Finance and Accounting Service (DFAS) on travel payments made in DTS that were identified as improper, as well as data on the dollar amount of those improper payments that were estimated to result in a monetary loss to the government. We discussed with DFAS officials the methodology that they used to estimate both the improper payment amounts and the portions of those amounts that were estimated to be monetary losses to the government. To assess the reliability of the data we obtained, we reviewed corroborating documentation, analyzed the data for inconsistencies, and interviewed service officials about the reliability of the data. We determined that the data were sufficiently reliable for our reporting purposes, which were to determine the amount of DOD’s DTS travel payments and to provide insight into the estimated improper travel payment amounts that the department reported for fiscal years 2016 through 2018. However, we also determined that, based on persistent problems with DOD’s improper payment estimates that we and the DOD Inspector General have reported since 2013, these data were not sufficiently reliable for other purposes, such as determining the specific progress DOD has made in reducing its rates of improper travel payments. To address our second objective, we reviewed documents and met with officials to discuss DOD’s implementation of its Remediation Plan. We also conducted a web-based survey of officials at DOD components. We administered the survey from February 4 through March 29, 2019, soliciting information on the extent to which components had implemented the Remediation Plan, steps the components had taken to address improper travel payments, the types of issues that frequently lead to improper travel payments, and challenges associated with reducing improper travel payments. We sent this survey to 52 components, 37 (71 percent) of whom responded. More specifically, 9 of 10 (90 percent) components represented on the Senior Accountable Official (SAO) committee (SAO components) responded and 28 of 42 (67 percent) components not represented on the SAO committee (non- SAO components) responded. The survey results represent the views of only those components that responded and may not be generalizable to all components. The results of our survey provide measures of component officials’ views at the time they completed the survey in February and March 2019. Please see appendix I for a list of the 52 components we contacted. How familiar are you, in responding to this survey on behalf of the #COMPONENT, with DOD’s Travel Pay Improper Payments Remediation Plan (dated October 1, 2016), if at all? (Response options provided: Checkboxes labeled “Very familiar,” “Moderately familiar,” “Slightly familiar,” “Not at all familiar,” and “No opinion/no response.”) Has a lead entity in the #COMPONENT been designated for implementing DOD’s Travel Pay Improper Payments Remediation Plan (dated October 1, 2016) requirements? (Response options provided: Checkboxes labeled “Yes, an office has been designated the lead for this effort,” “Yes, a person has been designated the lead for this effort,” “No entity has been designated to lead implementation requirements,” and “Don’t know”) Has the #COMPONENT designated in writing a Senior Accountable Official (SAO)? (An SAO is a Senior Executive Service member, general officer, or flag officer designated by a component as responsible for reducing improper payments.) (Response options provided: Checkboxes labeled “Yes,” “No, but my component is represented by an SAO in another component or organization,” “No,” and “Don’t know.”) Has the #COMPONENT completed this? (Response options provided: Checkboxes labeled “Yes,” “No,” and “Don’t know.”) If yes, what was the month the #COMPONENT completed the action? (Response option provided: one text box.) If yes, what was the year the #COMPONENT completed the action? (Response option provided: one text box.) Has the #COMPONENT completed any of the following actions? Review Defense Finance and Accounting Service (DFAS) reports on improper travel payments. (Response options provided: “Yes,” “No,” “Not applicable (do not receive DFAS reports),” and “Don’t know.”) Have representatives of the #COMPONENT attended the quarterly Senior Accountable Official (SAO) meetings since they were first held in January 2017? An SAO is a Senior Executive Service member, general officer, or flag officer designated by a component as responsible for reducing improper payments. (Response options provided: “Yes, a representative of our component attended all of the meetings,” “Yes, a representative of our component attended some, but not all, of the meetings,” “No, a representative of our component has never attended an SAO meeting,” and “Don’t know.”) Has the #COMPONENT received a copy of the official minutes of the quarterly Senior Accountable Official (SAO) meetings since they were first held in January 2017? (Response options provided: “Yes, our component received a copy of the minutes for all of the meetings,” “Yes, our component received a copy of the minutes for some, but not all, of the meetings,” “No, our component has not received a copy of the minutes for any of the SAO meetings,” and “Don’t know.”) Has the #COMPONENT taken steps to identify the root causes of voucher errors that led to improper travel payments in fiscal year 2018? Note, for the purpose of this question we define root causes as “the reasons personnel made errors preparing or approving vouchers,” including but not limited to: travelers were insufficiently trained on voucher preparation, approvers did not have sufficient time to review vouchers, and/or Defense Travel System was not effectively designed to process vouchers. (Response options provided: “Yes,” “No,” and “Don’t know.”) What are some examples of root causes of voucher errors that the #COMPONENT identified in fiscal year 2018? (Response option provided: one text box.) Has the #COMPONENT taken steps to address any identified root causes of voucher errors that led to improper travel payments in fiscal year 2018? (Response options provided: “Yes,” “No,” and “Don’t know.”) What steps have been taken by the #COMPONENT to address the root causes of voucher errors that led to improper travel payments in fiscal year 2018? (Response option provided: one text box.) Because the majority of survey respondents did not provide open-ended responses to each question, we did not conduct a formal content analysis of the responses. We determined that the open-ended responses would not be representative of all components that responded to our survey, and we therefore present them only as illustrative examples. To analyze open-ended comments provided by those responding to the survey, GAO analysts read the comments, jointly developed categories for the responses, and flagged relevant responses for inclusion in this report. To address our third objective, we reviewed DOD’s Remediation Plan, documents related to DOD’s implementation of the Remediation Plan, such as the minutes of SAO committee meetings, and the June 2018 DOD Improper Payments Senior Accountable Officials Steering Committee Charter. In addition, we met with DOD and component officials to discuss efforts to identify and address root causes of improper travel payments and conducted a web-based survey of travel administrators in 52 DOD components (summarized above) to obtain information on their efforts to identify and address the root causes of improper travel payments. We compared the information we obtained with OMB guidance on how agencies are to identify and address the root causes of improper payments, as well as the definition of root cause contained in the template DOD uses for corrective action plans intended to address improper travel payments. We conducted this performance audit from April 2018 to August 2019 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. Appendix III: Comments from the Department of Defense Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Matthew Ullengren (Assistant Director), Vincent Buquicchio, Christopher Gezon, Foster Kerrison, Jill Lacey, Joanne Landesman, Rob Letzler, Kelly Liptan, and Michael Silver made key contributions to this report.

Improper payments—including payments that should not have been made or were made in an incorrect amount—are a long-standing, significant challenge in the federal government. Both GAO and the DOD Inspector General have reported on problems related to improper payments in DOD's travel pay program. This report examines (1) the amount DOD spent on DTS travel payments for fiscal years 2016 through 2018 and how much of those payments DOD estimated to be improper and the extent to which DOD has (2) implemented its Remediation Plan and (3) identified travel payment errors, the root causes of those errors, and the cost-effectiveness of addressing root causes. GAO analyzed fiscal years 2016 through 2018 data on DTS payments, reviewed DOD's Plan and documentation, interviewed officials about implementation efforts, and surveyed 52 DOD components about steps taken to address improper travel payments. The Department of Defense's (DOD) Defense Travel System (DTS)—the primary system DOD uses to process travel payments—accounts for most of DOD's travel payments. DOD spent $18.3 billion on DTS travel payments from fiscal years 2016 through 2018, while incurring a reported $965.5 million in improper travel payments. In that period, DOD averaged $6.1 billion in DTS travel payments and $322 million in improper travel payments annually. Not all improper travel payments—such as legitimate payments that initially lacked supporting documentation―represented a monetary loss to the government. Officials said DOD first estimated a monetary loss from improper travel payments in fiscal year 2017. For fiscal years 2017 and 2018 it estimated a total monetary loss of $205 million out of $549 million in improper DTS payments (see fig.). In October 2016, DOD established a Remediation Plan to reduce improper travel payments and a committee to monitor implementation of the plan at 10 DOD components. DOD selected these 10 components because they accounted for a significant percentage of total travel payments. However, DOD did not take into account the components' own estimates of their improper payment rates. As of March 2019, only 4 of the 9 components that responded to GAO's survey had completed all of the plan's requirements, in part because of a lack of milestones in the plan and ineffective monitoring for required actions. As a result, DOD does not have reasonable assurance that its actions have been sufficient. DOD has mechanisms to identify errors leading to improper travel payments, and some components have developed specific corrective plans to address the errors. However, GAO found that these efforts did not clearly identify the root causes of the errors, in part because there is no common understanding of what constitutes the root cause of improper travel payments. DOD components also have not incorporated considerations of cost-effectiveness into decisions about whether to take actions that could reduce improper payments. Without addressing these issues, DOD will likely miss opportunities to implement the changes necessary to address the root causes of improper travel payments.

GAO_GAO-20-390

Background Roles and Responsibilities of Depots and Related DOD Organizations Depots are government-owned, government-operated industrial installations that maintain, overhaul, and repair a multitude of complex military weapons systems and equipment for DOD. The military services operate 17 depots that perform depot-level maintenance on a wide range of vehicles and other military equipment, including aircraft, engines, combat vehicles, ships, and software. Of those, the Air Force operates three Air Logistics Complexes and the Navy operates three Fleet Readiness Centers for aviation depot maintenance (see figure 1). For the purposes of this report, we will be referring to them as Air Force and Navy aviation depots. The Air Force’s and Navy’s aviation depots operate through the Air Force and Navy working capital funds. Depot customers are charged for the anticipated full cost of goods and services. Over the past decade, we have audited the services’ working capital funds activities related to carryover, new orders, and revenue that can affect depot maintenance timeliness. For more information on the services’ working capital funds depot maintenance activities, see appendix II. The depots are part of a larger, DOD-wide logistics enterprise that involves a number of different organizations, which are identified in figure 2 and described below. Assistant Secretary of Defense for Sustainment. This official serves as the principal assistant and advisor to the Under Secretary of Defense for Acquisition and Sustainment on materiel readiness. Among other responsibilities, the Assistant Secretary of Defense for Sustainment prescribes policies and procedures on maintenance, materiel readiness and sustainment support. DOD officials report that the Office of the Deputy Assistant Secretary of Defense for Materiel Readiness is responsible for maintenance policy along with the development of a strategic vision for DOD’s organic depot base. Also, the Air Force and Navy each has its own logistics or materiel command component, which provides day-to-day management and oversight of the services’ depots. Air Force Materiel Command. This command develops, acquires, and sustains weapon systems and their components, providing acquisition and life-cycle management services and logistics support, among other things. The Air Force Life Cycle Management Center within Air Force Materiel Command is responsible for the life-cycle management of weapon systems from inception to retirement, with a specific program office managing each type of aircraft. Air Force Materiel Command works with the program offices to develop, review, validate and prioritize aircraft depot maintenance workload requirements and associated funding. Naval Air Systems Command. This command is responsible for providing life-cycle support of aircraft, weapons, and systems for the Navy and Marine Corps including, acquisition, repair and modification, and in- service engineering and logistics support. As with the Air Force, a specific program office manages each type of aircraft. According to Navy officials, Naval Air Systems Command (NAVAIR), and Commander, Fleet Readiness Centers (COMFRC) work with the program offices to plan and approve the maintenance depot work executed at the Navy aviation depots, including obtaining fixed-wing aircraft workload requirements and associated funding. Information on Selected Air Force and Navy Fixed- Wing Aircraft The 36 Air Force and Navy fixed-wing aircraft types we selected for our review ranged from fighters to bombers. These aircraft completed a total of 4,513 depot maintenance events in fiscal years 2014 through 2019. See figure 3 for more information. Air Force and Navy Depot Maintenance Timeliness Has Varied for Selected Fixed-Wing Aircraft with a Range of Factors Affecting Depot Performance For the selected aircraft in our review, the Air Force completed depot maintenance on time or earlier an average of 82 percent of the time during fiscal years 2014 through 2019. However, the Navy completed depot maintenance on time or early in the same period an average of 52 percent of the time. We found that a range of factors, such as unexpected repairs and aircraft operating beyond their designed service life, have affected Air Force and Navy depot maintenance timeliness for fixed-wing aircraft. The Air Force Has Generally Completed Depot Maintenance On Time While the Navy Has Not Our analysis of aggregate depot maintenance data regarding fiscal years 2014 through 2019 shows that: Air Force aviation depots completed depot maintenance of the selected fixed-wing aircraft on time or early in 5 of 6 fiscal years. The annual average percentages for on-time or early-completion maintenance ranged from 78 to 90 percent. In total, selected Air Force fixed-wing aircraft have spent 22,572 fewer days in maintenance than expected since fiscal year 2014. Navy aviation depots were late in completing depot maintenance of the selected fixed-wing aircraft for each of the 6 fiscal years. The annual average percentages for on-time or early-completion maintenance ranged from 45 to 63 percent. In total, the maintenance for selected Navy fixed-wing aircraft has taken over 62,000 more days than expected since fiscal year 2014. Figure 4 shows the percentage of depot maintenance completed on time or early, as well as total days of maintenance delays, if applicable, for the Air Force and Navy. Analyzing the maintenance timeliness data on a per aircraft basis shows similar trends. The Air Force completed depot maintenance on average about 7 days early per aircraft during fiscal years 2014 through 2019, while the Navy completed depot maintenance on average nearly 55 days late per aircraft (see figure 5). In comparing depot maintenance timeliness for specific aircraft types, we found that timeliness varied for both Air Force and Navy aircraft. For example, Air Force aviation depots completed individual KC-135 aircraft maintenance an average of about 28 days earlier than projected and completed F-15E aircraft maintenance an average of almost 35 days later than projected. Navy aviation depots completed individual EA-6B aircraft maintenance an average of about 1 day earlier than projected and completed F/A-18A-D aircraft maintenance on average about 137 days later than projected. Figure 6 shows the average number of days—by aircraft type—that the Air Force and Navy aviation depots completed maintenance earlier or later than projected in fiscal years 2014 through 2019. A Range of Factors Has Affected Air Force and Navy Aviation Depot Maintenance Timeliness Our prior work has identified multiple factors that contribute to depot maintenance delays, including the size and skill of the depot workforce, the condition of weapon systems upon arrival at the depot, the availability of spare parts, and the condition of the depot’s facilities and equipment, among others. In addition, all of these factors can be affected by funding and operational considerations (such as unexpected accidents). DOD officials have stated that disruptions to funding, to include continuing resolutions, also affect the ability to conduct depot maintenance. Over the course of this review, Air Force and Navy officials cited many of these factors as continuing to affect depot maintenance timeliness while offering specific details on issues contributing to the trends we identified above. Air Force’s perspectives on early and late completions: Air Force officials stated a variety of reasons for completing aircraft maintenance earlier than projected, including frequent communication between program offices and depot stakeholders. For example, Air Force Sustainment Center officials told us that they conduct weekly aircraft performance review meetings with commanders and senior staff to provide a comprehensive status update on aircraft maintenance performance that has occurred since the previous meeting. In addition, on the KC-135 depot production line, Air Force officials told us they document tasks that can be done concurrently during a specific phase in the maintenance process, which has helped them meet their timeliness targets. Air Force officials from across the sustainment enterprise agreed that proactive planning for depot maintenance requirements helps the depots provide the appropriate resources to perform aircraft maintenance. Officials cited unexpected repairs or shortage of skilled depot maintainers as reasons for later-than-projected completion of maintenance on an aircraft. Navy’s perspectives on late completions: Navy officials stated various reasons for completing aircraft maintenance later than projected, including growth in the scope of needed work after the aircraft was evaluated (e.g., finding damage that required tailored engineering instructions), a diminishing supply of manufactured parts for aircraft, and aircraft operating well beyond their designed service life—such as the F/A-18A-D fighters and C-2A cargo aircraft. In addition to operating F/A- 18A-Ds longer than originally planned, Navy officials stated that they also had to manage aircraft production delays related to the F-35, which was scheduled to replace the F/A-18A-Ds. Navy officials explained that they have implemented a variety of strategies to improve on-time maintenance. These initiatives primarily focus on mitigating or reducing maintenance delays in the year of execution. For example: Naval Sustainment System initiative: The Navy implemented this initiative at the beginning of fiscal year 2019, which led to the service implementing private industry best practices and employing new strategies such as “swarming,” which refers to many artisans being put to work on a particular aircraft to expedite completion. The initial focus of these strategies was on the F/A-18E-F. During a site visit to Fleet Readiness Center Southwest, officials showed us how the initiative prompted reconfiguration of workstations—clearing storage and material areas in the hangar and creating direct line of vision for maintainers—to maximize an artisan’s time spent on an aircraft. Tracking depots efficiency: Officials are using a new software program that enables real-time tracking of the progress of aircraft maintenance, which they told us has led to improved efficiency because it provides increased visibility into aircraft with delays. For example, officials stated over the past 2 years, they have decreased the number of aircraft undergoing maintenance from 390 in 2017 to about 270 across the aviation depots. The Air Force Generally Has Accurately Planned for Aviation Depot Maintenance, but the Navy Has Not Fully Addressed Several Planning Challenges The Air Force has largely accurately planned for aviation depot maintenance requirements for selected fixed-wing aircraft during fiscal years 2014 through 2019, but the Navy has not. Both services have initiatives underway to improve planning for aviation depot maintenance; however, we identified several planning challenges that the Navy has not fully addressed, such as not effectively using historical data to establish accurate planning targets for aircraft depot maintenance packages. The Air Force Generally Has Accurately Planned for Aviation Depot Maintenance Requirements Our analysis of Air Force planned maintenance workload data—estimates of the number of days planned for depot maintenance made 3 years in advance—found that the Air Force largely accurately planned for aviation depot maintenance requirements for selected aircraft for fiscal years 2014 through 2019. The difference between the number of days the Air Force planned in advance that it would need for maintenance and actually needed has been small and trending downward, from 12 percent in fiscal year 2014 to 3 percent in fiscal years 2018 and 2019 (see figure 7). Our analysis shows that, for the 6 fiscal years we reviewed, the Air Force slightly underestimated the amount of time it needed to complete fixed- wing aircraft maintenance by an average of about 6 days per aircraft. To accurately plan for aviation depot maintenance, Air Force Materiel Command officials told us they had implemented three key initiatives including: Conducting early inspections: Air Force officials stated that they have been conducting pre-inspections of selected aircraft a year before scheduled maintenance to check for unplanned maintenance needs, and to ensure the availability of parts. Officials stated that the early inspections can clarify the scope of work and avoid extended delays in completing maintenance. For example, the Air Force has been conducting pre-inspections of its KC-135—an aerial refueling aircraft—by sending Boeing engineers to pre-inspect a sample of KC- 135s that are scheduled for depot maintenance in the following year. The inspections can inform parts orders with long-lead times and initiate developing procedures to resolve any new repairs identified during inspections, Air Force officials stated. Developing and implementing a new metric: To help measure the effectiveness of planning, Air Force officials stated that in 2017 Air Force Materiel Command created a new metric—the Planned Obligations Weighted for Execution Review—comparing which customer orders were planned for funding versus which ones actually received funding. According to Air Force officials, the metric provides visual information to leaders of the degree of variance between the planned and actual aircraft that come into the depots for maintenance. Air Force Materiel Command officials stated that the metric has helped them identify factors affecting the differences between planned and actual aircraft entering the depots for maintenance and to adjust resources when needed to address the workload. Reviewing planning performance and making adjustments: Air Force Materiel Command annually conducts a two-phased planning process to establish the organic Air Force depot-level resources necessary to support the projected funded maintenance requirements for the next 2 fiscal years. Later, the Air Force conducts an after-action review of the performance of the planning process. In addition, command leadership, senior staff, and other members of the aviation depot community hold weekly performance review meetings and make necessary adjustments. This includes reviewing visual information such as standardized charts and graphs that provide the current status of aircraft undergoing depot maintenance, as well as any issues they are monitoring. The Navy Generally Has Not Accurately Planned for Aviation Depot Maintenance Requirements Our analysis of Navy-planned maintenance workload data—estimates of the number of days planned for depot maintenance made 3 years in advance—found that the Navy generally has not accurately planned for aviation depot maintenance requirements for selected fixed-wing aircraft for fiscal years 2014 through 2019. We found a trend of underestimating actual days needed for aircraft maintenance. The difference between the number of days the Navy planned in advance it would need for maintenance and the number actually needed ranged from a low of 3 percent in fiscal year 2014 to a high of 69 percent in fiscal year 2018. However, we found the difference declined to 42 percent in fiscal year 2019. Figure 8 shows the difference between planned and actual work days for selected Navy fixed-wing aircraft in fiscal years 2014 through 2019. Our analysis, for the 6 fiscal years that we reviewed, showed that the Navy underestimated the amount of time it needed to complete fixed-wing aircraft maintenance by an average of about 55 days per aircraft. The Navy has acknowledged that it has not accurately planned for depot maintenance requirements. The Navy conducted risk assessments and internal control assessments in 2018 and 2019 and found material weaknesses, such as a trend of underestimating time needed to address aviation depot maintenance requirements. Specifically, the two risk and internal control assessments stated that Navy policies for defining, costing, and executing maintenance did not allow them to correctly predict cost estimates and duration of depot maintenance. In addition, the Navy’s 2019 risk and internal control assessment highlighted the need to improve planning accuracy; the report stated that internal reviews found workload standards did not accurately capture the required maintenance and that planned maintenance requirements exceeded depot capacity. Navy officials stated that they implemented an initiative in fiscal year 2020 to improve maintenance requirements called Performance to Plan. This initiative is focused on incorporating data collection and analysis to, among other things, improve forecasts of maintenance period durations according to Navy documentation. For example, the approach of Performance to Plan is to incorporate predictive data into planning to improve forecasts of maintenance period durations, according to the same documentation. While this initiative is a positive step, it is still in the early stages of implementation and we identified three reasons that have in part led to inaccurate planning that the Navy has not fully addressed. The Navy Has Not Effectively Used Historical Data to Update Maintenance Planning The Navy measures depot performance using turnaround time as one of the key timeliness metrics. Turnaround time is the overall duration of the maintenance cycle, from when the aircraft is inducted into the depot to when it is provided back to the squadron. According to Navy officials, the Navy reviews historical data to support the maintenance requirements planning process in various ways, including adjusting turnaround time based on historical depot performance. However, we found that the Navy has not effectively used historical data to analyze turnaround time—total days planned for depot maintenance periods—and to update maintenance requirements planning for selected fixed-wing aircraft. Specifically, our analysis of average turnaround time for selected aircraft depot maintenance packages shows that the Navy has not adjusted maintenance planning effectively to account for the actual days needed to perform maintenance. Figure 9 shows that the Navy kept planned turnaround time the same or with minimal changes for maintenance packages for the C-2A, the F/A-18A-D, and the F/A-18E-F, despite worsening trends in maintenance execution during fiscal years 2014 through 2019. C-2A: In fiscal years 2016 through 2019, the Navy did not adjust its planned turnaround time—270 days—while the average number of actual work days to complete maintenance increased from 451 days in fiscal year 2016 to a high of 722 days in fiscal year 2018. Further, the difference between the average planned turnaround time and the average actual number of days needed to complete maintenance increased from 181 days in fiscal year 2016 to 352 days in fiscal year 2019, and peaked at 452 days in fiscal year 2018. F/A-18A-D: In fiscal years 2014 through 2019, the Navy adjusted its planned turnaround time by a total of 82 days, while the average number of actual work days to complete maintenance increased from 148 days in fiscal year 2014 to 694 days in fiscal year 2019, and peaked to 857 days in fiscal year 2018. In addition, the difference between the average planned turnaround time and the average actual number of days needed to complete maintenance increased from 52 days in fiscal year 2014 to 412 days in fiscal year 2019, and peaked at 629 days in fiscal year 2018. F/A-18E-F: In fiscal years 2014 through 2019, the Navy adjusted its planned turnaround time by a total of 28 days, while the average number of actual work days to complete maintenance increased from 51 days in fiscal year 2014 to 92 days in fiscal year 2019. In addition, the difference between the average planned turnaround time and the average actual number of days needed to complete maintenance increased from 10 days in fiscal year 2014 to 23 days in fiscal year 2019, and peaked at 59 days in fiscal year 2016. Naval Air Systems Command Workload Standards Required for the Aircraft and Engine Programs at the Fleet Readiness Centers states that COMFRC should analyze and review naval aviation proposed workload standard packages and compare to actual production and historical data. It also states that the workload standard development process, which includes the estimation and development of turnaround time—is to provide a basis for the identification of resource requirements at the naval aviation depot, such as personnel skills mix and materials, and as a budgetary justification of workload for the repair of aircraft. In addition, the Navy 2014-2019 Depot Maintenance Strategic Plan states that NAVAIR and COMFRC will identify and sustain requisite core maintenance capabilities through a planning process that effectively estimates and monitors near and long-term workload. Navy officials explained that they have worked to incorporate historical data into their maintenance requirements planning process; however, they acknowledged that planning needs to improve and they are in the process of revising how COMFRC and NAVAIR determines planned turnaround time. For example, COMFRC and F/A-18 program office officials said as part of the Naval Sustainment System initiative, COMFRC is moving toward a 60-day fixed turnaround time on some F/A-18E-F depot maintenance packages in an effort to drive depot maintenance efficiency and, ultimately, improve aircraft mission capability rates. According to officials, they plan to apply a fixed turnaround time across all aircraft. As the Navy moves forward, it must ensure that it effectively uses historical data to analyze turnaround time and establish accurate turnaround time targets for fixed-wing aircraft depot maintenance packages. If it does not do so, the Navy will likely continue to underestimate the number of days required to perform depot maintenance and misalign the resources and funding needed at the depots to perform aircraft maintenance, which in part contributes to persistent maintenance delays that reduce the time aircraft are available for operations and training. Navy Depot Planners Do Not Have Direct Visibility of Maintenance Performed Outside Aviation Depots We found that Navy depot maintenance planners do not have direct visibility into fixed-wing aircraft maintenance that is performed outside the Navy aviation depots by an operational unit or at an intermediate maintenance facility—information critical to planning for the condition and depot maintenance needs of individual aircraft. Navy officials said that data exists on maintenance conducted on an aircraft outside the Navy aviation depots—by an operational unit or at an intermediate maintenance facility—and on the condition of an aircraft while deployed with squadrons. However, depot planners do not have direct visibility over squadron-level information because the Navy has not provided depot planners regular reporting on fixed-wing aircraft maintenance performed outside the aviation depots. Instead, depot planners can access that data only through a request to the squadron and typically rely on general planning factors rather than aircraft-specific data when estimating maintenance needs. According to Navy officials, the lack of direct visibility into the condition and maintenance history of an aircraft has driven maintenance delays in the past. For example, COMFRC and F/A-18 program office officials said that high turnaround time on certain F/A-18A-Ds undergoing maintenance was due to extended squadron usage on the aircraft combined with a lack of logistics support to address these issues. Furthermore, for aircraft damage that was outside of the depot’s repair capabilities, long lead times on parts procurement and extensive engineering analysis resulted in aircraft being placed in delay for extended periods of time, sometimes years, according to the officials. Figure 10 shows an F/A-18 undergoing depot maintenance at a Navy aviation depot. In other cases, high usage by squadrons can cause unexpected corrosion on many types of fixed-wing aircraft that depots have not prepared to address. For example, Office of the Chief of Naval Operations officials said that some aircraft have panels that are taken off during depot maintenance events. If depot maintainers find unexpected corrosion behind a panel, it may require additional time to repair that aircraft, resulting in an increase in the turnaround time. In addition, a COMFRC official stated an AV-8B arrived at an aviation depot without the engine installed, which prevents full operational checks being performed during disassembly. Once maintenance was completed, the aircraft went through operational checks and officials found canopy seal issues, which could have been identified if the depot had received data from the intermediate-level maintenance facility. The Navy 2014-2019 Depot Maintenance Strategic Plan states that NAVAIR and COMFRC will identify and sustain the necessary capabilities to perform maintenance through a planning process that effectively estimates and monitors near and long-term workload. Navy officials said direct visibility into data on the current condition and maintenance history of an aircraft at the squadron level better prepares COMFRC and NAVAIR to more accurately plan aircraft depot maintenance. This has been corroborated by Naval Sustainment System initiative findings that revealed that the Navy should be better informed about the condition of aircraft in order to improve their maintenance requirements planning. However, depot planners do not have direct visibility over squadron-level information because the Navy has not provided depot planners regular reporting on fixed-wing aircraft maintenance performed outside the aviation depots. Without regular reporting on fixed-wing aircraft maintenance performed outside the Navy aviation depots by an operational unit or at an intermediate maintenance facility, depot planners cannot plan for the condition and depot maintenance needs of individual aircraft, which in part contributes to persistent maintenance delays that reduce the time aircraft are available for operations and training. The Navy Does Not Have Formal Processes and Guidance for Communication and Coordination between Depot Stakeholders to Inform Maintenance Planning We found that the Navy does not have formal processes and related guidance for communication and coordination between depot stakeholders to inform maintenance requirements planning. Navy officials explained that depot maintenance stakeholders communicate in a variety of ways to inform maintenance requirements planning. For example, the Navy conducts annual and mid-year workload planning meetings. At the annual workload planning meeting, COMFRC and aircraft program leads provide plans to meet aircraft workload requirements for the current year and the next 2 fiscal years. The mid-year review provides an update on the current year’s performance and the final workload plan for the next 2 fiscal years, according to Navy documentation. Various aircraft program office leads attend both the annual and mid-year planning meetings to provide an update on workload plans—among others—to COMFRC. Navy officials stated that they also informally communicate in a variety of ways to inform maintenance requirements planning. For example, depot maintenance engineers may find extra corrosion on an aircraft, and use those findings to update maintenance plans for other individual aircraft. While these meetings provide opportunities for collaboration and officials utilize other means to informally communicate, NAVAIR and COMFRC do not have formal processes and related guidance for communication and coordination between depot stakeholders to ensure they receive input from all key subject-matter experts regarding workload planning. Navy officials noted that not having formal processes and related guidance presents several challenges including: Navy officials said that there is no formal process or guidance for communication and coordination, and that the process instead involves a series of documents that COMFRC receives that are assembled to create a representation of future workload from the Commander, Naval Air Forces and from each of the aircraft program offices, among others. A COMFRC official said that different stakeholders manage various parts of workload planning and without guidance on specific documentation needs and process owners, it is challenging for the Navy to identify accountable stakeholders and discuss specific planning needs. NAVAIR officials said workload planners hold periodic meetings, but attendance by subject-matter experts is not mandatory. For example, subject-matter experts from the Fleet Support Teams—officials who provide engineering and logistics technical support to fleet and aviation depot maintenance organizations—are not required to attend workload planning meetings. Experts may potentially attend via video teleconference, but others, due to time zone differences, may not participate. As a result, workload planning meetings may not consistently include workload input from all relevant subject-matter experts. Navy officials said that once the Naval Sustainment System initiative began focusing on improving depot maintenance on the F/A-18E-F, deficiencies in the workload planning process became more apparent. They noted the challenges of coordinating key stakeholders along the maintenance planning timeline and its impact on planning and budgeting. In particular, Navy officials stated the current depot maintenance planning-time horizon was disconnected from long- range planning, such as the Program Objective Memorandum process. For example, due to a misalignment in the planning and budgeting processes, COMFRC reacts to the outcome of the Program Memorandum Objective process rather than influencing it, which results in many adjustments to their productions plans, such as improper staffing, material management, and facility-usage plans. NAVAIR Instruction 5221.1B, Workload Acceptance states that commanders will establish internal competency guidelines for communication and coordination of workload-related issues. In addition, the Navy 2014-2019 Depot Maintenance Strategic Plan, states the Navy will forge a strong liaison between maintenance activities and the acquisition community to ensure that maintenance requirements and planning are in sync. As a result of the Naval Sustainment System initiative, Navy officials said that COMFRC is developing a new workload planning process to become more proactive in depot maintenance planning and increase information exchanges. This includes ensuring that the new process involves all key depot maintenance stakeholders, such as COMFRC officials, program managers, and fleet officials. For example, NAVAIR officials said that most of the Fleet Support Team scheduled maintenance leads will be the primary point of contact to assist COMFRC with developing the future maintenance requirements planning and will be invited and asked to attend workload planning meetings. If they are unable to attend, they will then ask to have a program office representative attend in their place. However, Navy officials acknowledged that their efforts are still in the developmental stages and that the Navy needs formal processes and related guidance for communication and coordination between depot stakeholders to inform maintenance requirements planning. Without these in place, the Navy cannot be assured that all subject-matter expert input is proactively solicited and incorporated into depot workload planning, which in part can contribute to persistent maintenance delays that reduce the time aircraft are available for operations and training. Conclusions The ability of the Air Force and Navy aviation depots to complete maintenance on time directly affects military readiness. Poor planning for depot maintenance contributes to longer delays and reduced unit readiness. The Air Force has generally accurately planned for aviation depot maintenance over the last 6 years and in turn has completed the vast majority of its depot maintenance on time or early over this timeframe. In contrast, the Navy has not accurately planned for aviation depot maintenance over the last 6 years and in turn has completed only half of its depot maintenance on time over this timeframe, which has adversely affected aircraft availability. While the Navy has implemented an initiative to improve maintenance planning, the Navy has not effectively used historical data to analyze turnaround time and establish accurate planning targets for aircraft maintenance packages. In addition, Navy depot planners do not have visibility into aircraft maintenance that is performed outside the depots by an operational unit or other maintenance facility—information critical to planning for the condition and depot maintenance needs of individual aircraft. The Navy also has not established formal processes and related guidance for communication and coordination between depot stakeholders to ensure they receive input from all key subject-matter experts to inform maintenance planning. Without addressing these challenges, the Navy cannot appropriately plan for depot maintenance workload and may continue to experience maintenance delays that reduce the availability of aircraft for operations and training. Recommendations for Executive Action We are making three recommendations to the Department of Navy. The Secretary of the Navy should ensure that Naval Air Systems Command and Commander, Fleet Readiness Centers effectively use historical data to analyze turnaround time and establish accurate turnaround time targets for fixed-wing aircraft depot maintenance packages. (Recommendation 1) The Secretary of the Navy should ensure that Commander, Naval Air Forces and Commander, Naval Air Force, Pacific provide depot planners regular reporting on fixed-wing aircraft maintenance performed outside the Navy aviation depots by an operational unit or at an intermediate maintenance facility to ensure they have information on the current condition and depot maintenance needs of individual aircraft. (Recommendation 2) The Secretary of the Navy should ensure that Naval Air Systems Command and Commander, Fleet Readiness Centers establish formal processes and related guidance for communication and coordination between depot stakeholders to inform maintenance requirements planning. (Recommendation 3) Agency Comments We provided a draft of this report to DOD for review and comment. In written comments on a draft of this report, DOD concurred with all three of our recommendations. DOD’s comments are reprinted in their entirety in appendix III. DOD also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, and the Secretaries of the Navy and Air Force. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff has any questions about this report, please contact Diana Maurer at (202) 512-9627 or maurerd@gao.gov or Asif A. Khan, at (202) 512-9869, or khana@gao.gov. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made key contributions to this report are listed in appendix IV. Appendix I: Scope and Methodology Senate Report 115-262 accompanying a bill for the National Defense Authorization Act for Fiscal Year 2019 included provisions for us to examine the Department of Defense’s (DOD) aviation depots and maintenance operations. Our report examines the extent to which 1) the Air Force and Navy aviation depots completed selected fixed-wing aircraft maintenance on time from fiscal years 2014 through 2019, and 2) the Air Force and Navy accurately planned for depot maintenance requirements for selected fixed-wing aircraft from fiscal years 2014 through 2019 and addressed any associated challenges. We have separate ongoing reviews to examine maintenance timeliness and related issues at the Army and Marine Corps key weapons systems depots and Navy shipyards. For objective one, we selected a non-generalizable sample of 18 Air Force and 18 Navy fixed-wing aircraft types, including fighters, bombers, and aerial refuelers, based on information from Navy and Air Force maintenance data and our prior work. These aircraft had maintenance completed in fiscal years 2014 through 2019, at the Navy’s three Fleet Readiness Centers and the Air Force’s three Air Logistics Complexes. We selected this time period so we could identify and obtain insight on historical data trends regarding maintenance timeliness for the selected aircraft. For each aircraft, we collected data on the date maintenance began and was completed for individual aircraft, as well as the original estimate of time (in days) needed to complete maintenance. We also collected updated estimates if available. We used this information to calculate the difference between the number of days planned for maintenance (using the updated estimate if available) and the number of days used for maintenance in order to determine whether the services completed aircraft maintenance on time, early, or late. Additionally, we used the total number of aircraft completed in each fiscal year to calculate a measure of average maintenance timeliness by aircraft type. We presented the data based on aircraft that had maintenance completed in a given fiscal year; however, not all of the maintenance was necessarily completed in that given fiscal year. For example, an aircraft may have had maintenance begun on it in one fiscal year and its maintenance completed in the next fiscal year. In such case, we would count that aircraft in the second fiscal year. The aircraft types we selected were: F/A-18A-D Hornet T-6B Texan II Turboprop In addition, we interviewed DOD and service officials to gain a better understanding of factors influencing fixed-wing aircraft maintenance timeliness and reviewed our prior work on depot maintenance. For objective two, we collected information on the depot maintenance planning processes for Air Force and Navy fixed-wing aircraft. Using the non-generalizable sample of 18 Air Force and 18 Navy fixed-wing aircraft identified in objective one, we analyzed data on maintenance duration for maintenance completed in fiscal years 2014 through 2019, and compared the number of days planned for maintenance to the number of days used for maintenance to determine the extent to which planned and actual numbers aligned. We interviewed DOD, Navy, and Air Force officials to obtain their views on the challenges related to planning, incorporating historical data, and coordinating with stakeholders related to the maintenance requirements planning process for aircraft depot maintenance. For specific challenges identified in the Navy, we reviewed documents including Naval Air Systems Command (NAVAIR) workload standards, applicable Navy guidance, and the Navy depot maintenance strategic plan and interviewed Commander, Fleet Readiness Centers (COMFRC) and NAVAIR officials to determine the extent to which the Navy incorporates historical data into the maintenance requirements planning process and the extent to which Navy depot stakeholders communicate and coordinate to inform this planning process. In addition, we visited one Air Force aviation depot and one Navy aviation depot to interview officials from specific aircraft programs, depot production, and depot business offices to understand challenges associated with planning for depot maintenance. To assess the reliability of the maintenance timeliness and planning data collected for both objectives, we reviewed and evaluated two systems— one for the Air Force and one for the Navy—that are used to collect and track data on depot maintenance. We conducted these assessments by interviewing officials regarding their data-collection processes, reviewing related policies and procedures associated with the collection of the data, examining the data for missing values and other anomalies, and interviewing knowledgeable agency officials regarding their accuracy and completeness. Based on our assessments, we determined that the data used from these systems were sufficiently reliable for the purposes of summarizing trends in selected aircraft maintenance timeliness and planning accuracy for fiscal years 2014 through 2019. We also assessed the reliability of the working capital fund data related to aviation depot maintenance activities included in Appendix II, by (1) reviewing our prior work to determine if there were reported concerns with Air Force and Navy budgetary data, and (2) reconciling the working capital fund data that was previously published in our reports for consistency. Based on our assessment, we determined that these data were sufficiently reliable for the purposes of presenting information on the services’ working capital funds activities and budget estimates for fiscal years 2014 through 2019. Appendix II: Air Force and Navy Working Capital Funds Used for Aviation Depot Maintenance Activities The U.S. military use working capital funds to procure and provide certain materiel and commercial products and services to its forces. A Working Capital Fund (WCF) is a type of revolving fund that operates as a self- supporting entity conducting a regular cycle of businesslike activities, such as acquiring parts and supplies, equipment maintenance, transporting personnel, research and development. Department of Defense (DOD) WCFs are authorized under 10 U.S.C. § 2208 and their amounts are generally available until expended. Ongoing WCF operations and maintenance of a minimum cash balance are funded through reimbursements to the WCF comprised of customer payments for goods or services received from WCF-supported activities, such as Navy and Air Force aviation depots. DOD WCFs operate on a break-even basis, although they may realize gains or losses within each fiscal year. As part of the annual budget submission for each upcoming fiscal year, however, prior year gains and losses are taken into account when new rates are established at levels estimated to recover the budgeted costs of goods and services, including all general and administrative overhead costs. Regardless, WCFs must maintain a net-positive cash balance at all times. Section 2464 of title 10 of the United States Code requires DOD to maintain a core depot-level maintenance and repair capability that is government-owned and operated. Maintaining this capability provides a ready and controlled source of technical competence and resources to enable effective and timely response to mobilizations, contingencies, or other emergencies. Additionally, DOD must assign these government- owned and operated facilities (the depots) sufficient workload to ensure cost efficiency and technical competence during peacetime, while preserving the surge capacity and reconstitution capabilities necessary to fully support the strategic and contingency plans prepared by the Chairman of the Joint Chiefs of Staff. The three Air Force and three Navy aviation depots operate through the Air Force and Navy working capital funds. Depot customers are charged for the anticipated full cost of requested goods and services. We reviewed the Air Force’s and the Navy’s budget estimates for fiscal years 2014 through 2019 and describe the information at a summary level below: Carryover (funded maintenance work leftover at the end of the fiscal year): Both services’ aviation depots underestimated carryover for most years during fiscal years 2014 through 2019. New orders (funded workload customers place at the aviation depots for maintenance work to be performed on their aircraft): Both services generally underestimated the amount of funds that their aviation depots received from new orders placed by customers and the work performed did not keep pace with those orders from year to year, during fiscal years 2014 through 2019. Revenue (dollar amount of work performed by depots in a single fiscal year): The services have varying trends for revenue for fiscal years 2014 through 2019. In fiscal years 2014 and 2017 through 2019 the Air Force, and for fiscal years 2014 through 2017 the Navy, overestimated the amount of revenue that was actually earned. Conversely, the Air Force underestimated for fiscal years 2015 through 2016, and the Navy underestimated during fiscal years 2018 through 2019. Workload (workload projections are expressed in Direct Production Earned Hours (DPEHs) for the Air Force and Direct Labor Hours (DLHs) for the Navy): A DPEH or DLH is an hour earned by a direct employee against an established work order, and includes civilians, contractors and military personnel. In fiscal years 2014 through 2019, Air Force depots’ workload increased from 21,337,000 DPEHs to 24,511,000 DPEHs—an increase of about 3.2 million (14.9 percent) DPEHs. During those same years, Navy depots’ workload generally increased from 10,161,000 DLHs to 11,668,000 DLHs—an increase of about 1.5 million (14.8 percent) DLHs. Personnel (civilian and military personnel performing depot maintenance at aviation depots and civilian staff performing support functions, such as finance and budgeting and supply and acquisitions): In fiscal years 2014 through 2019 the number of civilian personnel working at the aviation depots has generally increased by around 3,000 for both the Air Force and the Navy. Carryover Each year, customers order billions of dollars of maintenance work that the depots cannot complete by the end of the fiscal year. To the extent that the depots do not complete work at year-end, the work and related funding will be carried into the next fiscal year. DOD refers to this reported dollar value of work that has been ordered and funded (obligated) by customers, but not completed by working capital fund activities at the end of the fiscal year as “Carryover”. DOD allows and the congressional defense committees recognize that some carryover from one fiscal year to the next is needed to ensure a smooth flow of maintenance work during the transition from one fiscal year to the next. However, past congressional defense committee reports have raised concerns that the level of carryover may be more than is needed. DOD has reported that approximately 6 months of carryover is optimal. Excess carryover (i.e., more unfinished work than allowed) may reflect an inefficient use of resources and tie up funds that could be used for other priorities. Excessive amounts of carryover may result in future appropriations or budget requests of depot customers being subject to reductions by DOD and the congressional defense committees during the annual budget-review process. Tables 1 and 2 show Air Force and Navy carryover for fiscal years 2014 through 2019, respectively. New Orders Accurate budgets for the amount of new orders to be received by the depots are essential for them to plan their work, such as determining the right number of personnel, parts, and material needed. For example, if the services include workload in their new order estimates that do not materialize, a depot is at risk of incurring unplanned financial loss because the depot is allocating its overhead costs over less work than planned. These losses may lead the depots to increase their rates for repairing assets. If the customer receives more funding (e.g., Operations & Maintenance or Procurement) than they originally anticipated and they in turn increase their orders with the depots (new orders or just an increase to an existing order), or if operational decisions lead to changes in requirements or priorities, unplanned workload may materialize at the depots resulting in additional carryover. Tables 3 and 4 show Air Force and Navy new orders for fiscal years 2014 to 2019, respectively. Revenue Revenue represents the dollar amount of work performed by depots in a single fiscal year. DOD WCFs conduct businesslike activities to generate revenue from the sale of goods or services to customers, such as the military services or combatant commands, to cover costs expended throughout the year in support of those services. The DOD FMR 7000.14- R directs DOD WCFs to operate on a “break-even” basis (revenue generated equals the cost associated with receiving the revenue). See tables 5 and 6 for Air Force and Navy Depots’ Revenue (Budgeted vs Actual) for fiscal years 2014 through 2019. Workload The Air Force and Navy express depot workload projections in Direct Production Earned Hours (DPEHs) for the Air Force, and Direct Labor Hours (DLHs) for the Navy. A DPEH or DLH is an hour earned by a direct employee against an established work order in the performance of depot work on an end item. The Air Force and Navy include direct labor hours worked by civilians, contractors and military personnel in their DPEH and DLH projections. Tables 7 and 8 show Air Force DPEHs and Navy DLHs for fiscal years 2014 through 2019, respectively. Personnel The number of civilian personnel at the Air Force and Navy aviation depots—referred to as end strength—perform the majority of depot-level maintenance activities and are made up of personnel such as artisans and maintainers—welders, machinist, sheet metal mechanics, aircraft mechanics, aircraft electricians, engineers and scientists—performing aviation depot maintenance, but also includes personnel performing support functions such as finance and budgeting. Tables 9 and 10 show total civilian and military personnel employed at the Air Force and Navy aviation depots for fiscal years 2014 through 2019, respectively. As seen in table 9, in fiscal years 2014 through 2019, the number of civilian personnel working at the Air Force aviation depots has grown by over 3,000 civilians (25,540 to 28,576). As seen in table 10, in fiscal years 2014 through 2019, the number of civilian personnel working at the Navy aviation depots has grown by over 3,100 civilians (8,515 to 11,643). Appendix III: Comments from the Department of Defense Appendix IV: GAO Contacts and Staff Acknowledgments GAO Contacts Diana Maurer at (202) 512-9627 or maurerd@gao.gov, or Asif A. Khan at (202) 512-9869 or khana@gao.gov. Staff Acknowledgments In addition to the contacts listed above, Chris Watson (Assistant Director), Delia Zee (Analyst-in-Charge), John Craig, Sergio Enriquez, Amie Lesser, Felicia Lopez, Amanda Manning, Keith McDaniel, Richard Powelson, Benjamin Sclafani, Michael Silver, and Roger Stoltz (Assistant Director) made key contributions to this report. Related GAO Products Military Depots: DOD Can Benefit from Further Sharing of Best Practices and Lessons Learned. GAO-20-116. Washington, D.C.: January 30, 2020. Navy Maintenance: Persistent and Substantial Ship and Submarine Maintenance Delays Hinder Efforts to Rebuild Readiness. GAO-20-257T. Washington, D.C.: December 4, 2019. Naval Shipyards: Key Actions Remain to Improve Infrastructure to Better Support Navy Operations. GAO-20-64. Washington, D.C.: November 25, 2019. F-35 Aircraft Sustainment: DOD Faces Challenges in Sustaining a Growing Fleet. GAO-20-234T. Washington, D.C.: November 13, 2019. Depot Maintenance: DOD Should Adopt a Metric That Provides Quality Information on Funded Unfinished Work. GAO-19-452. Washington, D.C.: July 26, 2019. Military Depots: Actions Needed to Improve Poor Conditions of Facilities and Equipment That Affect Maintenance Timeliness and Efficiency. GAO-19-242. Washington, D.C.: April 29, 2019. DOD Depot Workforce: Services Need to Assess the Effectiveness of Their Initiatives to Maintain Critical Skills. GAO-19-51. Washington, D.C.: December 14, 2018. Navy and Marine Corps: Rebuilding Ship, Submarine, and Aviation Readiness Will Require Time and Sustained Management Attention. GAO-19-225T. Washington, D.C.: December 12, 2018. Navy Readiness: Actions Needed to Address Costly Maintenance Delays Facing the Attack Submarine Fleet. GAO-19-229. Washington, D.C.: November 19, 2018. Depot Maintenance: DOD Has Improved the Completeness of Its Biennial Core Report. GAO-19-89. Washington, D.C.: November 14, 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. F-35 Aircraft Sustainment: DOD Needs to Address Challenges Affecting Readiness and Cost Transparency. GAO-18-75. Washington, D.C.: October 26, 2017. Naval Shipyards: Actions Needed to Improve Poor Conditions That Affect Operations. GAO-17-548. Washington, D.C.: September 12, 2017. Depot Maintenance: Executed Workload and Maintenance Operations at DOD Depots. GAO-17-82R. Washington, D.C.: February 3, 2017. Depot Maintenance: Improvements to DOD’s Biennial Core Report Could Better Inform Oversight and Funding Decisions. GAO-17-81. Washington, D.C.: November 28, 2016. Army Working Capital Fund: Army Industrial Operations Could Improve Budgeting and Management of Carryover. GAO-16-543. Washington, D.C.: June 23, 2016. Defense Inventory: Further Analysis and Enhanced Metrics Could Improve Service Supply and Depot Operations. GAO-16-450. Washington, D.C.: June 9, 2016. Navy Working Capital Fund: Budgeting for Carryover at Fleet Readiness Centers Could Be Improved. GAO-15-462. Washington, D.C.: June 30, 2015. Army Industrial Operations: Budgeting and Management of Carryover Could Be Improved. GAO-13-499. Washington D.C.: June 27, 2013. Marine Corps Depot Maintenance: Budgeting and Management of Carryover Could Be Improved. GAO-12-539. Washington, D.C.: June 19, 2012. Air Force Working Capital Fund: Budgeting and Management of Carryover Work and Funding Could Be Improved. GAO-11-539. Washington, D.C.: July 7, 2011.

Three Air Force and three Navy aviation depots maintain critical fixed-wing aviation platforms, such as the KC-135 aerial refuelers and F/A-18 fighters. The ability of these depots to complete maintenance on time directly affects military readiness because delays reduce the time aircraft are available for operations and training. Senate Report 115-262, accompanying a bill for the Fiscal Year 2019 National Defense Authorization Act, contained provisions that GAO examine the Department of Defense's (DOD) aviation depots. GAO's report evaluates the extent to which 1) the Air Force and Navy aviation depots completed selected fixed-wing aircraft maintenance on time from fiscal year 2014 through 2019, and 2) the Air Force and Navy accurately planned for depot maintenance requirements from fiscal year 2014 through 2019 and addressed any associated challenges. GAO selected a non-generalizable sample of 18 Air Force and 18 Navy fixed-wing aircraft types; analyzed maintenance and planning data for fiscal year 2014 through 2019; and interviewed service officials. The Air Force and Navy varied in the extent that they completed depot maintenance on time for selected fixed-wing aircraft in fiscal years 2014 through 2019. Specifically, GAO's analysis of aggregate maintenance data found that: Air Force depots completed aircraft maintenance on time or early in 5 of 6 years, with percentages for on-time or early-completion maintenance ranging from 78 to 90 percent. Navy depots completed aircraft maintenance late for each of the 6 years, with percentages for on-time or early-completion maintenance ranging from 45 to 63 percent. Navy fixed-wing aircraft have spent over 62,000 more days in maintenance than expected since fiscal year 2014. The Air Force generally has accurately planned for depot maintenance requirements for selected fixed-wing aircraft during fiscal year 2014 through 2019, but the Navy has not. Both services have initiatives underway to improve planning for aviation depot maintenance; however, GAO identified planning challenges that the Navy has not fully addressed: The Navy has not effectively used historical data to analyze turnaround time—total days planned for depot maintenance periods—and established accurate planning targets for aircraft maintenance packages. Navy depot planners do not have visibility into aircraft maintenance that is performed outside the depots by an operational unit or other maintenance facility—information critical to planning for the condition and depot maintenance needs of individual aircraft. The Navy does not yet have formal processes and related guidance for communication and coordination between depot stakeholders to inform maintenance requirements planning. Without addressing these challenges, the Navy cannot appropriately plan for depot maintenance workload and will likely continue to experience maintenance delays that reduce the time aircraft are available for operations and training.

GAO_GAO-19-668T

Background Wireless broadband connects users to the Internet using spectrum to transmit data between the customer’s location and the service provider’s facility, and can be transmitted using fixed wireless and mobile technologies, as shown in figure 1. Fixed wireless broadband technologies establish an Internet connection between fixed points—such as from a radio or antenna that may be mounted on a tower, to a stationary wireless device located at a home— and generally requires a direct line of sight. Mobile wireless broadband technologies also establish an Internet connection that requires the installation of antennas, but this technology provides connectivity to customers wherever they are covered by service, including while on the move, such as with a cell phone. Spectrum is the resource that makes wireless broadband connections possible. Spectrum frequency bands each have different characteristics that result in different levels of ability to cover distances, penetrate physical objects, and carry large amounts of information. Examples of some of the frequency bands that can be used by commercial and nonfederal entities for broadband services are shown in figure 2. The frequency bands that can be used for broadband services are either licensed or unlicensed. For licensed spectrum, FCC can assign licenses through auctions, in which prospective users bid for the exclusive rights to transmit on a specific frequency band within geographic areas. Having exclusive rights ensures there will be no interference from other spectrum users in that band. License holders may sell or lease their license, in whole or in part, to another provider, a process that is known as a secondary market transaction, with FCC’s approval. FCC has assigned licenses administratively in two frequency bands that can be used for broadband services. FCC also authorizes the use of unlicensed spectrum, where an unlimited number of users can share frequencies without a license, such as wireless microphones, baby monitors, and garage door openers. In contrast to users of licensed spectrum, unlicensed users have no regulatory protection from interference by other licensed or unlicensed users in the bands. In March 2010, FCC issued the National Broadband Plan that included a centralized vision for achieving affordability and maximizing use of high- speed Internet. The plan made recommendations to FCC, including that FCC should take into account the unique spectrum needs of tribal communities when implementing spectrum policies and evaluate its policies and rules to address obstacles to spectrum access by tribal communities. With regard to tribal lands, the plan recommended that FCC increase its commitment to government-to-government consultation with tribal leaders and consider increasing tribal representation in telecommunications planning. FCC established the Office of Native Affairs and Policy in July 2010 to promote the deployment and adoption of communication services and technologies to all native communities, by, among other things, ensuring consultation with tribal governments pursuant to FCC policy. Few Tribal Entities Had Obtained Licensed Spectrum and Face Barriers Doing So For our November 2018 report, we identified 18 tribal entities from FCC’s license data that held active spectrum licenses in bands that can be used to provide broadband services as of September 2018. Of those 18, 4 obtained the spectrum through a secondary market transaction and 2 from an FCC spectrum auction. We interviewed 16 tribal entities that were using wireless technologies at the time to provide service, and 14 told us that they were accessing unlicensed spectrum to do so. While representatives from most of the 16 tribal entities reported some advantages of unlicensed spectrum, such as the spectrum is available at no cost, they also discussed their experiences with the limitations of unlicensed spectrum, including issues with interference and speed or capacity. Some of the stakeholders we contacted and FCC have highlighted the importance of exclusive-use licensed spectrum for tribal entities. For example, FCC’s Office of Native Affairs and Policy reported in 2012 that unlicensed spectrum is not an option across all tribal lands and that tribal access to robust licensed spectrum is a critical need. In addition, representatives from the stakeholders we interviewed told us that there are non-technological benefits for tribal entities to obtain greater access to licensed spectrum, including: enhanced ability to deliver additional Internet services, enhanced ability to sell or lease spectrum for profit, and additional opportunities to obtain federal funding that requires entities to hold or have access to licensed spectrum. Furthermore, two tribal stakeholders and representatives from several tribal entities told us that having access to licensed spectrum would enable tribes to exercise their rights to sovereignty and self- determination. For example, representatives from four of the tribal entities told us that having access to licensed spectrum would ensure that spectrum is being used in a way that aligns with tribal goals and community needs, further supporting their rights to self-determination. In our November 2018 report, we described barriers tribal entities reported facing in accessing licensed spectrum. First, representatives from tribal entities we contacted said that obtaining a spectrum license through an auction was too expensive for many tribal entities. Indeed, over 60 percent (983 of 1,611) of the winning bids from a 2015 spectrum auction were more than $1 million. Representatives from some tribal entities told us they were unable to obtain financing to participate in auctions because tribal governments cannot use tribal lands as collateral to obtain loans and that participating in spectrum auctions requires auction-specific expertise that tribal entities may not have. Second, tribal entities reported facing barriers obtaining spectrum through secondary market transactions. Most of the spectrum allocated for commercial use has already been assigned through spectrum auctions and other mechanisms to private providers that may not be providing service on tribal lands. As such, there may be tribal areas where providers hold licenses for bands but are not using the spectrum to provide Internet service. All three of the tribal associations we contacted confirmed that there were unused spectrum licenses over tribal lands, and representatives from a nationwide provider indicated that they only deploy services if there is a business case to support doing so. Accordingly, the secondary market is one of few avenues available to tribal entities that would like to access licensed spectrum. However, representatives from tribal entities we contacted told us it could be challenging to participate in the secondary market because there is a lack of willing sellers, license holders are not easily identified, and tribal entities may not be aware of how to pursue secondary market transactions. For example, representatives from a tribal entity that had been successful in obtaining a license through the secondary market told us that an Indian-owned telecommunications consulting company was pivotal in identifying the license holder and facilitating the transaction, and without such assistance, the transaction would not have occurred. FCC Had Taken Some Actions to Increase Access, but Does Not Collect or Communicate Key Spectrum-Related Information to Tribal Entities At the time of our November 2018 report, we found that FCC had taken some actions to increase tribal access to spectrum. In particular: FCC issued a proposed rulemaking in March 2011 that sought comments on three proposals to create new spectrum access opportunities for tribal entities (see fig. 3). As of July 12, 2019, FCC had not adopted new rules or taken further action on the 2011 rulemaking. FCC issued a proposed rulemaking in May 2018 that sought comment on establishing a priority window for tribal nations located in rural areas to obtain a license in the Educational Broadband Service spectrum band (also known as the 2.5 GHz band). In the proposed rulemaking, FCC had found that significant portions of this band were not being used, primarily in rural areas. FCC had not finalized this rule at the time of our November 2018 report, but published a draft order in June 2019 that would establish a priority filing window so that tribal entities could get access to unassigned spectrum in the 2.5 GHz band on rural tribal lands prior to an FCC auction. FCC adopted this order on July 10, 2019. FCC’s Office of Native Affairs and Policy conducts training, consultation, and outreach to tribal entities on spectrum-related issues, such as communicating with tribal entities prior to FCC auctions or when FCC regulatory actions or policies would affect tribal governments and spectrum over their lands. FCC’s 2010 National Broadband Plan stated that ongoing measurement of spectrum utilization should be developed to better understand how spectrum resources are being used because some studies indicated that spectrum goes unused in many places much of the time. The plan stated that any spectrum utilization studies that FCC conducts should identify tribal lands as distinct entities. The plan also stated that FCC should make data available that would promote a robust secondary market for spectrum licenses, such as information on how and to whom spectrum is allocated on tribal lands. In FCC’s 2018 strategic plan, FCC stated that it will implement ongoing initiatives that will assist in spectrum policy planning and decision making, promote a robust secondary market in spectrum, and improve communications services in all areas of the United States, including tribal areas. Additionally, federal internal control standards state that agencies should use quality information, including information that is complete, to inform the decision-making processes and communicate with external entities. Tribal governments are an example of such external entities. However, in our 2018 report, we found that FCC had not consistently collected data related to tribal access to spectrum or communicated important information to tribes. In particular: FCC did not collect data on whether spectrum license-holders or auction applicants are tribal entities. Without this information, FCC did not have a comprehensive understanding of the extent that tribal entities are attempting to obtain or access licensed spectrum or have been successful at obtaining and accessing it. FCC did not analyze the extent that unused licensed spectrum exists over tribal lands, even though FCC had the information—broadband availability data from providers and information on geographic areas covered by spectrum licenses—needed for such an analysis. Although FCC officials told us evaluating the effectiveness of FCC’s secondary market policies is a way to increase the use of unused spectrum, FCC’s approach did not include an analysis of unused spectrum licenses on tribal lands. As a result, FCC’s evaluations of the secondary market may not have accurately reflected how its policies affect tribal entities. Because the secondary market is one of few ways for tribal entities to access licensed spectrum, such an assessment would enable FCC to better promote a robust secondary market that provides opportunities for tribes to access spectrum. FCC did not communicate information to tribes that could benefit them in their efforts to obtain spectrum in the secondary market. As described earlier, the secondary market is a significant mechanism for tribal entities to obtain spectrum licenses, but representatives from the tribal entities we interviewed reported challenges related to participating in the secondary market, such as not knowing whom to contact should they wish to engage in a secondary market transaction to obtain a spectrum license. We concluded that FCC’s efforts to promote and support tribal entities’ access to spectrum had done little to increase tribal use of spectrum. In particular, FCC lacked information that could help inform its decision- making processes related to spectrum policy planning, which is intended to improve communications services in all areas of the United States, including tribal lands. By collecting data on the extent that tribal entities are obtaining and accessing spectrum, FCC could better understand tribal spectrum issues and use this information as it implements ongoing spectrum initiatives. Furthermore, the ability of tribal governments to make informed spectrum planning decisions and to participate in secondary market transactions is diminished without information from FCC on the spectrum transactions that occur over tribal lands. Providing this information directly to tribal entities could enable them to enter into leasing, partnership, or other arrangements to obtain spectrum. In our November 2018 report, we recommended that FCC (1) collect data on the extent that tribal entities are obtaining and accessing spectrum and use this information as FCC implements ongoing spectrum initiatives; (2) analyze data to better understand the extent that unused spectrum licenses exist over tribal lands, such as by analyzing the data for a sample of tribal lands, and as appropriate use this information to inform its oversight of the secondary market; and (3) make information on spectrum-license holders more accessible and easy to understand for interested parties, including tribal entities, to promote their ability to purchase or lease spectrum licenses from other providers. FCC agreed with these recommendations and described the actions it plans to take to implement them. For example, according to FCC, it will consider ways to collect data on the extent to which tribal entities are obtaining and accessing spectrum; analyze data from a sample of spectrum licenses on tribal lands to inform FCC’s spectrum policies; and transition to a more user-friendly system for its licensing data. Chairman Hoeven, Vice Chairman Udall, and Members of the Committee, this concludes my prepared statement. I would be pleased to respond to any questions that you may have. GAO Contact and Staff Acknowledgments If you or your staff have any questions about this testimony, please contact Andrew Von Ah, Director, Physical Infrastructure Issues at (202) 512-2834 or vonaha@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 Sally Moino and Anne Doré. Other staff who made contributions to the report cited in this testimony are identified in the source product. 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.

Broadband service on tribal lands continues to lag behind the rest of the country, especially on rural tribal lands. Broadband service can be delivered through wireless technologies using radio frequency spectrum. According to FCC, increasing tribal access to spectrum would help expand broadband service on tribal lands. This statement is based on GAO's November 2018 report ( GAO-19-75 ) related to spectrum use for broadband services by tribal entities and selected updates. Specifically, it discusses (1) tribal entities' ability to obtain and access spectrum to provide broadband services and the reported barriers that may exist, and (2) the extent to which FCC promotes and supports tribal efforts to obtain and access spectrum. For that report, GAO interviewed 16 tribal entities that were using wireless technologies. Selected entities varied geographically, among other characteristics. GAO analyzed FCC's license and auction data as of September 6, 2018, reviewed FCC's rulemakings on spectrum for broadband services, and interviewed other tribal and industry stakeholders and FCC officials. The information obtained was not generalizable to all tribes or industry participants. As an update, GAO reviewed FCC's June 2019 draft order related to spectrum in the 2.5 GHz band. The tribal entities—tribal governments and tribally owned telecommunications providers—GAO contacted for its November 2018 report cited various barriers to obtaining spectrum licenses in bands that can be used to provide broadband services. Based on data from the Federal Communications Commission (FCC) as of September 2018, GAO identified 18 tribal entities that held active spectrum licenses in such bands. For example, of these 18 tribal entities, 4 obtained licenses through secondary market transactions—that is, they bought or leased the license from another provider, and 2 obtained a license through an FCC spectrum auction. The barriers tribal officials identified to obtaining licensed spectrum include high costs at auctions and, in the case of secondary market transactions, a lack of information on who holds licenses over tribal lands. Because most spectrum allocated for commercial use has already been assigned, the secondary market is one of the few avenues available to tribal entities that would like to access licensed spectrum. At the time of GAO's November 2018 report, FCC had taken some actions to increase tribal access to spectrum. For example, FCC issued proposed rulemakings in 2011 and 2018 that sought comment on tribal-specific proposals, such as establishing tribal-licensing priorities and initiating processes to transfer unused spectrum licenses to tribal entities. FCC had not finalized these rules at the time of GAO's report, but FCC published a draft order in June 2019 that would create a tribal-licensing priorty window, whereby tribal entities would have an opportunity to obtain spectrum in the 2.5 gigahertz (GHz) band prior to the spectrum being auctioned. FCC adopted the order on July 10, 2019. FCC stated that it will implement spectrum initiatives and that it recognizes the importance of promoting a robust secondary market to improve communications throughout the United States, including tribal lands. However, GAO found that FCC had not consistently collected data related to tribal access to spectrum. For example: FCC did not collect data on whether spectrum auction applicants are tribal entities and therefore did not have a comprehensive understanding of the extent that tribal entities are attempting to obtain licensed spectrum. FCC did not analyze the extent that unused licensed spectrum exists over tribal lands. Although FCC officials said evaluating the effectiveness of FCC's secondary market policies is a way to increase the use of unused spectrum, FCC's approach did not include an analysis of unused spectrum licenses on tribal lands. As a result, FCC's evaluations of the secondary market may not accurately reflect how its policies affect tribal entities. By collecting data on the extent that tribal entities are obtaining and accessing spectrum, FCC could better understand tribal spectrum issues and use this information as it implements ongoing spectrum initiatives. Further, given that the secondary market is one of few ways for tribal entities to access licensed spectrum to provide Internet service, FCC could promote a more robust secondary market by analyzing unused licensed spectrum over tribal lands and using that information to inform FCC's oversight responsibilities.

GAO_GAO-19-368T

Background Family Separations at the Southwest Border According to DHS and HHS officials, DHS has historically separated a number of children from accompanying adults at the border and transferred them to HHS custody, but these separations occurred only in certain circumstances. For example, DHS might separate families if the parental relationship could not be confirmed, if there was reason to believe the adult was participating in human trafficking or otherwise a threat to the safety of the child, or if the child crossed the border with other family members such as grandparents without proof of legal guardianship. HHS has traditionally treated these children as unaccompanied alien children (UAC)—children who (1) have no lawful immigration status in the United States, (2) have not attained 18 years of age, and (3) have no parent or legal guardian in the United States or no parent or legal guardian in the United States available to provide care and physical custody. The Attorney General’s April 2018 memorandum, also referred to as the “zero tolerance” policy, directed Department of Justice (DOJ) prosecutors to accept all referrals of all improper entry offenses from DHS for criminal prosecution, to the extent practicable. According to DHS officials, in implementing the April 2018 memo, DHS’s U.S. Customs and Border Protection (CBP) began referring a greater number of individuals apprehended at the border to DOJ for criminal prosecution, including parents who were apprehended with children. In these cases, referred parents were placed into U.S. Marshals Service custody and separated from their children because minors cannot remain with a parent who is arrested on criminal charges and detained by U.S. Marshals Service. In cases where parents were referred to DOJ for criminal proceedings and separated from their children, DHS and HHS officials stated they treated those children as UAC. In such cases, DHS transferred these children to the custody of HHS’s Office of Refugee Resettlement (ORR) and ORR placed them in one of their shelter facilities, as is the standard procedure for UAC. The President’s executive order issued on June 20, 2018, directed, among other things, that the Secretary of Homeland Security maintain custody of alien families during any criminal improper entry or immigration proceedings involving their family members, to the extent possible. This order stated that the policy of the administration is to maintain family unity, including by detaining alien families together where appropriate. In addition, on June 26, 2018, a federal judge ruled in the Ms. L. v. ICE case that certain separated parents must be reunited with their minor children (referred to in this testimony statement as the “June 2018 court order”). In this case, the American Civil Liberties Union filed a federal lawsuit on behalf of certain parents (referred to as class members) who had been separated from their children. As of September, 10, 2018, the government had identified 2,654 children of potential class members in the Ms. L. v. ICE case, which we discuss in greater detail later in this statement. As of January 31, 2019, this litigation was ongoing. Care and Custody of Unaccompanied Alien Children (UAC) Under the Homeland Security Act of 2002, responsibility for the apprehension, temporary detention, transfer, and repatriation of UAC is delegated to DHS, and responsibility for coordinating and implementing the placement and care of UAC is delegated to HHS’s ORR. CBP’s U.S. Border Patrol (Border Patrol) and Office of Field Operations (OFO), as well as DHS’s ICE, apprehend, process, temporarily detain, and care for UAC who enter the United States with no lawful immigration status. ICE’s Office of Enforcement and Removal Operations (ERO) is generally responsible for transferring UAC, as appropriate, to ORR, or repatriating them to their countries of nationality or last habitual residence. Under the William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008 (TVPRA), UAC in the custody of any federal department or agency, including DHS, must be transferred to ORR within 72 hours after determining that they are UAC, except in exceptional circumstances. In addition, the 1997 Flores v. Reno Settlement Agreement (Flores Agreement) sets standards of care for UAC while in DHS or ORR custody, including, among other things, providing drinking water, food, and proper physical care and shelter for children. In 2015 and 2016, we reported on DHS’s and HHS’s care and custody of UAC, including the standard procedures that DHS follows to transfer UAC to ORR. ORR’s UAC policy guide states that the agency requests certain information from DHS when DHS refers children to ORR, including, for example, how DHS determined the child was unaccompanied. Depending on which DHS component or office is referring the child to ORR, DHS may provide information on the child in an automated manner directly into ORR’s UAC Portal—the official system of record for children in ORR’s care—or via email. ORR has cooperative agreements with residential care providers to house and care for UAC while they are in ORR custody. The aim is to provide housing and care in the least restrictive environment commensurate with the children’s safety and emotional and physical needs. In addition, these care providers are responsible for identifying and assessing the suitability of potential sponsors—generally a parent or other relative in the country—who can care for the child after the child leaves ORR custody. Release to a sponsor does not grant UAC legal immigration status. Children are scheduled for removal proceedings in immigration courts to determine whether they will be ordered removed from the United States or granted immigration relief. Once at the shelter, shelter staff typically conduct an intake assessment of the child within 24 hours, and then are to provide services such as health care and education. According to ORR’s UAC policy guide, shelter staff are responsible for meeting with the child to begin identifying potential sponsors, which can include parents. To assess the suitability of potential sponsors, including parents, ORR care providers collect information from potential sponsors to establish and identify their relationship to the child. For example, the screening conducted of potential sponsors includes various background checks and in June 2018, ORR implemented increased background check requirements that were outlined in an April 2018 memorandum of agreement with DHS. These changes required ORR staff to collect fingerprints from all potential sponsors, including parents, and all adults in the potential sponsor’s household and transmit the fingerprints to ICE to perform criminal and immigration status checks on ORR’s behalf. ICE was to submit the results to ORR, and ORR used this information, along with information provided by, and interviews with, the potential sponsors, to assess their suitability. However, in December 2018, ORR revised its background check policy to limit criminal and immigration status checks conducted by ICE to the potential sponsor, unless concerns about other adult household members are raised via a public records check, there is a documented risk to the safety of the child, the child is particularly vulnerable, or the case is referred for a home study. HHS and DHS Planning for Family Separations According to HHS and DHS officials we interviewed, the departments did not take specific steps in advance of the April 2018 memo to plan for family separations or a potential increase in the number of children who would be referred to ORR because they did not have advance notice of the memo. Specifically, ORR, CBP, and ICE officials we interviewed stated that they became aware of the April 2018 memo when it was announced publicly. Though they did not receive advance notice of the April 2018 memo, ORR officials stated that they were aware that increased separations of parents and children were occurring prior to the April memo. According to ORR officials, the percentage of children referred to ORR who were known to have been separated from their parents rose by more than tenfold from November 2016 to August 2017 (0.3 to 3.6 percent). In addition, the ORR shelter and field staff we interviewed at four ORR facilities in Arizona and Texas told us they started noticing an increase in the number of children separated from their parents in late 2017 and early 2018, prior to the April 2018 memo. The DHS officials we interviewed stated that, in some locations across the southwest border, there was an increase in the number of aliens CBP referred to DOJ for prosecution of immigration-related offenses after an Attorney General memo issued in April 2017. This memo prioritized enforcement of a number of criminal immigration-related offenses, including misdemeanor improper entry. In addition, CBP officials stated that there may have been an increase in children separated from non-parent relatives or other adults fraudulently posing as the child’s parents. According to ORR officials, in November 2017, ORR officials asked DHS officials to provide information about the increase in separated children. In response, DHS officials stated that DHS did not have an official policy to separate families, according to ORR officials. A few months prior to the April 2018 memo, ORR officials said they saw a continued increase in separated children in their care. ORR officials noted that they considered planning for continued increases in separated children, but HHS leadership advised ORR not to engage in such planning since DHS officials told them that DHS did not have an official policy of separating families. From July to November 2017, the Border Patrol sector in El Paso, Texas conducted an initiative to address an increase in apprehensions of families that sector officials had noted in early fiscal year 2017. Specifically, Border Patrol officials in the sector reached an agreement with the District of New Mexico U.S. Attorney’s Office to refer more individuals who had been apprehended, including parents who arrived with minor children, for criminal prosecution. Prior to this initiative, the U.S. Attorney’s Office in this district had placed limits on the number of referrals it would accept from Border Patrol for prosecution of immigration offenses. According to Border Patrol officials, under this initiative, the U.S. Attorney’s Office agreed to accept all referrals from Border Patrol in the El Paso sector for individuals with violations of 8 U.S.C. § 1325 (improper entry by alien) and § 1326 (reentry of removed aliens), consistent with the Attorney General’s 2017 memo directing federal prosecutors to prioritize such prosecutions. For those parents placed into criminal custody, Border Patrol referred their children to ORR’s care as UAC. According to a Border Patrol report on the initiative, the El Paso sector processed approximately 1,800 individuals in families and 281 individuals in families were separated under this initiative. Border Patrol headquarters directed the sector to end this initiative in November 2017, and Border Patrol officials stated that there were no other similar local initiatives that occurred prior to the Attorney General’s 2018 memo. DHS and HHS Systems for Indicating When Children Were Separated from Parents When the April 2018 memo was released, there was no single database with easily extractable, reliable information on family separations. DHS and HHS subsequently updated their data systems in the spring and summer of 2018, but it is too soon to know the extent to which these changes, if fully implemented, will consistently indicate when children have been separated from the parents or will help reunify families, if appropriate. Specifically, prior to April 2018, CBP’s and ORR’s data systems did not include a designated field to indicate that a child was unaccompanied as a result of being separated from his or her parent, and ORR officials stated that such information was not always provided when children were transferred from DHS to HHS custody. According to agency officials, between April and August 2018, the agencies made changes to their data systems to help notate in their records when children are separated from parents. Regarding DHS, CBP’s Border Patrol and OFO made changes to their data systems to allow them to better indicate cases in which children were separated from their parents; however, ORR officials told us in September 2018, that they had been unaware that DHS had made these systems changes. According to Border Patrol officials, Border Patrol modified its system on April 19, 2018, to include yes/no check boxes to allow agents to indicate that a child was separated from their parent(s). However, Border Patrol officials told us that information on whether a child had been separated is not automatically included in the referral form sent to ORR. Rather, agents may indicate a separation in the referral notes sent electronically to ORR, but they are not required to do so, according to Border Patrol officials. While the changes to the system may make it easier for Border Patrol to identify children separated from their parents, ORR officials stated ORR may not receive information through this mechanism to help it identify or track separated children. Prior to this system modification, Border Patrol agents typically categorized a separated child as an unaccompanied child in its system and did not include information to indicate the child had been separated from a parent. CBP’s OFO, which encounters families presenting themselves at ports of entry, also modified its data system and issued guidance to its officers on June 29, 2018, to track children separated from their parents. OFO officials have access to the UAC Portal but typically email this information to ORR as part of the referral request. According to OFO officials, prior to that time, OFO designated children separated from their parents as unaccompanied. ORR updated the UAC Portal to include a check box for indicating that a child was separated from his or her parents. According to ORR officials, ORR made these changes on July 6, 2018, after the June 20 executive order and June 2018 court order to reunify families. According to ORR officials, prior to July 6, 2018, the UAC Portal did not have a systematic way to indicate whether a child was designated as unaccompanied as a result of being separated from a parent at the border. The updates allow those Border Patrol agents with direct access to the UAC Portal to check this box, and Border Patrol issued guidance on July 5, 2018, directing its agents to use the new indicator for separated children in the UAC Portal and provide the parent’s alien number in the UAC Portal when making referrals to ORR as of July 6, 2018. However, ORR officials also said that DHS components with access to the UAC Portal are not yet utilizing the new check box consistently. Staff at three of the four shelters we visited in Arizona and Texas in July and August of 2018 said that in most, but not all cases during the spring of 2018, DHS indicated in the custody transfer information that a child had been separated. Staff at one shelter estimated that for approximately 5 percent of the separated children in its care there was no information from DHS indicating parental separation. In these cases, shelter staff said they learned about the separation from the child during the shelter’s intake assessment. Staff at the same shelter, which cares for children ages 0 to 4, noted that intake assessments for younger children are different from intake for older children, as younger children are unable to provide detailed information on such issues as parental separation. While the updates that OFO and ORR have made to their data systems are a positive step, they do not fully address the broader coordination issues we identified in our previous work. Specifically, we identified weaknesses in DHS and HHS’s process for the referral of UAC. In 2015, we reported that the interagency process to refer and transfer UAC from DHS to HHS was inefficient and vulnerable to errors because it relied on emails and manual data entry, and documented standard procedures, including defined roles and responsibilities, did not exist. To increase the efficiency and improve the accuracy of the interagency UAC referral and placement process, we recommended that the Secretaries of DHS and HHS jointly develop and implement a documented interagency process with clearly defined roles and responsibilities, as well as procedures to disseminate placement decisions, for all agencies involved in the referral and placement of UAC in HHS shelters. In response, DHS officials told us DHS delivered a Joint Concept of Operations between DHS and HHS to Congress on July 31, 2018, which provides field guidance on interagency policies, procedures, and guidelines related to the processing of UAC transferred from DHS to HHS. DHS submitted the Joint Concept of Operations to us on September 26, 2018, in response to our recommendation. We are reviewing the extent to which the Joint Concept of Operations includes a documented interagency process with clearly defined roles and responsibilities, as well as procedures to disseminate placement decisions, for all agencies involved in the referral and placement of unaccompanied children, including those separated from parents at the border, in HHS shelters. Moreover, to fully address our recommendation, DHS and HHS should implement such interagency processes. DHS and HHS Actions to Reunify Families in Response to the June 2018 Court Order DHS and HHS took various actions in response to the June 26, 2018, court order to identify and reunify children separated from their parents. The June 2018 court order required the government to reunite class member parents with their children under 5 years of age within 14 days of the order, and for children age 5 and over, within 30 days of the order. HHS officials told us that there were no specific procedures to reunite children with parents from whom they were separated at the border prior to the June 2018 court order. Rather, the agency used its standard procedures, developed to comply with the William Wilberforce Trafficking Victims Protection Reauthorization Act of 2008 (TVPRA), to consider potential sponsors for unaccompanied children in their custody; if a parent was available to become a sponsor, reunification with that parent was a possible outcome. DHS and HHS Efforts to Identify Potential Class Members. To create the list of potential class members (that is, those parents of a separated child covered under the lawsuit) eligible for reunification per the June 2018 court order, DHS and HHS officials told us that they generated the list based on children who were in DHS or HHS custody on that date. As a result, DHS and HHS officials told us that a parent of a separated child would only be a class member if his or her child was detained in DHS or HHS custody on June 26, 2018. After developing the class list, DHS and HHS officials told us that they next determined whether class members were eligible for reunification, as a class member could be determined ineligible for reunification if it was determined that the parent was unfit or presented a danger to the child. Parents of children who were separated at the border but whose children were released by ORR to sponsors prior to the June 2018 court order were not considered class members, and according to HHS officials, the department was not obligated to reunite them with the parent or parents from whom they were separated. Further, HHS officials told us that they do not know how many such children separated from parents at the border were released to sponsors prior to the order and that the court order does not require the department to know this information. Because there was no single database with information on family separations, HHS officials reported using three methods to determine which children in ORR’s custody as of June 26, 2018, had been separated from parents at the border: 1. Data Reviewed by an Interagency Data Team. An interagency team of data scientists and analysts—led by HHS’s Office of the Assistant Secretary for Preparedness and Response with participation from CBP, ICE, and ORR—used data and information provided by DHS and HHS to identify the locations of separated children and parents, according to HHS officials. 2. Case File Review. HHS reported that more than 100 HHS staff reviewed about 12,000 electronic case files of all children in its care as of June 26, 2018 for indications of separation in specific sections of each child’s case file, such as the phrases “zero tolerance,” “separated from ,” and “family separation.” 3. Review of Information Provided by Shelters. According to HHS officials, shelter staff were asked to provide lists of children in their care who were known to be separated from parents based on the shelter’s records. On the basis of its reviews, as of September 10, 2018, the government had identified 2,654 children of potential class members in the Ms. L. v. ICE case. Of the 2,654 children, 103 were age 0 to 4 and 2,551 were age 5 to 17. As previously discussed, the number of children of potential class members does not include those who were separated from parents but released to sponsors prior to the June 2018 court order or the more than 500 children who were reunified with parents by CBP in late June 2018, because these children were never transferred to ORR custody. As of September 10, 2018, 2,217 of the 2,654 identified children had been released from ORR custody, according to a joint status report filed in the Ms. L. v. ICE case. About 90 percent of the released children were reunited with the parent from whom they were separated and the remaining children were released under other circumstances. Children released under other circumstances could include those released to another sponsor such as a parent already in the United States, another relative, or an unrelated adult, or children who turned 18. Staff at one ORR facility we visited told us they planned to release some children under these circumstances. As of December 11, 2018, the government had identified additional possible separated children of potential class members for a total of 2,816. It had released 2,657 and 159 remained in ORR custody. However, the government has also reported that 79 of the children it initially identified as separated had not been separated from a parent. Excluding those 79 children from the 2,816 total would bring the total number of children separated to 2,737. Plan for Reunifying Children with Class Member Parents Within and Outside ICE’s Custody. The process used to reunify separated children with their class member parents in the Ms. L. v. ICE case evolved over time based on multiple court hearings and orders, according to HHS officials. After the June 2018 court order, HHS officials said the agency planned to reunify children using a process similar to their standard procedures for placing unaccompanied children with sponsors. However, according to agency officials, the agency realized that it would be difficult to meet the court’s reunification deadlines using its standard procedures and began developing a process for court approval that would expedite reunification for class members. As a result, from June 26, 2018 to July 10, 2018, the reunification process was refined and evolved iteratively based on court status conferences, according to HHS officials. ORR field and shelter staff we interviewed noted the impact of the continually changing reunification process; for example, staff at one shelter told us there were times when they would be following one process in the morning but a different one in the afternoon. On July 10, 2018, the court approved reunification procedures for the class members covered by the June 2018 court order. In the July 10, 2018 order that outlined these procedures, the court noted that the standard procedures developed by ORR pursuant to the TVPRA were meant to address “a different situation, namely, what to do with alien children who were apprehended without their parents at the border or otherwise” and that the agency’s standard procedures were not meant to apply to the situation presented in the Ms. L. v. ICE case, which involves parents and children who were apprehended together and then separated by government officials. The reunification procedures approved in the Ms. L. v. ICE case apply only to reunification of class members with their children and included determining (1) parentage and (2) whether the parent is fit to take care of the child or presents any danger to the child. Specifically: 1. Determining Parentage. Before July 10, 2018, to determine parentage for children ages 0 to 4, HHS officials said they initially used DNA swab testing instead of requiring documentation, such as birth certificates, stating that DNA swab testing was a prompt and efficient method for determining biological parentage in a significant number of cases. On July 10, 2018, the court approved the use of DNA testing “only when necessary to verify a legitimate, good-faith concern about parentage or to meet a reunification deadline.” HHS officials told us that at that point, to determine parentage, ORR relied on the determinations made by DHS when the family was separated and information ORR shelter staff had already collected through assessments of the children in their care. Unless there were specific doubts about the relationship, ORR did not collect additional information to confirm parentage, according to HHS officials. 2. Determining Fitness and Danger. To reunify class members, HHS also followed the procedures approved by the court on July 10, 2018 for determining whether a parent is fit and whether a parent presents a danger to the child. HHS used the fingerprints and criminal background check of the parent conducted by DHS when the individual was first taken into DHS custody rather than requiring the parent and other adults living in the household to submit fingerprints to ORR, as potential sponsors were typically required to do for unaccompanied children. According to HHS officials, ORR personnel also reviewed each child’s case file for any indication of a safety concern, such as allegations of abuse by the child. HHS did not require fingerprints of other adults living in the household where the parent and child will live. HHS also did not require parents to complete an ORR family reunification application as potential sponsors are typically required to do for unaccompanied children. The specific procedures for physical reunification varied depending on whether the parents were inside or outside of ICE custody. DHS and HHS took steps to coordinate their efforts to reunify children with parents who were in ICE custody, but experienced challenges. Generally, for parents in ICE custody, DHS transported parents to a detention facility close to their child and HHS transported the child to the same facility. At the facility HHS transferred custody of the child to ICE for final reunification. HHS officials said that in some instances children had to wait for parents for unreasonably long amounts of time and parents were transported to the wrong facilities. In one case, staff at one shelter told us that they had to stay two nights in a hotel with the child before reunification could occur. According to HHS officials, for families in which the parent was released into the interior of the United States, the reunification process involves ORR officials and shelter staff attempting to establish contact with the parent and determining whether the parent has “red flags” for parentage or child safety. These determinations are based on DHS-provided criminal background check summary information and case review of the child’s UAC Portal records. In cases where no red flags are found, HHS transports the child to the parent or the parent picks the child up at the ORR shelter. For more information on DHS and HHS reunification procedures for class member parents inside and outside ICE custody, see GAO-19-163. Chair DeGette, Ranking Member Guthrie, and Members of the Subcommittee, this concludes our prepared remarks. We would be happy to answer any questions that you may have. GAO Contacts and Staff Acknowledgments For further information regarding this testimony, please contact Kathryn A. Larin at (202) 512-7215 or larink@gao.gov or Rebecca Gambler at (202) 512-8777 or gamblerr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this testimony include Kathryn Bernet (Assistant Director), Elizabeth Morrison (Assistant Director), David Barish (Analyst-in-Charge), Andrea Dawson, Jason Palmer, and Leslie Sarapu. In addition, key support was provided by Susan Aschoff, James Bennett, Sarah Cornetto, Michael Kniss, Sheila R. McCoy, Jean McSween, Jan Montgomery, Heidi Nielson, and Almeta Spencer. 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.

On April 6, 2018, the Attorney General issued a memorandum on criminal prosecutions of immigration offenses. According to HHS officials, this resulted in a considerable increase in the number of minor children whom DHS separated from their parents after attempting to cross the U.S. border illegally. On June 20, 2018, the President issued an executive order directing that alien families generally be detained together, and on June 26, 2018, a federal judge ordered the government to reunify separated families. DHS is responsible for the apprehension and transfer of UAC to HHS. HHS is responsible for coordinating UAC placement and care. This testimony discusses DHS and HHS (1) planning efforts related to the Attorney General's April 2018 memo, (2) systems for indicating children were separated from parents, and (3) actions to reunify families in response to the June 2018 court order. It is based on a report GAO issued in October 2018. This testimony also includes updated data reported by the government on the number children separated from their parents subject to the court's reunification order and the number of those children in ORR custody as of December 11, 2018. Department of Homeland Security (DHS) and Department of Health and Human Services (HHS) officials GAO interviewed said the agencies did not plan for the potential increase in the number of children separated from their parent or legal guardian as a result of the Attorney General's April 2018 “zero tolerance” memo because they were unaware of the memo in advance of its public release. The memo directed Department of Justice prosecutors to accept for criminal prosecution all referrals from DHS of offenses related to improper entry into the United States, to the extent practicable. As a result, parents were placed in criminal detention, and their children were placed in the custody of HHS's Office of Refugee Resettlement (ORR). DHS and ORR treated separated children as unaccompanied alien children (UAC)—those under 18 years old with no lawful immigration status and no parent or legal guardian in the United States available to provide care and physical custody. Prior to April 2018, DHS and HHS did not have a consistent way to indicate in their data systems children and parents separated at the border. In April and July 2018, U.S. Customs and Border Protection's Border Patrol and ORR updated their data systems to allow them to indicate whether a child was separated. However, it is too soon to know the extent to which these changes, if fully implemented, will consistently indicate when children have been separated from their parents, or will help reunify families, if appropriate. In response to a June 26, 2018 court order to quickly reunify children separated from their parents, HHS determined how many children in its care were subject to the order and developed procedures for reunifying these families. As of September 2018, the government identified 2,654 children in ORR custody who potentially met reunification criteria, which does not include separated children released to sponsors prior to the June 2018 court order. On July 10, 2018, the court approved reunification procedures for the parents covered by the June 2018 court order. This July 10, 2018 order noted that ORR's standard procedures used to release UAC from its care to sponsors were not meant to apply in this circumstance, in which parents and children who were apprehended together were separated by government officials. Since GAO's October 2018 report, the government identified additional children separated from parents subject to the court's reunification order and released additional children from its custody (see figure).

CRS_R46257

Introduction Senate Rule XXIII lists, by position category, individuals who, other than Senators, shall be permitted floor privileges in the Senate chamber when the Senate is in session. As President of the Senate, the Vice President is afforded floor privileges, even when not expected to perform formal or ceremonial duties. Additional categories include former Senators and other high-level officials and certain staff members conducting Senate business in the chamber. However, as amended in 2007, the rule excludes individuals who would otherwise be allowed if they are registered lobbyists or acting as an agent of a foreign principal. Over its history, the Senate has amended its floor privileges rule to add or modify the list of those granted access. The Senate has also agreed to resolutions and unanimous consent (UC) agreements that have further clarified the rule, established procedures regarding staff access, or allowed individuals not designated in the rule onto the floor. This report discusses the current positional categories listed in Rule XXIII, as well as the history of Senate floor privileges, beginning with the first identified Senate resolution regulating non-Senator access to the chamber in 1798. Additionally, relevant standing orders and biennial UC agreements are discussed in the report's "evolution of the rule" section. The final section of the report offers guidance in obtaining temporary staff access under the Sergeant at Arms's floor pass system or by unanimous consent. This report will be updated as necessary. Current Senate Rule XXIII Positions Granted Floor Privileges Rule XXIII designates the individuals who are granted floor privileges in the Senate chamber. This list contains many of the same categories that were in place during the late 19 th century, as well as official positions that were established at a later time: the mayor of Washington, DC; the Joint Chiefs of Staff, and members of the European Parliament. Rule XXIII, Privilege of the Floor, clauses 1 and 2, states: 1. Other than the Vice President and Senators, no person shall be admitted to the floor of the Senate while in session, except as follows: The President of the United States and his private secretary. The President elect and Vice President elect of the United States. Ex-Presidents and ex-Vice Presidents of the United States. Judges of the Supreme Court. Ex-Senators and Senators elect, except as provided in paragraph 2. The officers and employees of the Senate in the discharge of their official duties. Ex-Secretaries and ex-Sergeants at Arms of the Senate, except as provided in paragraph 2. Members of the House of Representatives and Members elect. Ex-Speakers of the House of Representatives, except as provided in paragraph 2. The Sergeant at Arms of the House and his chief deputy and the Clerk of the House and his deputy. Heads of the Executive Departments. Ambassadors and Ministers of the United States. Governors of States and Territories. Members of the Joint Chiefs of Staff. The General Commanding the Army. The Senior Admiral of the Navy on the active list. Members of National Legislatures of foreign countries and Members of the European Parliament. Judges of the Court of Claims. The Mayor of the District of Columbia. The Librarian of Congress and the Assistant Librarian in charge of the Law Library. The Architect of the Capitol. The Chaplain of the House of Representatives. The Secretary of the Smithsonian Institution. The Parliamentarian Emeritus of the Senate. Members of the staffs of committees of the Senate and joint committees of the Congress when in the discharge of their official duties and employees in the office of a Senator when in the discharge of their official duties (but in each case subject to such rules or regulations as may be prescribed by the Committee on Rules and Administration). Senate committee staff members and employees in the office of a Senator must be on the payroll of the Senate and members of joint committee staffs must be on the payroll of the Senate or the House of Representatives. 2. (a) The floor privilege provided in paragraph 1 shall not apply, when the Senate is in session, to an individual covered by this paragraph who is— (1) a registered lobbyist or agent of a foreign principal; or (2) in the employ of or represents any party or organization for the purpose of influencing, directly or indirectly, the passage, defeat, or amendment of any Federal legislative proposal. (b) The Committee on Rules and Administration may promulgate regulations to allow individuals covered by this paragraph floor privileges for ceremonial functions and events designated by the Majority Leader and the Minority Leader. Provision Excluding Lobbyists In 2007, the Senate amended Rule XXIII to exclude from the chamber persons who are otherwise allowed entrance if they are registered as lobbyists, acting as foreign agents, or representing an entity for the "purpose of influencing, directly or indirectly, the passage, defeat, or amendment of any Federal legislative proposal." This exclusion, adding a new subparagraph 2(a), applies when the Senate is in session. More information on the lobbyist exclusion is presented in the evolution of the rule section of this report. Regulation and Enforcement of the Rule Senate Rule XXIII, clause 2(b), states that "it shall be the duty of the Committee on Rules and Administration to make all rules and regulations respecting such parts of the Capitol … as are or may be set apart for the use of the Senate and its officers." Accordingly, the committee issues a "Rules for Regulation of the Senate Wing," which is printed in the Senate Manual . Rule I of the document specifies that the Senate Sergeant at Arms, under the direction of the presiding officer, enforces the rules associated with the Senate chamber. This officer supervises the Senate floor at all times and ensures that designated subordinates are in performance of their chamber-related duties. In addition, the Sergeant at Arms "shall see that the messengers assigned to the doors upon the Senate floor are at their posts and that the floor, cloakrooms, and lobby are cleared at least five minutes before the opening of daily sessions of all persons not entitled to remain there." Exceptions to the Rule Pursuant to clause 2(b) of Rule XXIII, the Committee on Rules and Administration may promulgate regulations to allow individuals covered under clause 2(a) floor access "for ceremonial functions and events designated by the Majority Leader and the Minority Leader." Thus, on certain occasions, such as opening day of a Congress, former Senators and other individuals may be invited into the chamber, even if they would otherwise be prevented by the ban on registered lobbyists. Temporary floor access may also be granted by unanimous consent. For instance, in 1929, unanimous consent enabled a Senator-elect to have his physician accompany him into the Senate chamber. Unanimous consent is often used to grant temporary access to House officials, such as the House Parliamentarian, or Senate interns or fellows who are not on the Senate payroll. Evolution of Rule 1789-1977 In the earliest years of Congress, 1789-1795, the Senate closed its chamber to the public and the press. In 1795, the Senate, then meeting in the temporary capitol in Philadelphia, installed a public gallery but apparently had no official rules regarding floor access for non-Senators. First Identified Senate Policy Regulating Floor Privileges (1798) The first identified policy concerning floor access was established in 1798. The Senate resolved, "That no motion shall be deemed in order to admit any person, or persons, whatever, within the doors of the Senate chamber, to present any petition, memorial, or address, or to hear any such read." The Senate continued to follow this policy after it moved to the north wing of the Capitol Building in 1800. In 1806, the policy was codified in the first major revision of the standing rules, and it remained in the rules until the general revision of 1877. In the 1820 revision of the rules, the Senate established an additional rule regarding floor access. Standing Rule 38 then stated, "When acting on confidential or executive business, the Senate shall be cleared of all persons, except the Secretary, the Sergeant-at-Arms, and Door-Keeper, or, in his absence, the assistant door-keeper." On the opening day of the 24 th Congress (1835-1837), the Senate agreed to a resolution, dated December 7, 1835, that set aside the circular gallery for the "accommodation of ladies and the gentlemen accompanying them" and provided, "The reporters shall be removed from the east gallery, and placed on the floor of the Senate, under the direction of the Secretary." Furthermore, the resolution listed positional categories, in addition to reporters, that were allowed access to the floor. It stated, "No person, except members of the House of Representatives, their Clerk, Heads of Departments, Treasurer, Comptrollers, Register, Auditors, Postmaster General, President's Secretary, Chaplains to Congress, Judges of the United States, foreign Ministers and their Secretaries, officers who by name have received or shall hereafter receive the thanks of Congress for their gallantry and good conduct displayed in the service of their country, the Commissioners of the Navy Board, Governor for the time being of any State or Territory of the Union, such gentlemen as have been heads of Departments, or members of either branch of the Legislature, and, at the discretion of the President of the Senate, persons who belong to such Legislatures of foreign Governments as are in amity with the United States, shall be admitted on the floor of the Senate." By resolution, in 1854, the Senate amended its floor privilege rule (then Senate Rule 48). While the updated rule did not grant floor access to reporters, who at the time observed the chamber's proceedings from a reporters' gallery, it did expand the list of other categories admitted. The new list formed the basis for the current Rule XXIII. It included government officials serving in the District of Columbia, state judges and legislators, and individuals who had previously served in positions with floor privileges. The resolution also provided regulations relating to chamber access. No person—excepting Senators, Senate officers, and House Members—would be allowed entrance to the chamber via its side doors, and "no person except members of the Senate" would be "allowed within the bar of the Senate, or to occupy the seat of any senator." Prior to entry, all persons "claiming admission on the floor of the Senate" were to "enter their names, together with the official position in right of which they claim admission, in a book to be provided and kept at the main entrance to the Senate chamber." This policy, requiring a record of individuals accessing the floor while the Senate is in session, remains in effect today. Notwithstanding the policy established in 1854, Senators could, by resolution, obtain temporary floor access for individuals not otherwise permitted. For instance, in 1855, the Senate considered by unanimous consent and agreed to the following resolution: " Resolved , That the officers and soldiers of the war of eighteen hundred and twelve, now holding a convention in this city, be invited to occupy seats upon the floor of the Senate, without the bar, during the sitting of such convention." As the Senate prepared to move into its new (and current) chamber in the Capitol's north extension, it agreed to a resolution that temporarily restricted access to the Senate floor. The resolution of December 23, 1858, stated that "until the Senate otherwise order [ sic ], no person except senators, the officers of the Senate, and members of the House of Representatives, be admitted to the floor of the Senate while in session." Following the Senate's transition to the new chamber in January 1859, the Senate amended Rule 48 to state, "No person shall be admitted to the floor of the Senate, while in session, except as follows, viz: The officers of the Senate, members of the House of Representatives and their Clerk, the President of the United States and his private secretary, the heads of departments, foreign ministers, ex-Presidents and ex-Vice-Presidents of the United States, ex-senators, senators elect, and judges of the Supreme Court." However, the Senate could, by motions and resolutions, grant temporary access to individuals for particular reasons. For instance, to address structural problems associated with the new chamber, the Senate agreed to a motion submitted on December 14, 1859: " Ordered , That the assistant engineer in charge of heating and ventilating have the privilege of the floor of the Senate, so far as in the opinion of the presiding officer his duties make it necessary." In 1862, the Senate amended Rule 48 to add "governors of States and Territories." In the next general revision of the Senate rules, agreed to on March 25, 1868, the Senate re-numbered the floor privilege rule as Rule 47 and approved a minor amendment: The phrase foreign ministers became "ministers of the United States and foreign ministers." President Johnson Impeachment Trial (1868) The Senate adopted its 1868 rules shortly after the House approved articles of impeachment against President Andrew Johnson on March 2 and 3. Following the commencement of the Senate trial on March 5, the Senate voted to restrict, during the impeachment proceedings, "that portion of the Capitol set apart for the use of the Senate and its officers" to those "who now have the privilege of the floor, and clerks of the standing committees of the Senate" and gallery spectators in possession of tickets issued by the Sergeant at Arms. Three weeks into the impeachment trial, the Senate rejected a resolution providing an exception to the floor privilege rule. By a vote of 19 yeas to 20 nays, the Senate refused "to admit the agent of the Associated Press on the floor of the Senate during the trial of the impeachment." First Regular Senate Staff Members Given Floor Privileges Under Standing Rules (1872) In 1872, the Senate included regular Senate employees, in addition to Senate officers, to the list of positional categories afforded floor privileges under a standing rule. On motion, the Senate amended Rule 47 to add the following: "General of the Army, Admiral of the Navy, members of the national legislatures of foreign countries, private secretaries of Senators duly appointed in writing, and the Librarian of Congress." By including the phrase duly appointed in writing , the Senate ensured that employee admission would be limited to officially recognized staff members. The Senate codified the "private secretaries" position in the next general revision of Senate rules in 1877. Re-numbered Rule 60, the floor privileges rule stated : No person shall be admitted to the floor of the Senate while in session, except as follows: The officers of the Senate. Members of the House of Representatives and their Clerk. The President of the United States and his Private Secretary. The heads of Departments. Ministers of the United States. Foreign ministers. Ex-Presidents and Ex-Vice Presidents of the United States. Ex-Senators and Senators-elect. Judges of the Supreme Court. Governors of States and Territories. General of the Army. Admiral of the Navy. Members of national legislatures of foreign countries. Private secretaries of Senators, duly appointed in writing, and the Librarian of Congress. George Bancroft: Only Individual Identified by Name Afforded Floor Privileges Under the Standing Rules (1879-1891) In 1879, for the first (and only) identified time, the Senate amended its standing rules to grant permanent floor privileges to a named individual: George Bancroft, the former Secretary of the Navy, renowned historian, and author of the acclaimed multi-volume History of the United States . The Senate resolved "that the Hon. George Bancroft be admitted to the privileges of the floor of the Senate." (Following Bancroft's death in 1891, newspapers reported that this privilege had been extended as a means to honor this "most illustrious man of letters." ) In 1884, the next general revision of Senate rules re-codified the rules using Roman numerals and titles to distinguish each rule. The re-numbered Rule XXXIII, Privilege of the Floor, specified the Honorable George Bancroft as an individual allowed admittance; retained the positional categories listed in the 1877 rule; and added the House Sergeant at Arms, the Assistant Librarian in charge of the Law Library, judges of the Court of Claims, and the Architect of the Capitol extension. It also contained a second clause that further regulated the admittance of non-officer Senate employees: No person shall be admitted to the floor as private secretary of a Senator until the Senator appointing him shall certify in writing to the Sergeant-at-Arms that he is actually employed for the performance of the duties of such secretary and is engaged in the performance of the same. Shortly after the 1884 revision, the Senate agreed to resolutions adding the Secretary of the Smithsonian, the commissioner of Agriculture, and the commissioners of the District of Columbia and changing the Architect of the Capitol extensions to the Architect of the Capitol. In 1888, the Senate added ex-Speakers of the House, and in 1889, it added the President-elect and Vice President-elect. The floor privilege rule was further amended in 1891 following the death of Bancroft, as well as the deaths of the general of the Army and the admiral of the Navy. The amendment struck the Bancroft reference and broadened the Army and Navy categories to the "General Commanding the Army" and the "senior admiral of the Navy on the active list." It also incorporated the former clause 2, regulating the admission of Senate employees, into clause 1. The revised Senate-employee provision stated, "Clerks to Senate committees and clerks to Senators when in the actual discharge of their official duties. Clerks to Senators to be admitted to the floor must be regularly appointed and borne upon the rolls of the Secretary of the Senate as such." According to the Senator offering the amendment, the change regarding Senate clerks defined "a little more clearly who shall be entitled to admission as such." After 1891, there were a few additions to the positions given floor privileges: ex-Secretaries of the Senate (1895), House Members-elect (1895), ex-Sergeants at Arms of the Senate (1896), Chaplain of the House (1971), and Parliamentarian Emeritus of the Senate (1975). The rules recodification of 1979 provided floor privileges to offices created in 1947 (the Joint Chiefs of Staff), 1975 (mayor of the District of Columbia), and 1979 (members of the European Parliament). First Female Staff Member Granted Floor Privileges (1946) The 1891 amendment to Senate rules replaced the term secretary with clerk in reference to Senate staff working for individual Senators or Senate committees. It also removed the gendered pronoun him from the provision regulating who may obtain floor access. Thus, there were no restrictions under Senate rules that prevented female staff members from entering the Senate chamber while the Senate was in session. However, as noted by the author Lewis Gould, until 1946, "informal tradition dictated that only male secretaries could come to the Senate floor to consult with their bosses," even though the Senate employed about two dozen women clerks at the end of World War II, and five women had previously served as Senators. The first female staff member reportedly granted floor privileges, Frances Dustin, had served as a secretary to Senator Ralph Owen Brewster for 20 years prior to her admission to the floor, which, not coincidently, occurred three days after the Senate failed to achieve the two-thirds vote necessary to approve an Equal Rights Amendment (S.J.Res. 61, 79 th Congress). Initially, Senator Brewster considered submitting a resolution providing women staffers with floor access. Once he learned that the rules did not prevent female clerks on the Senate floor, however, he instead sought a clarification from the presiding officer. Addressing the chair, he said, "Apropos of our extended discussion last week regarding equal rights … I should like to have a ruling … as to whether, under the rules, female clerks may be allowed the privileges of the floor." The Senator serving as President pro tempore read the floor privilege rule out loud, then stated, "The Chair believes, and the Parliamentarian concurs in the opinion, that a woman clerk to any Senator or to any committee has the same rights as a man clerk, as if she were a man clerk. Therefore, under that ruling, the Chair holds that they are entitled to the floor." According to Newsweek , the ruling provided the "cue" for Dustin's "historic entrance" into the chamber. Dustin, "very gratified," conferred with Senator Brewster for about 10 minutes, then exited the floor, vowing that women would not "abuse the privilege." The President pro tempore later confirmed that this was "the first time in 160 years that a woman has had the privilege of the floor of the Senate as clerk to a Senator." 1978-Present Recurring Unanimous Consent Agreement: Two Staff Members per Senator on Floor at One Time with Pre-Notification of Journal Clerk (1978) Until 1978, Senators generally enabled eligible staff members to access the floor via unanimous consent (UC) requests. According to then Majority Leader Robert C. Byrd, under this practice, Senators would "have to stand up on the floor, get the attention of the Chair, and obtain unanimous consent all the time." In order to "do away with all the jumping up and down" of Senators seeking recognition, the majority leader supported a procedure, proposed by Senator Warren Magnuson, that would allow Senators to pre-notify the Journal clerk regarding staff admissions. On September 30, Majority Leader Byrd requested "unanimous consent that for the remainder of this session, Senators may enter at the desk with the Journal clerk, the names of whatever people they wish to have on the floor, indicating the legislative subject matter which they want to have attended on the floor by their people, and the date and time; and that, subject to conditions in the rear of the chamber, those staff members be allowed on the floor for the specified dates and times and purposes, with the understanding that the Sergeant at Arms be required to implement this order in a reasonable way that will not allow overcrowding in the rear of the chamber. This would mean that the Sergeant at Arms might have to ask some of the staff people to rotate, so that we would not have too many in here." Senator Ted Stevens indicated his support for the UC agreement provided that Senators "must specify the bill and the date on which the staff member would be admitted in this fashion" and that no Senator "would be permitted to have more than two staff members on the floor at any one time." Majority Leader Byrd accepted the modification and received unanimous consent to put the procedure into practice. The following January, the majority leader established, by unanimous consent, a Senate policy providing "for the duration of the 96 th Congress, Senators be allowed to leave at the desk with the Journal clerk a list of no more than two staff members who will be granted the privilege of the floor during the consideration of specific matter noted on the list, and that the Sergeant at Arms be instructed to rotate such staff members as space allows." At the start of subsequent Congresses, the majority leader has made nearly identical UC requests, re-establishing the pre-notification procedure while not codifying it in the Senate's standing rules. The former Senate Parliamentarian, Floyd Riddick, however, noted in Riddick's Senate Procedure: Precedents and Practices that Senators continue to use UC requests to obtain floor privileges for individuals otherwise not eligible or to enable more than two staff members to access the floor at one time. Rules Revisions of 1979 and 1980 In 1979, the Senate agreed to S.Res. 274 (96 th Congress) "to revise and modernize the Standing Rules of the Senate." The Privilege of the Floor rule, then still Rule XXXIII, remained the same with the exception of two additional position categories: the Joint Chiefs of Staff and the mayor of the District of Columbia (replacing the D.C. commissioner category, established in 1884). The following year, S.Res. 389 recodified and consolidated Senate rules, leading to a general renumbering, as well as minor revisions. The Privilege of the Floor rule became Rule XXIII and now included the position members of the European Parliament in the "Members of National Legislatures of foreign countries" provision. Thus, 1980 marked the last year a new position category was added to the Privilege of the Floor rule. Standing Order: Disability Accommodations for Staff (1997) In 1997, the Senate agreed to a standing order that allows individuals with disabilities using guide dogs, wheelchairs, or other accommodations to access the Senate floor. Earlier that year, Senator Ron Wyden had requested unanimous consent to enable a legislative fellow, accompanied by a service dog, onto the floor. The UC request was objected to on the Senate floor. The following day, Majority Leader Trent Lott proposed a policy, by UC, that did receive Senate approval: " Ordered , That an individual with a disability who has, or is granted, the privilege of the Senate floor may bring those supporting services (including service dogs, wheelchairs, and interpreters) on the Senate floor which the Sergeant at Arms determines are necessary and appropriate to assist the disabled individual in discharging the official duties of his or her position until the Rules and Administration Committee has the opportunity to consider properly the matter." The Senate then agreed to Senator Wyden's second UC request to allow his energy-policy fellow and her guide dog into the chamber. Senator Wyden subsequently sponsored S.Res. 110 (105 th Congress) "to permit an individual with a disability with access to the Senate floor to bring necessary supporting aids and services." The resolution, based on the majority leader's UC agreement, resolved: That an individual with a disability who has or is granted the privilege of the Senate floor under rule XXIII of the Standing Rules of the Senate may bring necessary supporting aids and services (including service dogs, wheelchairs, and interpreters) on the Senate floor, unless the Senate Sergeant at Arms determines that the use of such supporting aids and services would place a significant difficulty or expense on the operations of the Senate in accordance with paragraph 2 of rule 4 of the Rules for Regulation of the Senate Wing of the United States Capitol. In debate, Senator Wyden clarified that the resolution's "undue burden language is intended to apply only in very unusual circumstances, such as where significant architectural modifications might be necessary." The resolution had several additional proponents, including the chair of the Senate Committee on Rules and Administration, John Warner, who stated, "By adopting this resolution, the Senate hopes to be a model for the country in its treatment of individuals with disabilities." The staff disability accommodation policy continues to apply as one of the Senate's non-statutory standing orders, which operate as standing rules of the Senate. Also in 1997, the Senate agreed to another resolution relating to disability that applied only in that Congress. This resolution concerned a Senator, a wounded veteran, who needed assistance traveling to and from his seat in the Senate chamber. S.Res. 8 resolved: That an employee in the office of Senator Max Cleland, to be designated from time to time by Senator Cleland, shall have the privilege of the Senate floor during any period when Senator Cleland is in the Senate chamber during the 105 th Congress. President Clinton Impeachment Trial (1999) On January 6, 1999, the day before the Senate commenced the impeachment trial of President Clinton, Majority Leader Lott requested unanimous consent to implement policies regarding "Senate access during impeachment proceedings." The UC agreement required that individuals eligible for floor access under Rule XXIII enter the chamber through the Republican and Democratic cloakrooms only and that "such access will be limited to the number of vacant seats available on the Senate floor based on protocol considerations enforced by the Secretaries for the Majority and Minority and the Sergeant at Arms." Access to the floor would be limited "to those having official impeachment proceedings duties" using the following "guidelines": (not more than) three assistants to the majority leader; (not more than) three assistants to the minority leader; (not more than) two assistants to the majority whip; (not more than) two assistants to the minority whip; Secretary of the Senate (or designee); Sergeant at Arms (or designee); Secretary for the Majority (or designee); Secretary for the Minority (or designee); the Senate Legal Counsel, Deputy Legal Counsel, and Counsel for the Secretary and Sergeant at Arms (as needed); Cloakroom staff (as needed), "under supervision of secretaries for the majority or minority, as appropriate"; the Secretary of the Senate's legislative staff (as needed), "under supervision of the Secretary"; and Doorkeepers (as needed), "under the supervision of the Sergeant at Arms." The UC agreement stipulated that "committee and Member staff will not be permitted on the Senate floor other than as noted above; and that, accordingly, all messages to Members will be processed in the regular manner through the party cloakrooms or the reception room message desk." Further, "the Sergeant at Arms shall enforce the above provisions and take such other actions as necessary to fulfill his responsibilities." In addition to the Rule XXIII position categories, the UC agreement also ordered that "the following shall be admitted to the floor of the Senate while the Senate is sitting for impeachment proceedings": (not more than) two assistants to the Chief Justice; assistants to the House managers; and, counsel and assistants to counsel for the President of the United States. Exclusion of Lobbyists (2007) In 2007, Congress enacted the Honest Leadership and Open Government Act ( P.L. 110-81 ). Among its provisions, the act eliminated Senate "floor privileges for former Members, Senate officers, and Speakers of the House who are registered lobbyists or seek financial gain." As amended by P.L. 110-81 , Rule XXIII now contains two clauses following the list of positional categories. Clause 2(a) excludes lobbyists from the chamber with exceptions allowed, during certain events, as outlined by clause 2(b). (Clause 3 concerns access to other Senate privileges, including athletic and parking facilities.) Clause 2 states: (a) The floor privilege provided in paragraph 1 shall not apply, when the Senate is in session, to an individual covered by this paragraph who is— (1) a registered lobbyist or agent of a foreign principal; or (2) in the employ of or represents any party or organization for the purpose of influencing, directly or indirectly, the passage, defeat, or amendment of any Federal legislative proposal. (b) The Committee on Rules and Administration may promulgate regulations to allow individuals covered by this paragraph floor privileges for ceremonial functions and events designated by the Majority Leader and the Minority Leader. Infants on Floor During Votes (2018) In 2018, the Senate agreed to S.Res. 463 (115 th Congress), "authorizing a Senator to bring a young son or daughter of the Senator onto the floor of the Senate during votes." The resolution created a new Senate standing order: Notwithstanding rule XXIII of the Standing Rules of the Senate, a Senator who has a son or daughter (as defined in section 101 of the Family and Medical Leave Act of 1993 ( 29 U.S.C. 2611 )) under 1 year of age may bring the son or daughter onto the floor of the Senate during votes. The resolution addressed a concern conveyed by a Senator anticipating the birth of her baby daughter. Senate Rule XXIII does not grant children access to the floor while the Senate is in session, and it is not in order, as noted in Senate precedents, for the Senate to record the votes of Members who are not present. Thus, Senators might be prevented from voting if they also need to care for their infant children. Under the new policy, on April 19, 2018, the day after the Senate agreed to S.Res. 463 , Senator Tammy Duckworth voted in the chamber while accompanied by her newborn daughter. President Trump Impeachment Trial (2020) On January 15, 2020, one day prior to the commencement of the President Trump impeachment trial, the Senate agreed to a unanimous consent request by Majority Leader Mitch McConnell that included "allocations and provisions" regarding "access to the Senate wing, the Senate floor, and the Senate Chamber Galleries during all of the proceedings involving the exhibition of consideration of the Articles of Impeachment" against the President. The UC agreement's section on Senate floor access contained three paragraphs. Paragraph (1) provided general policies related to entrance to the chamber and floor seating, and paragraphs (2) and (3) regulated floor access for specified trial assistants. Paragraph (2) stated: Limited staff access.—Officers and employees of the Senate, including members of the staffs of committees of the Senate or joint committees of the Congress and employees in the office of a Senator, shall not have privileges under rule XXIII of the Standing Rules of the Senate to access the floor of the Senate, except as needed for official impeachment proceeding duties in accordance with the following: (A) The Majority Leader and the Minority Leader shall each be limited to not more than 4 assistants. (B) The Secretary of the Senate and the Assistant Secretary of the Senate shall each have access, and the legislative staff of the Secretary of the Senate shall be permitted as needed under the supervision of the Secretary of the Senate. (C) The Sergeant at Arms and Doorkeeper of the Senate and the Deputy Sergeant at Arms and Doorkeeper shall each have access, and doorkeepers shall be permitted as needed under the supervision of the Sergeant at Arms and Doorkeeper of the Senate. (D) The Secretary for the Majority, the Secretary for the Minority, the Assistant Secretary for the Majority, and the Assistant Secretary for the Minority shall each have access, and cloakroom employees shall be permitted as needed under the supervision of the Secretary for the Majority or the Secretary for the Minority, as appropriate. (E) The Senate Legal Counsel and the Deputy Senate Legal Counsel shall have access on an as-needed basis. (F) The Parliamentarian of the Senate and assistants to the Parliamentarian of the Senate shall have access on an as-needed basis. (G) Counsel for the Secretary of the Senate and the Sergeant at Arms and Doorkeeper of the Senate shall have access on an as-needed basis. (H) The minimum number of Senate pages necessary to carry out their duties, as determined by the Secretary for the Majority and the Secretary for the Minority, shall have access. Paragraph (3) stated: Other individuals with Senate floor access.—The following individuals shall have privileges of access to the floor of the Senate: (A) Not more than 3 assistants to the Chief Justice of the United States. (B) Assistants to the managers of the impeachment of the House of Representatives. (C) Counsel and assistants to counsel for the President of the United States. Obtaining Staff Floor Privileges The Sergeant at Arms enforces the rules and regulations governing the Senate chamber. Accordingly, the Office of the Sergeant at Arms (SAA), including its Doorkeepers, supervises and restricts staff access to the floor. The SAA ensures that non-chamber staff members will not access the floor during a Senate session unless they are on the Journal clerk's pre-notification list or are allowed under the terms of a unanimous consent request. The SAA also ensures that, barring a UC request, no more than two staff members from the same Senator's office will be on the floor at the same time, as mandated in the recurring UC agreements agreed to at the start of each Congress. Access Under the Pre-Notification Floor Pass Procedure As approved by the Committee on Rules and Administration, the "Regulations Controlling the Admission of Employees and Senate Committees to the Senate Floor" are meant to "permit closer supervision over employees admitted to the Senate Floor" without depriving any employees the privilege of the floor if they are "entitled thereto under Rule XXIII." In view of these regulations, the Senate Doorkeepers provide Senate staff members with the following instructions regarding floor access. Pre-Notification via the Senate Sergeant at Arms's TranSAAct System Senate office managers and other staff are issued credentials that allow them to submit, using the SAA TranSAAct web portal, a list of staff members to be granted Senate floor privileges. The submitted staff members should be eligible for floor access pursuant to clause 1 of Rule XXIII. That is, they must be Senate committee staff members or working in the office of a Senator and on the payroll of the Senate or joint committee staff members and on the payroll of the Senate or the House of Representatives. Should the Senate or joint committee office experience any personnel changes affecting its list of eligible individuals, the credentialed staff member should submit those changes to the SAA via TranSAAct. While Senate offices may pre-submit the names of multiple staff members, the number of staff members from the same office allowed on the floor at one time is limited. The SAA restricts access to those individuals who are in temporary possession of floor passes provided by the Credentials Desk. Floor Pass Allotment Every committee of the Senate, as well as joint committees, are allotted six cards (floor passes) to be used when the committee has jurisdiction over pending legislation. Four cards may be used as needed without a time limit. Two cards are given with a 15-minute time limit, allowing staff members to perform brief official duties, such as assisting with poster boards and other visual displays. Each Senator and the Vice President is allotted two cards. The Senate cards are issued to regular full-time Senate staff members working in a Senator's office. They are to be used while the staff member is performing official duties relating to a particular bill or matter under consideration. One card is not time limited, while the other card has a 15-minute limit. The time-limited cards allow staff members to speak briefly to a Senator or transport materials to the floor. Obtaining Floor Passes During a Senate session and 30 minutes prior, an eligible staff member may sign in and obtain a pass at the Credentials Desk, located between the Senate Reception Room and the Senate chamber. The desk attendant checks the staff member's official Senate ID badge and verifies that the staff member's name has been pre-submitted via the TranSAAct system. (Unlisted staff members are advised to contact their offices and request to be added to the database.) The desk attendant also notes in the daily roster—now an electronic database—the staff member's name, office, and official business to be performed and the card number issued to the employee. Following the sign-in procedures, staff members granted floor access are to display both their Senate ID badges and the floor passes to the Doorkeeper at the entrance of the chamber. When their duties are completed, they are to exit the chamber and return the floor passes to the attendant at the Credentials Desk. Limitations on Use of Floor Passes If a Senator's office allotment has been met, any additional employees seeking floor access are to wait in the Senate lobby until one of the office employees returns from the floor. According to the Senate Doorkeepers' "Guidelines Regarding Floor Privileges," the Sergeant at Arms may also "rotate staff on and off the floor to eliminate congestion." Additionally, the SAA may restrict access due to restrictions imposed under the terms of a UC agreement or a Senate resolution. (See, for example, the Clinton impeachment UC agreement.) Staff members who wish to observe, but not assist in, Senate proceedings are advised to do so from the Senate galleries. Staff members are to remain on the floor "only as long as necessary for the transaction" of the staff members' official business. During the time spent on the floor, they "shall in no way encroach upon the areas and privileges reserved for Senators only." Most floor passes permit staff members to use one designated door to access the chamber. However, each committee is given two full-floor passes, one for a majority staff member and one for a minority staff member, allowing those in possession to enter and exit the chamber throughout the day and through any door. At the start of roll-call votes, the Sergeant at Arms closes the floor for entry, except for those staff members granted access via unanimous consent or committee staff members "associated with the issue involved." Access by Unanimous Consent Reasons for UC Requests In addition to the pre-notification procedures outlined above, Senators may use UC requests to provide access to staff members. UC requests may be used when an eligible staff member is needed on the floor but is not currently in the TranSAAct database. Additionally, Senators may seek UC approval to enable floor access for more than two staff members at one time or to provide access to an assistant who is not on the Senate payroll, such as a legislative fellow or intern. Senators may also obtain UC agreements to provide temporary floor privileges to other individuals. Language Used in UC Requests Floor-privilege UC agreements usually include a time limitation, such as for the duration of the day, session, or Congress. If the Senator is requesting the assistance of more than two staff members, the UC request will likely include the reason why the maximum number should be temporarily increased. The following are examples of UC request language that might be used to enable individuals to access the floor aside from the pre-notification floor pass procedure. Allowing Assistants Not on the Senate Payroll Senator: Mr. [or Madam] President, I ask unanimous consent that my defense fellow, [named individual], be given floor privileges for the remainder of the first session of the 116 th Congress. Allowing More Than Two Staff Members on the Floor at One Time Senator: Mr. [or Madam] President, as manager of the pending bill, I require the assistance of more than two staff members on the floor today. I ask unanimous consent that the following staff members, [named individuals], be afforded the privilege of the floor during debate and all votes on the [named bill].

Senate Standing Rule XXIII, Privilege of the Floor, designates those afforded access to the Senate floor while the Senate is in session. In addition to sitting Senators, the rule lists several eligible positions, including certain current and former congressional, executive, and judicial officials; state and territorial governors; the mayor of the District of Columbia; members of foreign national legislatures; the nation's highest ranking military leaders; and, under specified circumstances, congressional staff members assisting Senators on the floor. Over its history, the Senate has amended the floor privilege rule to add or clarify positional categories. The Senate has also agreed to a number of resolutions and unanimous consent (UC) agreements that affect the interpretation of the rule. The Senate, by resolution or UC, frequently provides temporary floor access to non-designated individuals. Less commonly, it has agreed to temporarily restrict access to the Senate floor. Such restrictions have occurred in advance of the Senate's move to its current chamber in 1859 and during the impeachment trials of Presidents Andrew Johnson (1868), Bill Clinton (1999), and Donald Trump (2020). In 2007, the Senate amended Rule XXIII to exclude lobbyists from the floor, even if these individuals would otherwise be granted floor privileges under the rule. Rule XXIII permits certain staff members of individual Senators and Senate committees and joint committees to have access to the floor "when in the discharge of their official duties." Staff access is further regulated by policies outlined in a recurring UC agreement approved at the start of each Congress, as well as those policies established by the Senate Rules and Administration Committee. For instance, each Senator is limited to two staff members on the floor at the same time. The Office of the Sergeant at Arms (SAA) enforces Senate Rule XXIII, as well as any associated resolutions or UC agreements, regarding floor access. This report analyzes the evolution of the floor privileges rule over time. Notable changes to the rule or its interpretation are provided, such as the first time a female staff member accessed the Senate floor (1946); when the Senate agreed to resolutions to accommodate staff with disabilities (e.g., allow the use of a service dog in the chamber, 1997); and when it permitted Senators, accompanied by their infant children, to vote on the Senate floor (2018). The report also addresses how staff members are granted floor privileges and how that access is limited by Rule XXIII and its associated regulations. Access via the SAA's web portal, TranSAAct, is discussed, as well as the use of unanimous consent requests to afford access to individuals not listed in TranSAAct or to enable more than two staff members from the same Senate office on the floor at one time.

CRS_R46095

Introduction Congress is currently considering legislation for a long-term reauthorization of the National Flood Insurance Program (NFIP). The last long-term reauthorization of the NFIP was by the Biggert-Waters Flood Insurance Reform Act of 2012 (hereinafter BW-12), from July 6, 2012, to September 30, 2017. Congress amended elements of BW-12, but did not extend the NFIP's authorization further, in the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA). Since the end of FY2017, 15 short-term NFIP reauthorizations have been enacted. The NFIP is currently authorized until September 30, 2020. The NFIP is managed by the Federal Emergency Management Agency (FEMA). The general purpose of the NFIP is both to offer primary flood insurance to properties with significant flood risk and to reduce flood risk through the adoption of floodplain management standards. A longer-term objective of the NFIP is to reduce federal expenditure on disaster assistance after floods. The NFIP is discussed in more detail in CRS Report R44593, Introduction to the National Flood Insurance Program (NFIP) , by Diane P. Horn and Baird Webel. The NFIP is the primary source of flood insurance coverage for residential properties in the United States. As of December 2019, the NFIP had more than 5 million flood insurance policies providing over $1.3 trillion in coverage. The program collects about $4.6 billion in annual revenue from policyholders' premiums, fees, and surcharges. Over 22,000 communities in 56 states and jurisdictions participate in the NFIP. According to FEMA, the program saves the nation an estimated $1.87 billion annually in flood losses avoided because of the NFIP's building and floodplain management regulations. Floods are the most common natural disaster in the United States. All 50 states, plus the District of Columbia (DC), Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, and the Northern Mariana Islands have experienced flood events since May 2018. Total U.S. flood losses in 2016 were about $28 billion. 2017 was the most costly year for U.S. flood losses on record, with total losses estimated at $276.3 billion. The total for the 2017 hurricanes significantly exceeded the previous record of $214.8 billion (CPI-adjusted), from the 2005 hurricane season. Total U.S. flood losses for 2018 are estimated at $49.4 billion. All of these losses are greater than the $20.3 billion annual average flood losses estimated by the Congressional Budget Office in April 2019. Expiration of Certain NFIP Authorities The statute for the NFIP does not contain a comprehensive expiration, termination, or sunset provision for the whole of the program. Rather, the NFIP has multiple different legal provisions that generally tie to the expiration of key components of the program. Unless reauthorized or amended by Congress, the following will occur after September 30, 2020: The authority to provide new flood insurance contracts will expire. Flood insurance contracts entered into before the expiration would continue until the end of their policy term of one year. The authority for NFIP to borrow funds from the Treasury will be reduced from $30.425 billion to $1 billion. Other activities of the program would technically remain authorized following September 30, 2020, such as the issuance of Flood Mitigation Assistance (FMA) grants. However, the expiration of the key authorities described above would have varied, generally serious effects on these remaining NFIP activities. Legislative Action in the 116th Congress The House Financial Services Committee amended and ordered reported a bill for the long-term reauthorization of the NFIP, the National Flood Insurance Program Reauthorization Act of 2019 ( H.R. 3167 ), on June 11, 2019. H.R. 3167 was reported, as amended, on October 28, 2019 ( H.Rept. 116-262 , Part 1). H.R. 3167 would reauthorize the NFIP until September 30, 2024. One bill has been introduced in the Senate, on July 18, 2019, to reauthorize the expiring provisions of the NFIP, the National Flood Insurance Program Reauthorization and Reform Act of 2019 ( S. 2187 ), with a companion bill in the House, H.R. 3872 . These bills have not yet been considered by the committees of jurisdiction. S. 2187 and H.R. 3872 would also reauthorize the NFIP until September 30, 2024. The remainder of this report will summarize relevant background information and proposed changes to selected areas of the NFIP in H.R. 3167 and S. 2187 . The report does not examine every provision in detail, but focuses on selected provisions that would introduce significant changes to the NFIP, particularly those related to the issues identified by the Government Accountability Office (GAO) described below. The provisions in H.R. 3167 and S. 2187 are listed in Table 1 at the end of the report. Selected Issues for Consideration by the 116th Congress In a 2017 report, GAO examined actions which Congress and FEMA could take to reduce federal fiscal exposure and improve national resilience to floods, and recommended that Congress should consider comprehensive reform covering six areas: (1) outstanding debt; (2) premium rates; (3) affordability; (4) consumer participation; (5) barriers to private sector involvement; and (6) NFIP flood resilience efforts. As a public insurance program, the goals of the NFIP were originally designed differently from the goals of private-sector companies. As currently authorized, the NFIP also encompasses social goals to provide flood insurance in flood-prone areas to property owners who otherwise would not be able to obtain it, and reduce government's cost after floods. The NFIP also engages in many "non-insurance" activities in the public interest: it disseminates flood risk information through flood maps, requires communities to adopt land use and building code standards in order to participate in the program, potentially reduces the need for other post-flood disaster aid, contributes to community resilience by providing a mechanism to fund rebuilding after a flood, and may protect lending institutions against mortgage defaults due to uninsured losses. The benefits of such tasks are not directly measured in the NFIP's financial results from underwriting flood insurance. From the inception of the NFIP, the program has been expected to achieve multiple objectives, some of which may conflict with one another: To ensure reasonable insurance premiums for all; To have risk-based premiums that would make people aware of and bear the cost of their floodplain location choices; To secure widespread community participation in the NFIP and substantial numbers of insurance policy purchases by property owners; and To earn premium and fee income that, over time, covers claims paid and program expenses. NFIP Lapse in Authorization On December 21, 2018, Congress passed a stand-alone reauthorization bill, the National Flood Insurance Program Extension Act, to ensure that NFIP did not lapse during the funding gap that led to a partial government shutdown from December 21, 2018, to January 25, 2019. However, on December 26, 2018, FEMA announced changes to the operation of the NFIP in response to the shutdown, advising Write-Your-Own (WYO) companies to suspend sales operations, including the sale of new policies and the renewal of existing policies. FEMA's reason for suspending sales operations, despite the reauthorization of the NFIP, was that the WYO companies were entitled to a fee from the sale or renewal of flood insurance policies and that such a fee may be considered an impermissible funding obligation during a lapse in annual appropriations. Following protests from a number of congressional offices, the insurance industry, and the real estate industry, on December 28, 2018, FEMA rescinded the guidance and directed all NFIP insurers to resume normal operations immediately, advising that the NFIP would be considered operational since December 21, 2018, without interruption. Both H.R. 3167 and S. 2187 include a provision to reduce the impact of a future government shutdown on NFIP operations. Provisions Related to NFIP Reauthorization in H.R. 3167 Section 101 would allow for a retroactive effective date in the event of a lapse in appropriations of the NFIP. Provisions Related to NFIP Reauthorization in S. 2187 Section 101 would allow for continuous operation during any lapse in appropriations, with a provision that amounts in the Reserve Fund may be credited to the National Flood Insurance Fund (NFIF) to enter into and renew contracts for flood insurance. NFIP Debt and Solvency of the Program GAO noted that competing aspects of the NFIP, notably the desire to keep flood insurance affordable while making the program fiscally solvent, have made it challenging to reform the program. Promoting participation in the program, while at the same time attempting to fund claims payments with the premiums paid by NFIP policyholders, provides a particular challenge. Throughout its history, the NFIP has been asked to set premiums that are simultaneously "risk-based" and "reasonable." Different Administrations and Congresses have placed varied emphases and priorities on those goals for premium setting. GAO has reported in several studies that NFIP's premium rates do not reflect the full risk of loss because of various legislative requirements, which exacerbates the program's fiscal exposure. GAO also noted in several reports that while Congress has directed FEMA to provide subsidized premium rates for policyholders meeting certain requirements, it has not provided FEMA with funds to offset these subsidies and discounts, which has contributed to FEMA's need to borrow from the U.S. Treasury to pay NFIP claims. The Congressional Budget Office analysis of H.R. 3167 estimated that enacting the changes that are not related to extending the program would increase direct spending by $678 million over the 2020-2029 period. NFIP Premiums, Fees, and Surcharges As of June 2019, the written premium on just over 5 million policies in force was $3.5 billion, with an additional $1.09 billion from fees and surcharges. The maximum coverage for single-family dwellings (which also includes single-family residential units within a 2-4 family building) is $100,000 for contents and up to $250,000 for buildings coverage. The maximum available coverage limit for other residential buildings is $500,000 for building coverage and $100,000 for contents coverage, and the maximum coverage limit for non-residential business buildings is $500,000 for building coverage and $500,000 for contents coverage. Included within NFIP premiums are several fees and surcharges mandated by law on flood insurance policies. First, the Federal Policy Fee (FPF) was authorized by Congress in 1990 and helps pay for the administrative expenses of the program, including floodplain mapping and some of the insurance operations. The amount of the Federal Policy Fee is set by FEMA and can increase or decrease year to year. Since October 2017, the FPF has been $50 for Standard Flood Insurance Policies (SFIPs), $25 for Preferred Risk Policies (PRPs), and $25 for contents-only policies. Second, a reserve fund assessment was authorized by Congress in BW-12 to establish and maintain a reserve fund to cover future claim and debt expenses, especially those from catastrophic disasters. By law, FEMA is required to maintain a reserve ratio of 1% of the total loss exposure through the reserve fund assessment. As of June 2019, the amount required for the reserve fund ratio was approximately $13.16 billion. However, FEMA is allowed to phase in the reserve fund assessment to obtain the ratio over time, with an intended target of not less than 7.5% of the 1% reserve fund ratio in each fiscal year (so, using June 2019 figures, not less than approximately $986.8 million each year). The reserve fund assessment has increased from its original status, in October 2013, of 5% on all SFIPs and 0% on PRPs. Since April 2016, FEMA has charged every NFIP policy a reserve fund assessment equal to 15% of the premium. However, FEMA has stated that as long as the NFIP maintains outstanding debt, it would expect that the reserve fund will not reach the required balance, as amounts collected may be periodically transferred to Treasury to reduce the NFIP's debt. In addition to the reserve fund assessment, all NFIP policies are also assessed a surcharge following the passage of HFIAA. The amount of the surcharge is dependent on the type of property being insured. For primary residences, the charge is $25; for all other properties, the charge is $250. Revenues from the surcharge are deposited into the reserve fund. The HFIAA surcharge is not considered a premium and is currently not included by FEMA when calculating limits on insurance rate increases. In April 2019, FEMA began charging a 5% premium on all severe repetitive loss properties. One additional surcharge may be levied if a community is on probation from the NFIP. All policyholders in that community will be charged a probation surcharge of $50 for a full one-year period, even if the community brings its program into compliance and is removed from probation. Premium Subsidies and Cross-Subsidies Except for certain subsidies, flood insurance rates in the NFIP are directed to be "based on consideration of the risk involved and accepted actuarial principles," meaning that the rate is reflective of the true flood risk to the property. However, Congress has directed FEMA not to charge actuarial rates for certain categories of properties and to offer discounts to other classes of properties in order to achieve the program's objective that owners of existing properties in flood zones could afford flood insurance. There are three main categories of properties which pay less than full risk-based rates. Pre-FIRM Subsidy Pre-FIRM properties are those which were built or substantially improved before December 31, 1974, or before FEMA published the first Flood Insurance Rate Map (FIRM) for their community, whichever was later. By statute, pre-FIRM structures are allowed to have lower premiums than what would be expected to cover predicted claims. The availability of this pre-FIRM subsidy was intended to allow preexisting floodplain properties to contribute in some measure to pre-funding their recovery from a flood disaster instead of relying solely on federal disaster assistance. In essence, the flood insurance could distribute some of the financial burden among those protected by flood insurance and the public. As of September 2018, approximately 13% of NFIP policies received a pre-FIRM subsidy. Historically, the total number of pre-FIRM policies is relatively stable, but the percentage of those policies as a share of the total policy base has decreased. BW-12 phased out almost all subsidized insurance premiums, requiring FEMA to increase rates on certain subsidized properties at 25% per year until full-risk rates were reached: these included secondary residences, businesses, severe repetitive loss properties, and properties with substantial cumulative damage. Subsidies were eliminated immediately for properties where the owner let the policy lapse, any prospective insured who refused to accept offers for mitigation assistance, and properties purchased after or not insured by NFIP as of July 6, 2012. All properties with subsidies not being phased out at higher rates, or already eliminated, were required to begin paying actuarial rates following a five-year period, phased in at 20% per year, after a revised or updated FIRM was issued for the area containing the property. Thus the subsidies on pre-FIRM properties would have been eliminated within five years following the issuance of a new FIRM to a community. As BW-12 went into effect, constituents from multiple communities expressed concerns about the elimination of lower rate classes, arguing that it created a financial burden on policyholders, risked depressing home values, and could lead to a reduction in the number of NFIP policies purchased. Concerns over the rate increases created by BW-12 led to the passage of HFIAA, which reinstated certain premium discounts and slowed down some of the BW-12 premium rate increases. HFIAA repealed the property-sale trigger for an automatic full-risk rate and slowed the rate of phaseout of the pre-FIRM subsidy for most primary residences, allowing for a minimum and maximum increase in the amount for the phaseout of pre-FIRM subsidies for all primary residences of 5%-18% annually. HFIAA retained the 25% annual phaseout of the subsidy from BW-12 for all other categories of properties. Newly Mapped Subsidy HFIAA established a new subsidy for properties that are newly mapped into a Special Flood Hazard Area (SFHA) on or after April 1, 2015, if the applicant obtains coverage that is effective within 12 months of the map revision date. Certain properties may be excluded based on their loss history. The rate for eligible newly mapped properties is equal to the PRP rate, but with a higher Federal Policy Fee, for the first 12 months following the map revision. After the first year, the newly mapped rate begins to transition to a full-risk rate, with annual increases to newly mapped policy premiums calculated using a multiplier that varies by the year of the map change. As of September 2018, about 4% of NFIP policies receive a newly mapped subsidy. Grandfathering Using the authority to set rate classes for the NFIP and to offer lower than actuarial premiums, FEMA allows owners of properties that were built in compliance with the FIRM in effect at the time of construction to maintain their old flood insurance rate class if their property is remapped into a new flood rate class. This practice is colloquially referred to as "grandfathering," "administrative grandfathering," or the "grandfather rule," and is separate and distinct from the pre-FIRM subsidy. FEMA does not consider the practice of grandfathering to be a subsidy for the NFIP, per se, because the discount provided to an individual policyholder is cross-subsidized by other policyholders in the NFIP. Thus, while grandfathering does intentionally allow policyholders to pay premiums that are less than their actuarial rate, the discount is offset by others in the same rate class as the grandfathered policyholder. Congress implicitly eliminated the practice of offering grandfathering to policyholders after new maps were issued in BW-12, but then subsequently reinstated the practice in HFIAA, which repealed the BW-12 provision that terminated grandfathering and allowed grandfathered status to be passed on to the new owners when a property is sold. As of September 2018, about 9% of NFIP policies were grandfathered. Risk Rating 2.0 FEMA is planning to introduce the biggest change to the way the NFIP calculates flood insurance premiums since its inception, known as Risk Rating 2.0 . The new rates are scheduled to go into effect on October 1, 202 1, for all NFIP policies. The NFIP's current rating structure follows general insurance practices in place at the time that the NFIP was established and has not fundamentally been changed since the 1970s . FEMA uses a nationwide rating system that combines flood zones across many geographic areas, and individual policies do not necessarily reflect topographical features that affect flood risk. FEMA models expected losses for groups of structures that are similar in flood risk and key structural aspects, and assigns the same rate to all policies in a group. For example, two properties that are rated as the same NFIP risk (i.e., both are one-story, single-family homes with no basement and are elevated the same number of feet above the Base Flood Elevation ( BFE )) are charged the same rate per $100 of insurance, although they may be located in different states with differing flood histories or rest on different topography, such as a shallow floodplain versus a steep river valley. In addition, two properties in the same flood zone are charged the same rate, regardless of their location within the zone. To calculate the premium, the current rating system considers the flood zone , the building occupancy type , the foundation type, whether the property is pre-FIRM or post-FIRM, whether or not the property is a primary residence , and the property elevation relative to the BFE for properties in an SFHA. The amount and type of coverage and the deductible will also affect the premium. NFIP premiums calculated under Risk Rating 2.0 are to reflect an individual property's flood risk, in contrast to the current rating system in which properties with the same NFIP flood risk are charged the same rates. This will involve the use of a larger range of variables than in the current rating system. The current rating system uses two sources of flooding, coastal and fluvial (river). In contrast, Risk Rating 2.0 is to incorporate a broader range of flood frequencies and sources, including pluvial flooding (flooding due to heavy rainfall) , urban flooding , and coastal erosion outside the V-zone (the coastal high - hazard area) . Geographical variables to be used in Risk Rating 2.0 are to include the distance to the water and the type of water (i.e., river, stream, coast), the elevation of the property relative to the flooding source, and the stream order , which is a measure of the relative size of streams and rivers. The structural variables which have been identified by FEMA for use in Risk Rating 2.0 include the foundation type of the structure, the height of the lowest floor of the structure relative to BFE, and the replacement cost value of the structure. The use of distance to water as a variable may mean that premiums for properties at the landward boundary of a SFHA could go down, while premiums for a property at the water boundary could go up. Replacement Cost Value Under the current rating system, NFIP premium rates are based on the amount of insurance purchased for a structure, not the replacement cost for that structure. For example, for most actuarially rated structures in the A zone, the NFIP currently classifies the first $60,000 of building coverage for single-family residences ($175,000 for businesses) and $25,000 of contents coverage as the basic limit. It charges higher rates for coverage under this amount, because losses are more likely to occur in this range. Rates for additional coverage above the basic limit are lower. The basic and additional rates are loaded to account for the average tendency to buy less insurance than the replacement value. For example, a post-FIRM single-family property in the A-zone , with $250,000 of buildings coverage and a deductible of $3,000, would currently pay a rate of 3% on the first $60,000 and a rate of 2% on the additional $190,000 (plus the Increased Cost of Compliance (ICC) premium and the reserve fund assessment). The two-tiered rating structure was used in the industry for two reasons. First, it ensured that the premium collected is sufficient to cover the typical claim even if a policy is under-insured; according to FEMA, most NFIP claims are below $60,000. By charging a high rate for coverage up to $60,000, a policyholder's premium is likely to be sufficient to cover a typical claim. Secondly, it encouraged policyholders to fully insure their structure. By charging a low additional rate, policyholders are encouraged not just to insure a typical claim, but to insure against the unlikely but possible higher claim. For much of the NFIP's existence, the two-tiered rating structure operated with minimal inequity. However, as the range of replacement values widened, particularly through the 2000s, the potential for inequity caused by rating based on coverage instead of structure value grew. Two groups are most subject to inequity. First, structures whose value is closer to the $60,000 basic limit pay more than they would if their rate was based on their structure value because most of their rate is comprised of the lower additional rate. Second, structures whose value is above the $250,000 cap pay less than they would if their rate was based on structure value, because their rate is based on an average structure value that is much less than their actual structure value. In addition, high-valued structures can produce much higher claims than lower-valued structures with the same intensity of damage. If replacement cost value were to be used in setting NFIP premium rates, it is anticipated that those structures with higher replacement costs than current local or national averages would begin paying more for their NFIP coverage than those structures that are below the average, which would pay less. How much more, or how much less, is uncertain. Premium Increases Under Risk Rating 2.0 The limitations on annual premium increases are set in statute and Risk Rating 2.0 will not be able to increase rates beyond these caps. Rate increases for primary residences are restricted to 5%-18% per year. Individual property increases of up to 18% are allowed, but rate class increases are limited to 15% per year. Other categories of properties are required to have their premium increased by 25% per year until they reach full risk-based rates: this includes non-primary residences , nonresidential properties , business properties , properties with severe repetitive loss , properties with substantial cumulative damage , and properties with substantial damage or substantial improvement after July 6, 2012. However, FEMA does not consider everything that policyholders pay to the NFIP to be part of the premium and therefore subject to these caps. When premium rates are calculated for compliance with the statutory caps, FEMA only includes the building and contents coverage , the ICC coverage, and the reserve fund assessment . Other fees and surcharges are not considered premium and, therefore, are not subject to the premium cap limitations, including the FPF, the HFIAA surcharge and, if applicable, the 5% Severe Repetitive Loss premium and/or probation surcharge . Summary The current categories of properties which pay less than the full risk-based rate are determined by the date when the structure was built relative to the date of adoption of the FIRM, rather than the flood risk or the ability of the policyholder to pay. This will not change fully with the introduction of Risk Rating 2.0; although premiums for individual properties will be tied to their actual flood risk, the rate at which the subsidies will be phased out will not change. The move towards actuarially sound rates could place the NFIP on a more financially sustainable path; risk-based price signals could give policyholders a clearer understanding of their true flood risk; and a reformed rate structure could encourage more private insurers to enter the market. However, charging actuarially sound premiums may mean that insurance for some properties is considered unaffordable, or that premiums increase at a rate which may be considered to be politically unacceptable. Provisions Related to NFIP Premiums, Fees, and Surcharges in H.R. 3167 Section 103 would repeal the HFIAA surcharge, which is $25 for primary residences and $250 for all other properties. This provision would decrease the amount that policyholders pay for flood insurance, but would benefit primary residences less than other categories of property. FEMA does not include the HFIAA surcharge in their calculation of premium rate increases, so this change would not have any impact on the rate at which premiums might increase with Risk Rating 2.0. Section 104 would authorize monthly installment payments of NFIP premiums rather than the current annual payment of premiums. The fee for making monthly payments during the first year of implementation could not exceed $25 per year. Section 304 would allow an owner of a share of a cooperative building to purchase flood insurance coverage under the NFIP on the same terms as a condominium owner. Section 402 would authorize FEMA to offer one umbrella policy to owners of multiple structures on the same property. This would apply to both commercial properties and residential properties, including agricultural structures and multi-family rental properties. This could have the effect of making flood insurance easier to buy for the relevant properties. Provisions Related to NFIP Premiums, Fees, and Surcharges in S. 2187 Section 102 would prohibit FEMA from increasing the amount of covered costs above 9% per year on any policyholder during the five-year period beginning on the date of enactment. Covered costs include premiums, surcharges (including the surcharge for ICC coverage and the HFIAA surcharge), and the Federal Policy Fee. This would limit the rate of increase of covered costs for all categories of policies, not just policies for primary residences, and would be particularly significant for those policies where the pre-FIRM subsidy is currently being phased out at 25% per year. This cap on premium increases could potentially limit FEMA's ability to implement rate increases under Risk Rating 2.0. Section 102 would also amend the basis on which premiums are determined so that the calculation of an average historical loss year would exclude catastrophic loss years. This would probably lower premiums for all policyholders. Section 104 would authorize monthly installment payments of NFIP premiums rather than the current annual payment of premiums. The fee for making monthly payments during the first year of implementation could not exceed $15 per year. Section 106 would allow an owner of a share of a cooperative building to purchase flood insurance coverage under the NFIP on the same terms as a condominium owner. Section 107 would establish a baseline amount, defined as the maximum original principal obligation of a standard mortgage that may be purchased by the Federal National Mortgage Association (Fannie Mae) in the area where the property is located. The baseline amount would track the Fannie Mae maximum loan limits for single-family dwellings. This section would set the contents coverage limits at 50% of the baseline amount. The coverage limit for single-family dwellings would be set at the baseline amount and the coverage limit for other residential and non-residential properties at 200% of the baseline amount. This provision would increase coverage limits for both buildings and contents insurance, with a larger increase in high-cost areas. Section 306 would increase premiums by 25% each year on any property for which a policyholder refuses a bona fide offer of mitigation assistance until the policyholder accepts the bona fide offer of assistance or the chargeable risk premium is actuarially sound. NFIP Borrowing from Treasury The funding for the NFIP is primarily maintained in an authorized account called the National Flood Insurance Fund (NFIF). Generally, the NFIP has been funded through three methods: receipts from the premiums of flood insurance policies, including fees and surcharges; direct annual appropriations for specific costs of the NFIP; and borrowing from the U.S. Treasury when the balance of the NFIF has been insufficient to pay the NFIP's obligations (e.g., insurance claims). As provided for in law, all premiums from the sale of NFIP insurance are transferred to FEMA and deposited in the NFIF. Congress then authorizes FEMA to withdraw funds from the NFIF, and use those funds for specified purposes needed to operate the NFIP. In addition to premiums, Congress also provides annual appropriations to supplement floodplain mapping activities. In addition to the mix of discretionary and mandatory funding which are set in appropriations legislation, fluctuating levels of mandatory spending occur in the NFIP in order to pay and adjust claims on affected NFIP policies. The NFIP was not designed to retain funding to cover claims for truly extreme events; instead, the National Flood Insurance Act of 1968 allows the program to borrow money from the Treasury for such events. For most of the NFIP's history, the program has generally been able to cover its costs, borrowing relatively small amounts from the Treasury to pay claims, and then repaying the loans with interest. Currently, Congress has authorized FEMA to borrow no more than $30.425 billion from the U.S. Treasury in order to operate the NFIP. The NFIP's debt to the U.S. Treasury cannot be tied directly to any single incident, as any insurance claim paid by the NFIP is in some way responsible for the existing debt of the NFIP (i.e., a dollar paid in claims, and therefore expended by the NFIP, following a minor flooding incident is no different than a dollar paid following a major hurricane). However, the NFIP was forced to borrow heavily to pay claims in the aftermath of three catastrophic flood seasons, the 2005 hurricane season (particularly Hurricanes Katrina, Rita, and Wilma), Hurricane Sandy in 2012, and the 2017 hurricane season (Hurricanes Harvey, Irma, and Maria). The 2017 hurricane season brought the NFIP up to the $30.425 billion borrowing limit for the first time. At the start of the 2017 hurricane season, the NFIP owed $24.6 billion. On September 22, 2017, the NFIP borrowed the remaining $5.825 billion from the Treasury to cover claims from Hurricane Harvey, Hurricane Irma, and Hurricane Maria, reaching the NFIP's authorized borrowing limit of $30.425 billion. On October 26, 2017, Congress cancelled $16 billion of NFIP debt, making it possible for the program to continue to pay claims for Hurricanes Harvey, Irma, and Maria. FEMA borrowed another $6.1 billion on November 9, 2017, to fund estimated 2017 losses, including those incurred by Hurricanes Harvey, Irma, and Maria, and anticipated programmatic activities, bringing the debt up to $20.525 billion. The NFIP currently has $9.9 billion of remaining borrowing authority, and did not need to borrow to pay claims for the 2018 hurricane season or other floods in 2018. Only current and future participants in the NFIP are responsible for repaying NFIP debt, as the insurance program itself owes the debt to the Treasury and pays for accruing interest on that debt through the premium revenues of policyholders. For example, from FY2006 to FY2016 (i.e., since the NFIP borrowed funds following Hurricane Katrina), the NFIP has paid $2.82 billion in principal repayments and $4.4 billion in interest to service the debt through the premiums collected on insurance policies. The NFIP is currently paying $375-$400 million a year in interest. In a report on NFIP solvency, GAO noted that charging current policyholders to pay for debt incurred in past years is contrary to actuarial principles and insurers' pricing practices. According to actuarial principles, a premium rate is based on the risk of future losses and does not include past costs. GAO also argued that this creates a potential inequality because policyholders are charged not only for the flood losses that they are expected to incur, but also for losses incurred by past policyholders. The cancellation of $16 billion of NFIP debt in October 2017 represents the first time that NFIP debt has been cancelled, although Congress appropriated funds between 1980 and 1985 to repay NFIP debt. Earlier in 2017, GAO had considered the option of eliminating FEMA's debt to the Treasury, suggesting that if the debt were eliminated, FEMA could reallocate funds used for debt repayment for other purposes such as building a reserve fund and program operations, and arguing that this would also be more equitable for current policyholders and consistent with actuarial principles. Eliminating the entire NFIP debt would require Congress to cancel debt outright, to appropriate funds for FEMA to repay the debt, or to change the law to eliminate the requirement that FEMA repay the accumulated debt. Under its current authorization, the only means the NFIP has to pay off the debt is through the accrual of premium revenues in excess of outgoing claims, and from payments made out of the Reserve Fund. As required by law, FEMA submitted a report to Congress in May 2018 on how the borrowed amount from the U.S. Treasury could be repaid within a 10-year period. The key conclusion of this and past reports is that it is unlikely that the NFIP will be able to repay its current debt fully. If interest rates were to rise, debt payments would increase significantly and FEMA might not be able to retire any of its debt, even in low-loss years. No projections of the NFIP debt have yet been made that take account of the cancellation of $16 billion of NFIP debt or the $10.83 billion in claims from the 2017 hurricane season. However, since 2005 the program has devoted more resources to interest payments than to repaying the debt, and it seems unlikely that this would be different in the future without congressional action. Provisions Related to NFIP Debt in S. 2187 Section 301 would freeze interest accrual on the NFIP's debt to the Treasury for five years after enactment and provides that interest that would have accrued during this period would not have to be repaid in future. This section would also require FEMA to deposit the amount equal to the interest that would have accrued on the borrowed amounts during the five-year period into the National Flood Mitigation Fund and use this funding to carry out the Flood Mitigation Assistance Grant Program. Increasing Participation in the NFIP The Mandatory Purchase Requirement A long-standing objective of the NFIP has been to increase purchases of flood insurance policies, and this objective of widespread NFIP purchase was one motivation for keeping NFIP premiums reasonable. It was also a motivation for introducing the requirement, in the Flood Disaster Protection Act of 1973, to purchase flood insurance as a condition of receiving a federally backed mortgage for properties in a SFHA, commonly referred to as the mandatory purchase requirement. In a community that participates or has participated in the NFIP, owners of properties in the mapped SFHA are required to purchase flood insurance as a condition of receiving a federally backed mortgage. Federal agencies, federally regulated lending institutions, and government-sponsored enterprises (GSE) must require these property owners to purchase flood insurance as a condition of any mortgage that these entities make, guarantee, or purchase. However, there are no official statistics available from the federal mortgage regulators responsible for compliance with the mandate, and no up-to-date data on national compliance rates with the mandatory purchase requirement. A 2006 study commissioned by FEMA found that compliance with this mandatory purchase requirement may be as low as 43% in some areas of the country (the Midwest), and as high as 88% in others (the West). A more recent study of flood insurance in New York City found that compliance with the mandatory purchase requirement by properties in the SFHA with mortgages increased from 61% in 2012 to 73% in 2016. The escrowing of insurance premiums, which began in January 2016, may increase compliance with the mandatory purchase requirement, but no data on this are available. Provisions Related to the Mandatory Purchase Requirement in H.R. 3167 Section 103 would increase the minimum loan amount that triggers the mandatory purchase requirement to $25,000. Currently, loans with an outstanding balance less than $5,000 or a repayment term less than one year are exempted from the mandatory purchase requirement. This provision would potentially allow homeowners and businesses to drop their flood insurance earlier than is currently possible. Section 408 would require GAO to determine the percentages of properties with federally backed mortgages located in SFHAs that satisfy the mandatory purchase requirement, and the percentage of properties with federally backed mortgages located in the 500-year floodplain that would satisfy the mandatory purchase requirement if the mandatory purchase requirement applied to such properties. Provisions Related to the Mandatory Purchase Requirement in S. 2187 Section 108 would require GAO to determine the percentages of properties with federally backed mortgages located in SFHAs that satisfy the mandatory purchase requirement, and the percentage of properties with federally backed mortgages located in the 500-year floodplain that would satisfy the mandatory purchase requirement if the mandatory purchase requirement applied to such properties. NFIP Participation Rates Both the GAO report and the NFIP report to Congress on options for privatizing the NFIP suggested that the mandatory purchase requirement could potentially be expanded to more (or all) mortgage loans made by federally regulated lending institutions for properties in communities participating in the NFIP. This would increase the consumer participation rate in the NFIP and potentially balance the NFIP portfolio with an increased number of lower-risk properties. According to GAO, some private insurers have indicated that such a federal mandate could help achieve the level of consumer participation necessary to make the private sector comfortable with providing flood insurance coverage by increasing the number of policyholders, which would allow private insurers to diversify and manage the risk of their flood insurance portfolio and address concerns about adverse selection. The Association of State Floodplain Managers also suggested that all properties within the SFHA should be required to have flood insurance, not just those with federally backed mortgages. NFIP policies are not distributed evenly around the country; about 37% of the policies are in Florida, with 11% in Texas and 9% in Louisiana, followed by California with 5% and New Jersey with 4%. These five states account for approximately 66% of all of the policies in the NFIP. NFIP participation rates are higher in coastal locations than in inland locations, and are highest in the most risky areas due to mandatory purchase requirements. The NFIP could potentially be financially improved with a more geographically diverse policy base and, in particular, through finding ways to increase coverage in areas perceived to be at lower risk of flooding than those in the SFHA. FEMA has identified the need to increase flood insurance coverage across the nation as a major priority for the current reauthorization and beyond, and has set a goal of doubling flood insurance coverage by 2023, through the increased sale of both NFIP and private policies. Closing the insurance gap is one of the key objectives of FEMA's 2018-2022 strategic plan. Provisions Related to Increasing Participation in H.R. 3167 Section 408 would require GAO to conduct a study to address how to increase participation rates through programmatic and regulatory changes, and report to Congress no later than 18 months after enactment. Provisions Related to Increasing Participation in S. 2187 Section 108 would require GAO to conduct a study to address how to increase participation rates through programmatic and regulatory changes, and report to Congress no later than 18 months after enactment. Affordability of Flood Insurance Some stakeholders have expressed concern related to the perceived affordability of flood insurance premiums and the balance between actuarial soundness and other goals of the NFIP. Particularly following the increase in premiums associated with BW-12 and HFIAA, concerns were raised that risk-based premiums could be unaffordable for some households. Section 100236 of BW-12 called for an affordability study by FEMA and also a study by the National Research Council of the National Academy of Sciences (NRC) regarding participation in the NFIP and the affordability of premiums, which was published in 2015. The NRC report was published in two parts. The first NRC report considered the many ways in which to define affordability and identify which households need financial assistance with premiums. They noted that there are no objective definitions of affordability for flood insurance, nor is there an objective threshold that separates affordable premiums from unaffordable premiums and thus defines affordability either for an individual property owner or renter, or for any group of property owners or renters. They suggested that if affordability were to be addressed through some form of government assistance, a number of questions would need to be answered by Congress or FEMA: (1) Who will receive assistance? (2) What assistance will be provided? (3) How will assistance be provided? (4) How much assistance will be provided? (5) Who will pay for the assistance? (6) How will assistance be administered? The NRC report suggested that eligibility for assistance could be based on (1) being cost-burdened by flood insurance, (2) the loss of pre-FIRM subsidies or grandfathered cross-subsidies, (3) the requirement to purchase flood insurance, (4) housing tenure, (5) household income, (6) mitigation, or (7) community characteristics. The first NRC report identified potential policy measures that might reduce the burden of premium payments, or that might direct mitigation assistance towards households that qualify for assistance. These included means-tested mitigation grants, mitigation loans, means-tested vouchers, federal tax deductions and credits, disaster savings account, expanding the variety of individual mitigation measures that reduce premiums, encouraging the selection of higher premium deductibles, reducing NFIP administrative cost loadings in premiums, eliminating the mandatory purchase requirement, or relying on the Treasury to help pay claims in catastrophic loss years. The report concluded that policymakers will need to decide whether they want to define cost burden with reference to income, housing costs in relation to income, premium paid in relation to property value, or some other measure. GAO also considered the issue of affordability, suggesting that an affordability program that addresses the goals of encouraging consumer participation and promoting resilience would provide means-tested assistance through appropriations rather than through discounted premiums, and prioritize it to mitigate risk. They argued that providing premium assistance through appropriations rather than discounted premiums would address the policy goal of making the fiscal exposure more transparent because any affordability discounts on premium rates would be explicitly recognized in the budget each year. GAO suggested that linking subsidies to ability to pay rather than the existing approach to subsidies would make premium assistance more transparent and thus more open to oversight by Congress and the public. They also argued that means-testing premium assistance would help ensure that only those who could not afford full-risk rates would receive assistance, which could lower the number of policyholders receiving a subsidy and thus increase the amount that the NFIP receives in premiums and reduce the program's federal fiscal exposure. GAO estimated that 47%-74% of policyholders could be eligible for subsidy if income eligibility was set at 80% or 140% of area median income (AMI), respectively. GAO also suggested that instead of premium assistance, it would be preferable to address affordability by providing assistance for mitigation measures that would reduce the flood risk of the property, thus enhancing resilience, and ultimately result in a lower premium rate. Reducing flood risk through mitigation could also reduce the need for federal disaster assistance, further decreasing federal fiscal exposure. In HFIAA Section 9, Congress also required FEMA to develop a Draft Affordability Framework "that proposes to address, via programmatic and regulatory changes, the issues of affordability of flood insurance sold under the National Flood Insurance Program, including issues identified in the affordability study…." FEMA published its Affordability Framework on April 17, 2018. FEMA started the development of the affordability framework by consulting other federal agencies on how to define affordability, noting that neither BW-12 nor HFIAA provided a definition of flood insurance affordability. Based on the guidance of other agencies, they chose to define the concept of affordability from a cost burden or ability to pay perspective. They analyzed the 2015 NFIP portfolio of 4.8 million policies (4.5 million residential policies, of which 90% were single-family homes). In particular, they used American Community Survey (ACS) data to analyze how ACS respondents intersect with the SFHA, using the National Flood Hazard Layer (NFHL) to determine whether there were differences in income between those who live inside and outside the SFHA. They also looked at the difference between NFIP policyholders and potential policyholders, differentiating between flood risk, income, and mortgage status. They used the AMI to identify low-income policyholders. FEMA also classified flood risk in SFHAs as coastal or noncoastal in order to determine whether incomes are higher in areas subject to coastal flooding for the matched NFIP and census data. They found that generally incomes are higher outside the SFHA than they are inside the SFHA. Median income is higher for policyholders and non-policyholders exposed to coastal risk for both homeowners and renters. However, the income differences by source of flood risk were not found to be sizable compared to the differences in income between mortgage holders, outright homeowners, and renters. The data supported FEMA's extensive anecdotal evidence that there is a significant population in the SFHA of lower-income families who have either inherited their homes or are retirees, who are particularly sensitive to the financial burden of flood insurance. FEMA does not currently have the authority to implement an affordability program, nor does FEMA's current rate structure provide the funding required to support an affordability program. If an affordability program were to be funded from NFIP funds, this would require either raising flood insurance rates for NFIP policyholders or diverting resources from another existing use. Alternatively, an affordability program could be funded fully or partially by congressional appropriations. Provisions Related to Affordability in H.R. 3167 Section 102 would create a five-year affordability demonstration program to determine the effectiveness of providing means-tested discounted rates for NFIP policies, with the authority to provide discounted premium rates terminating on May 31, 2024. The discounted premium rates would only be available to owner-occupants of residences with no more than four units, with the further requirement that the property is the primary residence of a household whose income does not exceed 80% of the area median income (AMI). The chargeable premium rate made available under this section would be an amount that does not exceed 2% of the annual AMI for the area in which the property is located. FEMA would be required to provide all participants in this program with a written statement detailing the full actuarial premium rate for the coverage. Within 12 months of enactment, FEMA would be required to issue guidance for the establishment of the affordability demonstration program, and not later than five years after the start of the implementation of the program, FEMA would be required to submit a report to Congress evaluating the effectiveness of the program. This report would include a statement of the number of households participating in the program and the rates of participation by communities participating in the NFIP, including whether such rates of participation have changed by year, and an estimate of the cost of the program to the NFIP. This affordability program could have the potential to benefit areas with low median incomes more than those with high median incomes. In particular, households in an area where 2% of the AMI is more than the average flood insurance premium may not benefit from this provision. For example, The AMI for Washington, DC, in 2017 dollars, is $77,649. Two percent of the AMI is $1,552.98; anyone paying more than this amount would receive a discount so that they would pay no more than $1,552.98. However, the average NFIP premium in Washington, DC is $720.68, so a household with a low income paying this average flood insurance premium of $720.68 in Washington, DC, would not have any chargeable premium rate in excess of 2% of the annual area median income, and thus would not receive a discount. The AMI for Detroit in 2017 dollars is $27,838, and 2% of the AMI is $556.76. The average premium for Detroit is $633.69, so a household with a low income paying the average flood insurance premium would receive a discount of $76.93. Section 106 would authorize FEMA, where appropriate, to consider the impact of the inclusion of replacement cost value of a structure in setting the NFIP premium rate in determining the affordability of flood insurance premiums. Provisions Related to Affordability in S. 2187 Section 103 would require FEMA to establish an Affordability Assistance Fund which would be separate from other NFIP funds and available without fiscal year limitation. This Affordability Assistance Fund would be credited with the amounts saved as a direct result of the limitation on the operating costs of Write-Your-Own companies. This section would require FEMA to provide financial assistance in the form of a voucher, grant, or premium credit to an eligible household, defined as one where (1) housing costs exceed 30% of the household's adjusted gross income for the year and the total assets owned by the household are not greater than 22% of the median income of the state in which the household is located; or (2) if the total household income is less than 120% of the AMI, the amount of the premiums, surcharges, and fees for an annual flood insurance policy exceeds 1% of the coverage limit of that policy. The voucher, grant or premium credit would provide an amount equal to the lesser of the difference between either the annual housing expenses or 30% of the annual adjusted gross income of the household and the costs of NFIP premiums. The amount of the assistance would be reduced by 1% for each percent that the income of the eligible household exceeds 120% of the state median income. The Role of Private Insurance in U.S. Flood Coverage One of the reasons that the NFIP was originally created was because private flood insurance was widely unavailable in the United States. Until recently the role of the private market in primary residential flood insurance has been relatively limited. The main role of private insurance companies has been in the operational aspect of the NFIP. FEMA provides the overarching management and oversight of the NFIP, and retains the actual financial risk of paying claims for the policy. However, the bulk of the day-to-day operation of the NFIP, including the marketing, sale, writing, and claims management of policies, is handled by private companies. This occurs primarily through the Write-Your-Own (WYO) Program, where private insurance companies are paid to write and service the policies themselves. Roughly 86% of NFIP policies are sold by the private insurance companies participating in the WYO Program. Companies participating in the WYO program are compensated through a variety of methods. Some have argued that the levels of WYO compensation are too generous, while others have argued that reimbursement levels are insufficient to cover all expenses associated with servicing flood policies under the procedures set by FEMA. In BW-12, Congress required FEMA to issue a rulemaking on a "methodology for determining the appropriate amounts that property and casualty insurance companies participating in the Write Your Own program should be reimbursed for selling, writing, and servicing flood insurance policies and adjusting flood insurance claims on behalf of the National Flood Insurance Program." This rulemaking was required within a year of enactment of BW-12. FEMA published an Advanced Notice of Proposed Rulemaking on revisions to the methodology for payments to WYO companies on July 8, 2019. A small private flood insurance market exists, which most commonly provides commercial coverage, coverage above the NFIP maximums, or coverage in the lender-placed market. At the moment relatively few private insurers compete with the NFIP in the primary voluntary flood insurance market. Some suggest that this lack of competition has partly developed because the "non-compete clause"—a contractual restriction placed on WYO carriers against offering standalone private flood products that compete with the NFIP—has in the past curtailed the potential involvement of the WYO companies. In FY2019, however, FEMA removed restrictions on WYO companies choosing to offer private flood insurance, while maintaining requirements that such private insurance lines remain entirely separate from a WYO company's NFIP insurance business. Barriers to Private Sector Involvement Private insurer interest in providing flood coverage has increased in recent years. Advances in the analytics and data used to quantify flood risk mean that a number of private insurance companies and insurance industry organizations have expressed interest in private insurers offering primary flood insurance in competition with the NFIP. Private insurance is seen by many as a way of transferring flood risk from the federal government to the private sector. FEMA's subsidized rates are often seen as the primary barrier to private sector involvement in flood insurance. Even without the subsidies mandated by law, the NFIP's definition of full-risk rates differs from that of private insurers. Whereas the NFIP's full-risk rates must incorporate expected losses and operating costs, a private insurer's full-risk rates must also incorporate a return on capital. As a result, even those NFIP policies which are considered to be actuarially sound from the perspective of the NFIP may still be underpriced from the perspective of private insurers. FEMA's new rating system, Risk Rating 2.0, which aims to more closely align premiums and an individual property's flood risk, could affect the competitive balance between the NFIP and private insurers. The rules on the acceptance of private insurance for the mandatory purchase requirement have had a significant impact on the market potential for private insurers. In BW-12, Congress explicitly provided for the acceptance of private flood insurance to fulfill the mandatory purchase mortgage requirement as long as the private flood insurance "provides flood insurance coverage which is at least as broad as the coverage" of the NFIP, among other conditions. A final rule implementing this requirement was announced in February 2019 and took effect on July 1, 2019. Press reports described it as generally welcomed by the banking industry, but it is unclear to what extent this new rule will encourage private flood insurance or whether additional legislative changes might be needed if Congress seeks to further encourage development of the private flood insurance market. Another barrier to the growth of the private insurance market has been FEMA's policy on continuous coverage. Continuous coverage is required for property owners to retain any subsidies or cross-subsidies in their NFIP premium rates. A borrower may be reluctant to purchase private insurance if doing so means they would lose their subsidy should they later decide to return to NFIP coverage. Many insurers also view the lack of access to NFIP data on flood losses and claims as a barrier to more private companies offering flood insurance. It is argued that increasing access to past NFIP claims data would allow private insurance companies to better estimate future losses and price flood insurance premiums, and ultimately to determine which properties they might be willing to insure. However, FEMA's view is that the agency would need to address privacy concerns in order to provide property level information to insurers, because the Privacy Act of 1974 prohibits FEMA from releasing policy and claims data which contains Personally Identifiable Information. Reinsurance In HFIAA, Congress revised the authority of FEMA to secure reinsurance for the NFIP from the private reinsurance and capital markets. FEMA began larger-scale purchases of reinsurance in 2017. The specifics of each reinsurance purchase has varied, but in general, the reinsurance has been designed to pay a certain percentage of the losses from a single, large-scale event, with a higher percentage if losses are higher. Coverage has typically started after $4 billion in losses, a loss level that has only been reached by the NFIP in three events—Hurricane Katrina, Hurricane Sandy, and Hurricane Harvey. As of December 2019, the reinsurance purchases have been a net fiscal positive for the NFIP with a total of $655 million in premiums paid and $1.042 billion received from claims. This is due to the extremely high losses experienced after Hurricane Harvey, which resulted in over $9 billion paid by the NFIP to policyholders. Unless another large-scale flooding event occurs, the balance of premiums versus claims is likely to turn negative in the next two to three years if FEMA continues similar reinsurance purchases. The purchase of private market reinsurance reduces the likelihood of FEMA needing to borrow from the Treasury to pay claims. Because reinsurers understandably charge FEMA premiums to compensate for the risk they assume, the primary benefit of reinsurance is to transfer and manage risk rather than to reduce the NFIP's long-term fiscal exposure. Provisions Related to Private Insurance in H.R. 3167 Section 107 would direct FEMA, if an NFIP policyholder switches to private flood insurance but has already paid the NFIP premiums for the whole year up front, to provide a prorated refund of the NFIP premium. This section would also direct that Increased Cost of Compliance (ICC) premiums would not be refunded if measures had been implemented using ICC coverage, and that premiums would not be refunded if a claim has been paid or is pending under the policy term for which the refund is sought. Section 401 would direct FEMA to consider private flood insurance that satisfies the mandatory purchase requirement as also satisfying the continuous coverage requirement to keep NFIP premium subsidies in place. Section 404 would allow FEMA to provide current and historical property-specific information on flood insurance program coverage, flood damage assessments, and payment of claims to private insurers, on the condition that private insurers provide the same information to FEMA, homeowners and home buyers. Section 404 could potentially create conflicts with the Privacy Act of 1974, which prohibits federal agencies from releasing data which contains Personally Identifiable Information. In addition, although these data could be used to better inform the participation of private insurers in offering private flood insurance, the availability of NFIP data could make it easier for private insurers to identify the NFIP policies that are "overpriced" due to explicit cross-subsidization or imprecise flood insurance rate structures, and adversely select these properties, while the government would likely retain those policies that benefit from those subsidies and imprecisions, potentially increasing the deficit of the NFIP. Section 406 would require FEMA annually to evaluate ceding a portion of the risk of the NFIP to the private reinsurance or capital markets. Section 407 would give FEMA the authority to terminate any WYO arrangement in its entirety upon 30 days written notice for (1) fraud or misrepresentation; (2) nonpayment to FEMA of any amount due; or (3) material failure to comply with the requirements of the arrangement or with the written standards, procedures, or guidance by FEMA. Provisions Related to Private Insurance in S. 2187 Section 302 would establish that the total amount of reimbursement paid to WYO companies could not be greater than 22.46% of the aggregate amount of premiums charged by the company. It would also require FEMA to ensure that the commission paid by a WYO company to agents of the company would not be less than 15%. Section 304 would require FEMA, within 12 months of enactment, to develop a schedule to determine the actual costs of WYO companies and reimburse the WYO companies only for the actual costs of the service or products. It would require that all reimbursements made to WYO companies be made public, including a description of the product or service provided to which the reimbursement pertains. Section 305 would require FEMA to report on the feasibility of selling or licensing the use of historical structure-specific NFIP claims data to non-governmental entities, while reasonably protecting policyholder privacy. Section 405 would require FEMA to establish penalties for underpayment of claims by WYO companies that are not less than the penalty for overpayment of a claim. Section 408 would give FEMA the authority to direct a WYO company, on 14 days' notice, to terminate a contract or other agreement with any covered entity that provides services to the WYO company, if FEMA determines that the covered entity has engaged in conduct that is detrimental to the NFIP. Section 415 would authorize FEMA to create a pilot program under which WYO companies and NFIP direct servicers would be required to investigate pre-existing structural conditions that might result in the denial of an NFIP claim, at the request of a policyholder or potential policyholder, before providing or renewing flood insurance coverage. Flood Mapping In the debate about the future of the NFIP, the fact that flood insurance is only one of the functions of the NFIP's key responsibilities is sometimes overlooked; the NFIP has always been more than just an insurance program. The main non-insurance policy goal of the NFIP is to mitigate and reduce the nation's comprehensive flood risk through the development and implementation of floodplain management standards. To do this, FEMA develops, in coordination with participating communities, flood maps called Flood Insurance Rate Maps (FIRMs) that depict the community's floodplain and flood risk zones. Currently FIRMs provide the basis for setting insurance rates, although this is to change with Risk Rating 2.0, and identifying properties whose owners are required to purchase flood insurance. The FIRMs also provide the basis for establishing floodplain management standards that communities must adopt and enforce as part of their participation in the NFIP. Flood maps adopted across the country vary considerably in age and in quality, and there is no consistent, definitive timetable for when a particular community will have its maps revised and updated. By law, once every five years, FEMA is required to assess the need to revise and update all floodplain areas and flood-risk zones defined, delineated, or established by the mapping program, based on an analysis of all natural hazards affecting flood risks. This requirement does not dictate, however, that the FIRMs actually be updated once every five years. Generally, flood maps may require updating when there have been significant new building developments in or near the flood zone, changes to flood protection systems (e.g., levees, sea walls, sand dunes), or environmental changes in the community. The FEMA mapping process, and some NFIP flood maps, have been criticized for being out of date, using poor quality data or methods, or not taking account of changed conditions. In addition, the procedure to update maps is time consuming, in large part due to the lengthy statutory consultation and appeals process. In BW-12, Congress reestablished and reauthorized a body called the Technical Mapping Advisory Council (TMAC). The TMAC is a federal advisory committee established to review and make recommendations to FEMA on matters related to the national flood mapping program. The TMAC is broadly authorized to review and recommend improvements to how FEMA produces and disseminates flood hazard, flood risk, and flood map information. The TMAC is required to submit an annual report to the FEMA Administrator summarizing its activities, its evaluation of FIRMs and FEMA's mapping activities, and its recommendations for improving elements of the mapping program. Within a year of passage of BW-12, the TMAC was also required to submit to the FEMA Administrator a one-time report with recommendations on how to ensure that FIRMs incorporate the best available climate science to assess flood risks and ensure that FEMA uses the best available methodology to consider the impact of sea level rise and future development on flood risk. This report, the Future Conditions report, was submitted in final form in February 2016. FEMA is legally required to "incorporate any future risk assessment" by the TMAC in the Future Conditions report into any revision or update of the NFIP's FIRMs. Further, among the information FEMA is required to include in the updating of FIRMs, is "any other relevant information as may be recommended by the [TMAC]." The statute does not provide guidance on how or when the Administrator should act on the TMAC recommendations. However, on an annual basis, BW-12 required FEMA to report to the authorizing committees of jurisdiction in Congress and the Office of Management and Budget (OMB) on the recommendations from the TMAC and how FEMA is addressing TMAC recommendations to improve flood insurance rate maps and flood risk data. If FEMA does not act or defers to act on certain TMAC recommendations, FEMA is also required to explain that decision in the BW-12 mandated annual report. In addition to the Future Conditions report and the 2016 National Flood Mapping Program Review , TMAC has produced three annual reports, for 2015, 2016, and 2017, and a summary of the 2018 annual report. Funding for Floodplain Mapping NFIP flood mapping is currently funded in two ways, through (1) annual discretionary appropriations and (2) discretionary spending authority from offsetting money collected from the Federal Policy Fee (FPF). In FY2015, $100 million was appropriated for flood hazard mapping and risk analysis; in FY2016, $190 million was appropriated; in FY2017, $175.5 million; in FY2018, $262.6 million; and in FY2019, $262.5 million. The FPF is paid to FEMA and deposited in the National Flood Insurance Fund (NFIF). FEMA has the authority to set the amount charged for the FPF, but Congress retains the authority to determine how much to spend, and on what, from the fees collected. The monies available in the NFIF, other than those used to pay claims, are available only to the extent approved in appropriation acts as offsetting collections. In recent years, Congress has generally followed the budget request from FEMA with relation to the authorized offsetting collections appearing in appropriations bills that are funded using the FPF revenue. In addition, Congress generally directs in appropriations law that FPF revenue in excess of the authorized offsetting collection amounts should be spent on floodplain management and mapping. In FY2017, FEMA received $195 million from the FPF and $188.2 million in FY2018. About 66% of the resources from the FPF are allocated to flood mapping, with floodplain management receiving about 19% of the overall income from the FPF. To the extent that the private flood insurance market grows and policies move from the NFIP to private insurers, FEMA will no longer collect the FPF on those policies and less money will be available for floodplain mapping and management. Concerns have been raised about maintaining the activities funded by the FPF, with some stakeholders arguing that a form of FPF equivalency, or some form of user fee, should be applied to private flood insurance. The section below describes selected provisions in H.R. 3167 and S. 2187 related to flood mapping. Additional provisions not described here relate to appeals and publication of projected Special Flood Hazard Areas, communication and outreach regarding map changes, adoption of partial flood maps, and membership of the TMAC. (See Table 1 ). Provisions Related to Flood Mapping in H.R. 3167 Section 201 would reauthorize the National Flood Mapping Program at $500 million annually for each of fiscal years 2019 to 2023. Section 202 would require FEMA, when updating maps, to include cadastral features with the associated parcel identification data and, where practicable, the address of such features. This section would also require FEMA to coordinate with the U.S. Geological Survey for the sharing of data from stream flow networks, and make a national geospatial data repository available to the public on the FEMA website. This data repository would be required to provide access to the raw data used to include the cadastral features and parcel identification data in FIRMs. Section 202 would also require FEMA, at least every five years, to verify that each FIRM contains data that is current and credible. This last provision would place additional responsibility on FEMA in relation to map updates. Currently FEMA is only required, once every five years or more often as the Administrator determines necessary, to assess the need to revise and update all floodplain areas and flood-risk zones defined, delineated, or established by the mapping process, based on an analysis of all natural hazards affecting flood risks. FEMA could also incur additional costs associated with the acquisition of parcel identification. Section 202 could also create conflicts with the Privacy Act of 1974, which prohibits federal agencies from releasing data which contains Personally Identifiable Information. Section 203 would authorize FEMA to carry out a pilot program to make grants to units of local government to enhance the mapping of urban flooding and associated property damage and the availability of such mapped data to homeowners, businesses, and units of local government to enable them to minimize the risk of such flooding. Section 203 would also require FEMA to submit biennial progress reports to Congress and a final report to include recommendations for implementing strategies, practices, and technologies to mitigate the effects of urban flooding. This section would authorize to be appropriated $1.2 million for FY2020 and $4.3 million for FY2021, to remain available through 2023. This program would provide new information on urban flood risk, which is currently not addressed in NFIP flood models. Section 204 would expand mapping to all areas of the United States and would require FEMA, as soon as practicable, to (1) modernize the flood mapping inventory for communities for which FIRMs have not been modernized; (2) use the most current and most appropriate remote sensing or other geospatial mapping technology; (3) establish a digital display environment and building-specific flood hazard and risk information, not later than five years after enactment; and (4) use this digital display environment to produce, store, and disseminate flood hazard data, models, and maps. Section 204 also prohibits FEMA from disseminating the data collected for the digital display environment to the public or to a private company in a manner that violates the Privacy Act of 1974. This section would also require FEMA, with TMAC, to submit an annual report regarding progress achieved under this section and provide financial and technical assistance to communities to incorporate future flood hazard conditions as an informational layer on their FIRMs. Section 205 would create a new appeal process if FEMA denies a request to update a flood map based on new information regarding flood elevations or other flood mitigation factors. The initial appeal would be through a FEMA administrative process, with the possibility of a further appeal to the Scientific Resolution Panel. Certain expenses would also be refunded or reimbursed under this provision. Section 209 would require FEMA to develop a new flood zone designation for areas behind non-accredited levees, and make flood insurance available to properties located within those levee-impacted areas. Until FEMA develops rates for this new flood zone, a structure located behind a non-accredited levee would be eligible for rates associated with areas of moderate flood hazards. Provisions Related to Flood Mapping in S. 2187 Section 208 would continue existing authorization of the National Flood Mapping Program at $400 million annually for each of fiscal years 2020 through 2025. This section would also require the TMAC to establish a set of standards for states and local governments and organizations to use in mapping risk and developing alternative maps to NFIP Flood Insurance Rate Maps (FIRMs) within one year after enactment. This section would also require TMAC to develop a procedure for certification of such maps by FEMA within 90 days of submission in the case of any area covered by a FIRM that has not been updated or reissued during the preceding three-year period. Upon certification, the map would be considered the FIRM in effect for all purposes for the NFIP and would not be able to be revised, updated, or replaced before the expiration of the three-year period beginning on the date of submission to FEMA. Section 208 would also authorize partnerships with other federal agencies and private entities to facilitate mapping and require FEMA to use the most up-to-date remote sensing and mapping technology. Section 208 would require FEMA to establish a digital display environment incorporating building-specific flood hazard and risk information, not later than five years after enactment. FEMA would not be allowed to disseminate this database to any person other than the owner or leaseholder of a property contained in the database. Section 208 also would offer an NFIP policyholder a one-time premium credit of not more than $500 to be used for either the purchase of an elevation certificate or for appealing the chargeable premium rate for the property. This section would create a new appeal process if FEMA denies a request to update a flood map based on new information regarding flood elevations or other flood mitigation factors. Certain expenses also would be refunded or reimbursed under this provision. Section 209 would require FEMA to develop a new flood zone designation for areas behind non-accredited levees, and make flood insurance available to properties located within those levee-impacted areas at actuarial rates based upon the risks appropriate for the level of protection that the levee affords. Until FEMA develops rates for this new flood zone, a structure located behind a non-accredited levee would be eligible for rates associated with areas of moderate flood hazards. Section 303 would require FEMA to develop a fee schedule based on recovering the actual costs of providing FIRMs and charge any private entity an appropriate fee for use of such maps. This requirement could provide a mechanism by which private insurance companies could contribute to the costs of floodplain mapping in lieu of paying the FPF. Flood Mitigation Flood insurance does not prevent flooding; it merely makes it possible to recover more rapidly financially after a flood. It is better to avoid being flooded than to receive funding for flood recovery after a disaster. Flood mitigation creates safer communities and can save money for individuals and taxpayers. The importance of FEMA's mitigation program is illustrated by research findings that for every $1 invested by FEMA in flood mitigation between 1993 and 2003, society as a whole saved $7 due to reduced future flood losses. The NFIP encourages communities to adopt and enforce floodplain management regulations such as zoning codes, subdivision ordinances, building codes, and rebuilding restrictions. Internal FEMA studies have found that structures built to FEMA standards experience 73% less damage than structures not built to those standards. For example, FEMA conducted a "losses avoided" study which reviewed 2,240 of the 6,000 mitigated properties in North Carolina and estimated that those mitigation activities avoided losses of $206 million to $234 million. Mitigation activities, however, form only a small part of the NFIP activities and are funded entirely by premiums and fees paid by NFIP policyholders. The NFIP offers three programs which encourage communities to reduce flood risk: the Community Rating System (CRS), the FMA Grant Program, and ICC coverage. A greater linkage between insurance risk transfer and physical risk reduction measures could help to address concerns about increasing flood risk. By rewarding behavior that reduces risks through pricing, insurance has the potential to incentivize or even require policyholders and communities to address the underlying flood risk. Insurance provisions could also provide incentives to limit flood damage by rewarding well-designed buildings with lower premiums, lower deductibles, or higher coverage limits. However, a recent study of residential flood insurance markets in 25 countries found little evidence of either governments or insurance companies actively encouraging risk reduction by linking the cost of insurance to mitigation activities, with the sole exception of the NFIP through the CRS. The CRS is a program offered by FEMA to incentivize the reduction of flood and erosion risk, as well as the adoption of more effective measures to protect natural and beneficial floodplain functions. As of June 2017, FEMA estimated that only 5% of eligible NFIP communities participated in the CRS program. However, these communities have a large number of flood policies, so more than 69% of all flood policies are written in CRS-participating NFIP communities. Although the CRS discounts reduce flood insurance premiums for individual communities, CRS discounts are cross-subsidized into the NFIP program, such that the discount for one community ends up being offset by increased premium rates in all communities across the NFIP. For example, the average 11.4% discount for CRS communities is cross-subsidized and shared across NFIP communities through a cost (or load) increase of 13.3% to overall premiums. To reduce comprehensive flood risk, FEMA also operates an FMA Grant Program that is funded through revenue collected by the NFIP, with the goal of mitigating flood-damaged properties to reduce or eliminate NFIP claims. The FMA Program awards grants for a number of purposes, including state and local mitigation planning; the elevation, relocation, demolition, or flood proofing of structures; the acquisition of properties; and other activities. In FY2019, the FMA Program was authorized to use $175 million of NFIP revenue, with $160 million available for FMA grants. States, tribal governments, territories, and local communities can apply for FMA grants. Generally, federal funding is available for up to 75% of eligible costs. However, FEMA may contribute up to 90% for repetitive loss properties and up to 100% for severe repetitive loss properties. An area of controversy involves NFIP coverage of properties that have suffered multiple flood losses, which are at greater risk than the average property insured by the NFIP. One concern is the cost to the program; another is whether the NFIP should continue to insure properties that are likely to have further losses. The NFIP currently uses more than one definition of repetitive loss. The statutory definition of a repetitive loss structure is used for applications for FMA grants. A slightly different definition is used for ICC coverage. A third definition is used for internal tracking of insurance data, with a slightly different definition used for the CRS. The definition of severe repetitive loss property is consistent across program elements in the NFIP, using the statutory definition. Provisions Related to Flood Mitigation in H.R. 3167 Section 105 would authorize FEMA to enter into agreements with eligible states and insular areas to provide capitalization grants for the eligible state to establish a state revolving fund for flood mitigation. These state revolving funds would be used to assist homeowners, businesses, certain non-profit organizations, and communities to reduce flood risk in order to decrease the loss of life and property, the cost of flood insurance, and federal disaster payments. A participating state would not be able to receive more than 15% of the total fund in a given fiscal year, with any remainder above this limit to be reallocated to the non-capped states. FEMA would be required to reserve at least 5% of the amount made available in a given fiscal year for tribal governments and insular areas. All participating states would be required to provide matching funds from nonfederal sources in an amount equal to 15% of the amount that the state receives for the revolving fund. States would be required to give priority, to the maximum amount practicable, to projects that (1) address severe repetitive loss and repetitive loss structures; (2) assist low-income homeowners and low-income geographical areas; and (3) address flood risk for pre-FIRM buildings. States would be authorized to provide additional subsidization to recipients from low-income households or geographical areas, including forgiveness of the principal of a loan. Finally, section 105 would authorize to be appropriated $50 million for each of fiscal years 2020 through 2024. Although state revolving funds have a long history related to clean water and drinking water, this would be the first time that such a fund has been set up at the national level to fund flood mitigation. Section 210 would allow state or local zoning authorities to grant local variances for agricultural structures in SFHAs if they determine that (1) elevation or flood-proofing of such a structure is not practicable; (2) the repair or improvement of the structure would not result in any increase in base flood levels during the base flood discharge, threats to public safety, or extraordinary public expense; and (3) not more than one NFIP claim payment exceeding $1,000 has been made for the structure within the 10 years prior to the granting of the variance. Section 302 would define a new "multiple-loss property" category, which would include three types of properties: (1) a revised definition of repetitive loss property; (2) a severe repetitive loss property, with the same definition as the existing statutory definition; and (3) a new category of extreme repetitive loss property. The new definition of a repetitive loss property would be a structure that has incurred flood damage for which two or more separate claims of any amount in excess of the loss-deductible have been made. The new definition of an extreme repetitive loss property would be a structure which has incurred flood damage for which at least two separate claims have been made with the cumulative amount of such claims payments exceeding 150% of the maximum coverage available for the structure. Section 302 would also allow FEMA to consider the extent to which a community is working to remedy problems with addressing repeatedly flooded areas in making determinations regarding financial assistance. This section would establish a broader definition of repetitive loss properties than the current definition, which would bring more properties into the multiple-loss categories. Section 303 would require FEMA to offer policyholders a reduction of the risk premium rate, as determined by the Administrator, for the use of approved actions that mitigate the flood risk of their property, including mitigation techniques for buildings in dense urban environments, methods that can be deployed on a block or neighborhood scale, and the elevation of mechanical or other critical systems. This would expand on existing statutory authority by specifically requiring FEMA to provide the premium reduction for approved mitigation methods. Section 305 would require FEMA to create a voluntary community-based flood insurance pilot project to make available, for purchase by participating communities, a single community-wide flood insurance policy. This community policy would cover all residential and non-residential properties in the community and would satisfy the mandatory purchase requirement. A community flood insurance policy would have to include a method of preventing redundant claims payments (in the case of an individual property owner who is covered by both a community flood insurance policy and an individual NFIP policy). FEMA would be required to establish the pilot program within 180 days of enactment, and the program would terminate on September 30, 2022. There is no mention of how the pilot program would treat residents of a community with a community-wide NFIP policy who are also covered by private flood insurance. Section 306 would authorize to be appropriated $200 million per year for each of the first five fiscal years after enactment to carry out the Flood Mitigation Grant Assistance Program (FMA); this is an increase compared to the authorization of $160 million in FY2019. Section 307 would require FEMA to provide Community Rating System (CRS) credits for measures that protect natural and beneficial floodplain functions, and would also require FEMA to provide CRS credits to the maximum number of communities practicable. It would also require FEMA to carry out a program to make grants to consortia of states and communities for the cost of employing or retaining an individual or individuals to coordinate and carry out responsibilities related to participation in the CRS. This section would authorize $7 million per fiscal year for five fiscal years to be appropriated for these grants. Section 308 would require FEMA to develop a community assistance program to increase the capacity of states, tribes, and communities to manage flood risk effectively and participate in the NFIP. This section would authorize to be appropriated $20 million per year for each of fiscal years 2019 through 2024. Section 308 also authorizes FEMA to set aside such amounts as the Administrator considers appropriate for additional assistance to states that exceed the criteria for awarding these grants. Provisions Related to Flood Mitigation in S. 2187 Section 201 would require the President to set aside from the Disaster Relief Fund (DRF) an amount equal to 10% of the average amount appropriated to the DRF during the previous 10 fiscal years to provide assistance for mitigation activities for severe repetitive loss structures and properties insured under the NFIP with the largest increase in actuarial risk for the property compared to the actuarial risk for the previous fiscal year as a result of Risk Rating 2.0, as in effect on October 1, 2020. This would represent the first time in which the NFIP would receive any funding from the DRF. Section 203 would give priority under the FMA program to grants for carrying out mitigation activities that reduce flood damage to (1) repetitive-loss properties; (2) properties for which FEMA determines the premium rates are unaffordable or will soon become unaffordable as a result of a risk adjustment under Risk Rating 2.0; and (3) properties for which aggregate losses exceed the replacement value of the properties. In this context, unaffordable is defined as premium rates that are in such an amount that they cause housing costs to exceed 30% of the household's adjusted gross income for the year. This section would also authorize to be appropriated $1 billion for each of the first five full fiscal years after the date of enactment to provide mitigation assistance under this section; this is an increase compared to the authorization of $160 million in FY2019. Section 204 would require FEMA to offer policyholders a reduction of the risk premium rate that is not less than 10% of that rate for the use of approved actions that mitigate the flood risk of their property, including innovative mitigation techniques for buildings in dense urban environments and the elevation of mechanical systems. This would expand on existing statutory authority by specifically requiring FEMA to provide the premium reduction for approved mitigation methods. Section 205 would require FEMA to appoint a regional coordinator in each region served by a FEMA Regional Office to provide technical assistance to small communities to enable those communities to effectively participate in and benefit from the CRS program, and would authorize to be appropriated such sums as may be necessary to carry this out. Because FEMA only has 10 regions, this provision would allow for a smaller number of CRS coordinators than could potentially be appointed under Section 307 of H.R. 3167 , as described above. Section 206 would authorize FEMA to create a low-interest mitigation loan program for NFIP policyholders to be used to undertake mitigation measures with respect to the insured property that cost less than the overall reduction in the risk of the property over 50 years. These loans would be available to all types of residences. Section 207 would authorize FEMA to enter into agreements with eligible states and insular areas to provide capitalization grants for the eligible state to establish a state revolving fund for flood mitigation. The provisions in this section are the same as those in Section 105 of H.R. 3167 , except that Section 207 authorizes to be appropriated such sums as may be necessary to carry out this section for fiscal years 2020 through 2029. Section 207 would also require FEMA to consider activities funded through amounts for a state loan fund in setting NFIP premium rates. This would be the first time that a state revolving fund has been set up at the national level to fund flood mitigation. Section 210 would require FEMA to give priority to flood mitigation activities that provide benefits to an entire floodplain or community, or to a portion of such a community. Increased Cost of Compliance (ICC) Coverage The NFIP requires most policyholders to purchase ICC coverage, which is in effect a separate insurance policy to offset the expense of complying with more rigorous building code standards when local ordinances require them to do so. This ICC coverage is authorized in law, with rates for the coverage as well as how much can be paid out for claims, set by FEMA. The amount that can be charged for ICC coverage is capped in law at $75 per year; currently, ICC premiums vary between $4 and $70. ICC coverage provides an amount up to $30,000 in payments for certain eligible expenses. For example, ICC claims payments may be used toward the costs of elevating, demolishing, relocating, or flood-proofing non-residential buildings, or any combination of these actions. FEMA's current policy is that the payment on the building claim plus the ICC claim cannot exceed the statutory maximum payment of $250,000 for residential structures or $500,000 for non-residential structures. According to ICC data, elevation is the most common form of mitigation. Approximately 61% of all ICC claims closed with payment are single family residential claims involving compensation for elevation of a structure to or above the Base Flood Elevation (BFE). Although the cost of elevating a structure depends on the type of building and elevation requirement, the average cost of elevating an existing property has been estimated at $33,239 to $91,732, and suggestions have been made for years that the amount of ICC coverage should be raised. Provisions Related to Increased Cost of Compliance Coverage in H.R. 3167 Section 301 would increase the amount of ICC coverage to $60,000, and would exempt the ICC payment amount from the maximum payout of an NFIP policy. This section would also make ICC coverage available to properties identified by FEMA as priorities for mitigation activities before the occurrence of damage. This may allow policyholders to claim ICC coverage in certain circumstances to mitigate their property before a flood, rather than waiting until after they had been flooded. Section 301 would also allow policyholders to use ICC coverage for alternative mitigation methods to reduce flood risk for residential buildings that cannot be elevated due to their structural characteristics, for pre-disaster mitigation projects, and for costs associated with the purchase, clearing, and stabilization of property that is part of an acquisition or relocation program that complies with the provisions set out in Section 301. Provisions Related to Increased Cost of Compliance Coverage in S. 2187 Section 202 would increase ICC coverage to $60,000 and would exempt ICC payment amounts from the maximum payout of an NFIP policy. This section would also make ICC coverage available to properties identified by FEMA as priorities for mitigation activities before the occurrence of damage, which may allow policyholders to claim ICC coverage in certain circumstances to mitigate their property before a flood, rather than waiting until after they had been flooded. Section 202 would also allow policyholders to use ICC coverage for alternative mitigation methods to reduce flood risk for residential buildings that cannot be elevated due to their structural characteristics, for pre-disaster mitigation projects, and for costs associated with the purchase, clearing, and stabilization of property that is part of an acquisition or relocation program that complies with the provisions set out in this section. Section 202 would make ICC coverage available to all NFIP policyholders, in and out of SFHAs, if the community has established land use and control measures for the area in which the property is located. NFIP Modernization and Administrative Reform Only the disclosure requirements and requirements for studies of the NFIP will be discussed in this report. Table 1 identifies all of the provisions in H.R. 3167 and S. 2187 which are related to administrative reform. Although some individual states require real estate transactions to be accompanied by a disclosure of information pertaining to flood or other hazards, there is currently no federal requirement for sellers to disclose flood risk and flood history. Property owners may not have knowledge of the entire past flood history of their property. Under the mandatory purchase requirement, lenders are only required to inform buyers of flood hazards before closing on the loan. The primary purpose of this disclosure is to notify properties located within a SFHA that flood insurance is required as a condition of the loan. This disclosure, late in the process of buying a property, may mean that the buyer has put down money or otherwise committed to purchasing the property. Lenders are not necessarily required to disclose the full flood history of a property, but only the requirement to purchase flood insurance based on its location in a SFHA. Provisions Related to Disclosure in H.R. 3167 Section 404 would require FEMA to provide information on flood insurance program coverage, flood damage assessments, and payment of claims on a property to homeowners, with an additional requirement to provide information on whether the property owner may be required to purchase flood insurance due to a previous receipt of federal disaster assistance. This section would also require FEMA to provide information on the number and dollar value of flood insurance claims filed for a property over the life of the property, and other available information to characterize the true flood risk of the property, within 14 days of a request for such information by a buyer under contract for purchase of a property. This disclosure requirement may affect properties with a flood history during real estate transactions by reducing the likelihood of the sale of the property or reducing its value. Provisions Related to Disclosure in S. 2187 Section 417 would require that no new flood insurance coverage may be provided after September 30, 2022, unless the relevant public body has imposed, by statute or regulation, a duty on any seller or lessor of improved real estate to provide to any purchaser or lessee a property flood hazard disclosure. The same requirements would apply to lessors of a rental property with a lease of 30 days or longer. This disclosure requirement may affect properties with a flood history during real estate transactions by reducing the likelihood of the sale of the property or reducing its value, or causing prospective lessors to reject the lease. However, this provision could also encourage a higher take-up of contents coverage by renters. Provisions Related to Studies of the NFIP in H.R. 3167232 Section 403would require FEMA to provide for an independent actuarial study of the financial position of the NFIP to be conducted annually and submit a report to Congress describing the results of the study. Provisions Related to Studies of the NFIP in S. 2187233 Section 105 would require FEMA to conduct a study by September 30 of the second full fiscal year after enactment on the benefits and feasibility of offering coverage for business interruption losses caused by floods in NFIP policies. Section 402 would require FEMA to conduct a study within one year of enactment on the consequences of street-raising on flood insurance coverage for affected properties, including the cost implications for the property owner. The findings of this study would be particularly relevant for policyholders with ground floor residential and business properties which could become basement properties if the adjacent street were to be raised. Section 405 would require GAO to submit a report not later than two years after enactment on any fines or other penalties imposed by FEMA for the underpayment of claims by WYO companies. Future Flood Losses In the future, and in the context of land development, improved flood mapping, and climate change, an increased number of properties are likely to be identified as at risk of flooding. A 2013 report on the impact of climate change and population growth on the NFIP concluded that by 2100, the 1% annual-chance fluvial floodplain area is projected to grow nationally by about 45%. The study found that no significant decreases in floodplain depth or area are anticipated for any region of the nation at the median estimates; median flows may increase even in areas that are expected to become drier on average. In the populated areas of most interest to the NFIP, about 30% of these increases may be attributed to increased runoff caused by the increase in impermeable land surfaces caused by population growth and development, while the remaining 70% represents the influence of climate change. The implication of this is that, on a national basis, approximately 13.5% of the growth in the fluvial SFHA is likely to be due to population growth and would occur even without any climate change. NFIP models currently do not include pluvial flood risk, but are to include such risks in premium rates with the introduction of Risk Rating 2.0. The National Academies of Science has warned that a warming climate will likely increase the risk of pluvial flooding, as a warmer atmosphere holds more moisture, increasing the frequency and/or intensity of heavy rainfall events. The number and intensity of heavy precipitation events, as well as precipitation totals, have increased across most of the United States since 1950. The largest increases in heavy precipitation events have occurred in the Midwest and Northeast, and such events are predicted to increase in those areas by 40% by 2100. For the coastal environment, the typical increase in the coastal SFHA is projected to be about 55% by 2100, with model results indicating increased variability in expected total losses in any given year, which may be greater than the NFIP's current funding borrowing structure accommodates. Increased flooding is not only a concern for the future; many areas are already experiencing 'nuisance flooding' or 'sunny day flooding' from minor tidal flooding or rainstorms. The frequency and duration of minor tidal flooding has increased significantly in recent decades along many U.S. coasts. While not catastrophic, such flooding can significantly disrupt normal commerce and activity, and the seemingly minor inconveniences and local economic losses from each event can have a cumulative effect that results in considerable hidden costs to residents and businesses. Flood costs can be considerable even in years without a named storm or event. For example, storms like the South Carolina floods in 2015 and the Louisiana floods in 2016 have demonstrated the scale of losses possible from heavy rainfall. In addition, Hurricanes Harvey (2017) and Florence (2018) showed that losses from pluvial flooding can rival or exceed coastal flood losses in a hurricane. Flooding Outside the SFHA Currently the NFIP distinguishes between the SFHA (1%-annual-chance-floodplain) and the area beyond the SFHA, yet approximately 33% of NFIP claims are for properties outside SFHAs. Recent floods have significantly affected properties which were not mapped in SFHAs. The SFHA boundary can create a false belief that flood risk changes abruptly at the line, and that properties outside the SFHA are safe. In reality, flood risk varies both inside and outside the SFHA. Although the introduction of Risk Rating 2.0 will eliminate the "in/out" line for premium rates, the SHFA boundary will continue to be used for the mandatory purchase requirement. Future flood maps may also need to find a way to communicate temporal variation in flood risk. Under Risk Rating 2.0, FIRMs will continue to be used for floodplain management; however, FIRMs represent a 'snapshot' of the flood risk at the time of mapping. They are not an indication of the flood risk decades into the future and thus are not necessarily the best guide for future land-use decisions. For example, New York City and FEMA have developed a new map product to be used for planning and building purposes to better account for future flood risk due to climate change and sea level rise. This map will not be used to price flood insurance premiums. Future Catastrophic Events Floodplains and coastal areas across the United States will likely continue to be inhabited and sustain damages from floods, some of which may be catastrophic. Flooding is different from many other risks in that the distribution of potential losses is skewed in a way that certain low-frequency, high-magnitude events may have the potential to exceed the aggregate capacity of private insurers and render the market insolvent. A large pool of flood risk does not result in a normally distributed portfolio of risks over the long run. Flood risks are highly correlated: when a large flood occurs, many geographically adjacent properties are affected. FEMA's report to Congress on privatization of the NFIP concluded that it is difficult to imagine a practical system of flood insurance in which there is not some level of government involvement in the flood risk financing chain. They argued that when low-frequency, high-magnitude events occur with a portfolio of highly correlated risks, the government will ultimately play a role in paying for the economic costs associated with a catastrophic flood, whether or not it chooses to underwrite the risk. Although the NFIP has always had borrowing authority from Congress, a robust approach has not been developed by which the NFIP can repay catastrophic flood losses, although the program has taken steps in this direction with the reserve fund assessment, the HFIAA surcharge, and the purchase of reinsurance. The National Research Council affordability report considered the option of forgiving all or part of the NFIP debt within a larger affordability context. In this report, the NRC suggested that after forgiving all or part of the NFIP debt, Congress could designate the Treasury as reinsurer for the NFIP as was the case in the original legislation. The NRC suggested that Congress could, for example, explicitly state that when the total annual losses in the NFIP exceeded some designated threshold (for example, $2 billion to $6 billion, perhaps on the basis of the average of non-catastrophic historical claims years), the Treasury could provide funds for the NFIP to honor all of the claims. The funds could be provided through the Disaster Relief Fund, and, if needed, by an emergency supplemental appropriation. Taken together, the NRC argued, those two actions could result in lower NFIP premiums, enhance affordability, and in turn lead to less spending on disaster assistance. Congress would incur occasional costs by designating the Treasury as the source of funds for payment of claims above the defined threshold in high-loss years but would not need to draw on the Treasury each year to provide assistance to policyholders who face unaffordable premiums. The American Academy of Actuaries (AAA) argued that neither private insurers nor government entities can fully absorb any level of catastrophic loss and continue to operate. It noted that private insurance systems have a trigger for socializing risk of extreme events, such as a solvency standard based on a particular event (for example, the 200-year flood), beyond which mechanisms like guaranty funds pay losses. In the case of the NFIP, the premiums charged to policyholders would require a volatility loading large enough to service and eventually repay any debt generated by catastrophic debts over a multi-decadal time horizon. The AAA report suggested that prospectively addressing this requires recognition that there is a maximum amount of short-term loss that can be fully funded by NFIP revenue. One approach would be to establish a sufficiency standard for the loss level that the NFIP revenue would be expected to fund fully. For example, this could be expressed as a maximum loss amount per catastrophic event, determined on the basis of an acceptable annual probability, or a maximum aggregate amount of annual loss. Any losses exceeding the defined sufficiency standard incurred by the NFIP could be agreed to be funded publicly. The AAA report argued that private insurers are held to an analogous standard, after which state guarantee funds reimburse policyholders for claims from insolvent private insurers using funds from assessments paid by solvent insurers. It concluded that adopting an explicit standard of this type for the NFIP would provide clarity as to what its funding sources should be and give taxpayers an understanding of when public contributions to NFIP finances are appropriate. The NFIP currently has no financial structure in place, other than borrowing from the Treasury, to guarantee it can pay claims from a catastrophic loss year. To ensure the future financial solvency of the NFIP after catastrophic events, FEMA has suggested that a systematic analysis may consider the costs and benefits of using the reserve fund, borrowing authority, reinsurance, other forms of risk transfer, and perhaps a Treasury backstop at some catastrophic loss level. It may also include a metric for communicating the resiliency of the system to different levels of catastrophic events, in order to define the scenarios that the system can sustain and those it cannot. Concluding Comments GAO concluded that the sequence of actions taken by Congress in NFIP reform is important; for example, requiring full-risk rates for all policyholders and expanding the mandatory purchase requirement would create affordability concerns which would warrant having an affordability assistance program already in place. According to GAO, when addressing barriers to private sector involvement, it would be important to protect NFIP's flood resilience activities at the same time; and addressing the outstanding debt would be best accompanied by premium rate reform to help reduce the likelihood of a recurrence of another unpayable debt buildup. As Congress considers a long-term reauthorization of the NFIP, a central question may be who should bear the costs of floodplain occupancy in the future. The NRC study on affordability concluded that the costs of floods can be borne in three possible ways, or in some combination of them. The first scenario is that individual policyholders (whether NFIP or private) bear location cost in the form of insurance premiums paid and damages falling within policy deductible amounts. The second possibility is that the federal taxpayers bear floodplain location costs in several possible ways: if the federal government develops a premium assistance program, or makes up for NFIP premium revenue shortfalls, or pays for pre-flood mitigation, or makes post-flood disaster assistance payments to individual households. In the third scenario, property owners and other floodplain or coastal zone inhabitants bear the costs for losses that are uninsured or otherwise uncompensated. While there are many ways to finance flood risk, the majority of the cost will likely ultimately be allocated across these three stakeholder groups: policyholders (the insured), taxpayers, and the uninsured, requiring potentially difficult policy choices by Congress.

The National Flood Insurance Program (NFIP) was established by the National Flood Insurance Act of 1968 (NFIA; 42 U.S.C. §4001 et seq.), and was most recently reauthorized until September 30, 2020 ( P.L. 116-93 ). The general purpose of the NFIP is both to offer primary flood insurance to properties with significant flood risk, and to reduce flood risk through the adoption of floodplain management standards. A longer-term objective of the NFIP is to reduce federal expenditure on disaster assistance after floods. The NFIP also engages in many "non-insurance" activities in the public interest: it disseminates flood risk information through flood maps, requires community land use and building code standards, and offers grants and incentive programs for household- and community-level investments in flood risk reduction. Unless reauthorized or amended by Congress, the following will occur on September 30, 2020: (1) the authority to provide new flood insurance contracts will expire and (2) the authority for NFIP to borrow funds from the Treasury will be reduced from $30.425 billion to $1 billion. Issues that Congress may consider in the context of reauthorization include (1) NFIP solvency and debt; (2) premium rates and surcharges; (3) affordability of flood insurance; (4) increasing participation in the NFIP; (5) the role of private insurance and barriers to private sector involvement; (6) non-insurance functions of the NFIP such as floodplain mapping and flood mitigation; and (7) future flood risks, including future catastrophic events. The Federal Emergency Management Agency (FEMA) has identified the need to increase flood insurance coverage across the nation as a major priority for the current reauthorization and beyond, with a goal of doubling flood insurance coverage by 2023 through the increased sale of both NFIP and private policies. The NFIP's premium rates do not reflect the full risk of loss because of various legislative requirements, which may exacerbate the program's fiscal exposure. The categories of properties which pay less than the full risk-based rate are determined by the date when the structure was built relative to the date of adoption of a Flood Insurance Rate Map, rather than the flood risk or the ability of the policyholder to pay. A reformed NFIP rate structure could have the effect of encouraging more private insurers to enter the primary flood market; however, full risk-based premiums could be unaffordable for some households. Although the NFIP has always had borrowing authority from Congress, an approach has not been developed by which the NFIP can repay catastrophic flood losses. To ensure the future financial solvency of the NFIP after catastrophic events, FEMA has suggested that a systematic analysis may consider the costs and benefits of using the reserve fund, borrowing authority, reinsurance, other forms of risk transfer, and perhaps a Treasury backstop at some catastrophic loss level. The House Financial Services Committee reported a bill for the long-term reauthorization of the NFIP, the National Flood Insurance Program Reauthorization Act of 2019 ( H.R. 3167 ), on October 28, 2019. One bill has been introduced in the Senate, on July 18, 2019, to reauthorize the expiring provisions of the NFIP: the National Flood Insurance Program Reauthorization and Reform Act of 2019 ( S. 2187 ), with a House companion bill ( H.R. 3872 ) introduced on July 22, 2019. This report identifies issues for congressional consideration as part of the possible reauthorization of the NFIP and outlines selected provisions that relate to the issues listed above in the bills to reauthorize the NFIP in the 116 th Congress ( H.R. 3167 and S. 2187 ).

CRS_R46292

R ecently, the Federal Bureau of Investigation (FBI) announced that it would only accept mailed Freedom of Information Act (FOIA) requests and not those submitted electronically due to the COVID-19 pandemic. Conversely, the Centers for Disease Control and Prevention (CDC) has adopted a contrasting policy, saying that CDC would not be able to respond to mailed FOIA requests and that requests should be placed electronically. These examples of differing policies, among others examples not mentioned, when combined with agencies' adoption of additional telework flexibilities , raise questions about how agencies will be responding to FOIA requests in the near future. This report provides an overview of the FOIA request process and actual and potential FOIA request processing changes within federal government agencies as a result of COVID-19. Processing a FOIA Request FOIA does not require requests for agency information to be submitted in a particular format, only that the request reasonably describes the records sought and complies with agency regulations. Most agencies accept requests via mail, email, web form, or fax. The statute also requires the affirmative disclosure of certain categories of agency information, such as "substantive rules of general applicability," "rules of procedure," and, since 2016, records requested three or more times. While the text of FOIA does not specifically dictate the method in which the public must request information from an agency, FOIA does prescribe how an agency is to respond to the request. From an administrative perspective, FOIA directs the amount of time an agency has to respond to a request, defines whether and how an agency may recoup costs for providing services in response to a request, and provides nine instances where an agency may exempt information from public disclosure. After an agency receives a request, the agency is to inform the requester of its receipt. Generally, an agency is to respond to a correctly routed, simple request within 20 days with a determination of the scope of the documents the agency will produce and any exemptions it will apply to withhold records or information. Complex or incorrectly routed requests may be subject to additional days of processing, per the statute (5 U.S.C. §552(a)(6)). Also, agencies managing backlog s of FOIA requests do not always process requests within the statutory period. When completed, a written response may provide the information requested or some of the information requested with redactions per one of FOIA's nine exemptions, inform the requester that the agency does not have responsive records, or deny a request entirely due to one of the nine exemptions. Requesters may administratively appeal an agency's adverse decision. COVID-19 Considerations for Locating Information Government information requests through FOIA may be impacted by COVID-19 in two ways: (1) certain types of information related to the outbreak may be eligible for expedited consideration; and (2) processes for locating information may change due to employees working remotely or on administrative leave. Expedited Processing of Requests Pursuant to 5 U.S.C. §552(a)(6)(E), processing of FOIA requests is to be expedited as soon as practicable in cases in which the person requesting the records demonstrates a compelling need. Statute defines a "compelling need" as a case where the lack of expedited treatment could reasonably be expected to pose an imminent threat to someone's life or physical safety; or there is an urgency to inform the public about an actual or alleged federal government activity, but only if the request is made by a person who is primarily engaged in disseminating information. Agencies may also establish additional standards for granting expedited processing. Whereas agencies are to initially respond to most FOIA requests within 20 days, they must determine whether to grant expedited processing within 10 days. Changes Due to Remote Work Locating information responsive to a FOIA request requires employees and systems to search and review the information . Additionally, not all agency information is created or available in a digital format. Per the Department of Justice's FOIA.gov portal, There is no central office in the government that handles FOIA requests for all federal departments and agencies.... There are many different officials at these agencies who work hard every day to make sure that the FOIA works. There are the FOIA professionals who search for and process records in response to FOIA requests, FOIA Contacts and FOIA Public Liaisons who work with FOIA requesters to answer questions and resolve concerns, and Chief FOIA Officers who oversee their agency's compliance with the FOIA. Because of the decentralized FOIA process at federal agencies, multiple physical and digital systems and many people may be involved in processing a single request. However, given the work flexibilities at many agencies due to COVID-19, some or all of the members of an agency's FOIA team may currently be working offsite. If a record responsive to a request is only available on-site in a paper format, that record's practical availability may be limited by these conditions. Survey of FOIA Processing Changes for Selected Agencies While challenges in locating responsive information may occur at any agency, responses to requests for information during the COVID-19 outbreak have varied. CRS performed a search of federal department websites and their components. As of March 26, 2020, CRS identified statements by 13 agencies regarding COVID-19's impact on FOIA request processing. Table 1 presents these recent statements regarding the impact of COVID-19 or simply changes in agencies' abilities to process FOIA requests, provides Code of Federal Regulations (C.F.R.) citations to each agency's policy regarding expedited FOIA requests, and notes whether the agency has made additional allowances for expediting requests. The table should be considered a snapshot in time, as agencies may update or change their statements. Of the 13 agencies identified, 8 altered the transmission method by which a FOIA request should be submitted. Some statements also discuss current operating status, and mention anticipated delays due to COVID-19. Six of the identified agencies have additional allowances for expediting requests: U.S. Air Force, Department of Housing and Urban Development, Department of Labor, Department of Veterans Affairs, National Archives and Records Administration, and Office of Government Information Services. Of the six agencies that established additional allowances for expediting requests, five permit expediting cases where due process rights would be impacted, four permit expediting cases where there exist possible questions affecting public confidence in the federal government's integrity, one permits expediting due to humanitarian needs, and one permits expediting at the discretion of the agency's FOIA Officer. The exact language from the C.F.R. is provided in Table 1 below.

As federal agencies adjust their operations in light of the COVID-19 pandemic, activities related to the processing and release of government information are also changing. Agencies such as the Federal Bureau of Investigation within the Department of Justice, the U.S. Postal Service, and the Centers for Disease Control and Prevention within the Department of Health and Human Services, among others, have announced changes to their processing of Freedom of Information Act (FOIA) requests due to the pandemic. Government information requests through FOIA may be impacted by COVID-19 in two ways. First, certain types of information related to the outbreak may be eligible for expedited consideration; FOIA requests are to be expedited as soon as practicable in cases in which the person requesting the records demonstrates a compelling need. Second, processes for locating information may change due to employees working remotely or on administrative leave. This In Brief report provides an overview of the typical FOIA request process and usual conditions for requesting expedited processing of a request. The report then provides analysis of the impact of agency procedures in response to the pandemic on government information availability, and concludes with a survey of announced agency processing alterations.

GAO_GAO-19-356

Background Zika Transmission and Effects Zika is spread to people primarily through the bite of an infected mosquito but can also be transmitted from mother to child during pregnancy or from person to person through sexual contact or blood transfusion. The disease can cause symptoms that include fever, rash, conjunctivitis (“pink eye” where the eyes appear red or pink), and joint and muscle pain. Although most people with Zika have only mild symptoms or none at all, Zika in pregnant women has been linked to adverse pregnancy outcomes, such as miscarriage and stillbirth, and severe birth defects. Zika can be passed to the fetus and cause a birth defect of the brain called microcephaly and other severe brain defects, according to CDC. Zika is also linked to other problems such as Guillain-Barré syndrome, an uncommon condition of the nervous system. Although at present no vaccine has been approved by the U.S. Food and Drug Administration to prevent Zika, several vaccines are in different phases of development. The Zika Epidemic Zika was first identified in the Zika Forest in Uganda in 1947 and caused only sporadic human disease until 2007. In 2007, Zika was detected in Yap State, Federated States of Micronesia, and subsequent outbreaks occurred in Southeast Asia and the Western Pacific. In 2014, Zika spread east across the Pacific Ocean to French Polynesia, then to Easter Island. In May 2015, Brazil documented the first case of locally acquired Zika transmission in the Americas. See figure 1 for a timeline of the Zika outbreak and the U.S. Zika response overseas. According to WHO, in November 2015, Suriname, El Salvador, Guatemala, Mexico, Paraguay, and Venezuela reported cases of locally acquired Zika, followed by Panama, Honduras, French Guiana, Martinique, and Puerto Rico in December 2015. Zika continued to spread throughout the region, and on February 1, 2016, WHO declared that the recent association of Zika with clusters of microcephaly and other neurological disorders constituted a public health emergency of international concern. In November 2016, WHO declared an end of the public health emergency of international concern regarding microcephaly, other neurological disorders, and Zika. However, WHO announced that Zika and the associated health outcomes remained a significant public health challenge requiring intense action. Zika spread to multiple countries throughout the globe but primarily affected countries in Latin America and the Caribbean region. According to WHO, as of March 2017, transmission of the Zika virus was occurring in 79 countries or territories, most of which are located in the Western Hemisphere. According to WHO, from 2015 to 2017, there were approximately 583,000 suspected and 223,000 confirmed cases of Zika virus transmission in the Western Hemisphere. See figure 2 for the cumulative Zika incidence rates in each country in Latin America and the Caribbean from 2015 to 2017. U.S. Response to Zika Overseas In February 2016, the President submitted a request to Congress for emergency funding to enhance ongoing U.S. efforts to prepare for and respond to Zika, including a request for funding for USAID and State to respond to the outbreak overseas. In addition, in April 2016, USAID and State notified Congress of their intent to repurpose $215 million of fiscal year 2015 supplemental Economic Support Fund Ebola funding for the U.S. Zika response overseas, which included $78 million for CDC international Zika activities. In September 2016, Congress appropriated about $175.1 million in supplemental funding to USAID and State in the Zika Response and Preparedness Appropriations Act, 2016, for the U.S. Zika response overseas. USAID activities initially began in five countries—Haiti, Honduras, Guatemala, El Salvador, and Dominican Republic—based on an assessment of their Zika risk and limited host government capacity to prevent the spread and respond to the impact of the virus. USAID ultimately supported activities in 26 countries in the Latin America and Caribbean region. USAID and State Obligated Almost All Funding Available for the Zika Response but Did Not Report Funding by Country USAID and State Obligated Almost All Funding Available for the Zika Response and Disbursed Approximately Two-Thirds As of September 30, 2018, USAID and State had obligated about $385 million (99 percent) of the total $390 million available for the U.S. Zika response overseas and had disbursed approximately $264 million (68 percent). Specifically, USAID had obligated all of its funds available for the Zika response and disbursed about two-thirds, and State had obligated and disbursed more than three-quarters of its funding for Zika. USAID and State had disbursed a higher proportion of the repurposed Ebola funds than the funds appropriated in the Zika Response and Preparedness Appropriations Act, 2016. See figure 3 for USAID and State Zika response funding appropriations, obligations, and disbursements as of September 30, 2018. Of the $215 million in repurposed Ebola funds, USAID and State had obligated $215 million (100 percent) and had disbursed almost $201 million (93 percent) as of September 30, 2018. Of the approximately $175 million appropriated in the Zika Response and Preparedness Appropriations Act, 2016, USAID and State had obligated about $170 million (about 97 percent) and had disbursed about $63 million (36 percent) as of September 30, 2018. USAID and State Track Zika Funding by Account and Activity As of September 30, 2018, USAID had obligated all funds available for the Zika response and had disbursed about two-thirds, from three accounts. USAID has two sources of funding for Zika response activities: $211 million of fiscal year 2015 supplemental Economic Support Fund Ebola funding repurposed for the Zika response and about $155.5 million provided in the Zika Response and Preparedness Appropriations Act, 2016—including $145.5 million and $10.0 million through the Global Health Programs and Operating Expenses accounts, respectively—for a total of $366.5 million. As of September 30, 2018, USAID had obligated approximately $366.5 million (100 percent) and had disbursed approximately $245 million (67 percent), from the Economic Support Fund, Global Health Programs, and Operating Expenses appropriations accounts. See figure 4 for USAID Zika response funding obligations and disbursements by account. USAID obligated all funding for Zika response activities within a year after it was repurposed or appropriated. As of September 30, 2018, USAID had disbursed a higher proportion of repurposed fiscal year 2015 supplemental Economic Support Fund Ebola funding (93 percent) compared with Global Health Programs and Operating Expenses funding (28 percent and 72 percent, respectively), which was appropriated in the Zika Response and Preparedness Appropriations Act, 2016, in September 2016. The $211 million in Economic Support Fund obligations supported 56 USAID activities, as well as a $78 million interagency transfer to CDC. The $145.5 million in Global Health Programs obligations supported 25 activities and program support. Obligations for USAID-supported activities ranged from $12,000 to $37 million and included support for activities such as the procurement of insect repellent to assist pregnant women in avoiding Zika infection and strengthening the ability of civil society and community networks to disseminate information related to Zika. CDC supported 25 activities that ranged from $276,000 to $13.6 million, including activities such as collecting and analyzing public health data, conducting epidemiological studies to better understand the prevalence of Zika and related risk factors, building laboratory capacity, and providing training to conduct Zika virus testing. As of September 30, 2018, State had obligated and disbursed more than three-quarters of funding available for the Zika response, from two accounts. State has two sources of funding for Zika response activities: $4 million from a fiscal year 2015 supplemental Economic Support Fund appropriation for the Ebola response that was repurposed for the Zika response and about $19.6 million provided in the Zika Response and Preparedness Appropriations Act, 2016, the majority of which was provided through the Diplomatic and Consular Programs account, for a total of about $23.6 million. As of September 30, 2018, State had obligated and disbursed about $18.3 million (almost 78 percent) from the Economic Support Fund and Diplomatic and Consular Programs accounts. See figure 5 for State Zika response funding obligations and disbursements by account. Under the Zika Response and Preparedness Appropriations Act, 2016, State was provided almost $14.6 million through the Diplomatic and Consular Programs account, $4 million through the Emergencies in Diplomatic and Consular Services account, and $1 million through the Repatriation Loans Program account, for a total of almost $19.6 million. In September 2017, State notified Congress of its intent to transfer the $4 million from the Emergencies in Diplomatic and Consular Services account and $870,000 from the Repatriation Loans Program account to the Diplomatic and Consular Programs account. These transfers resulted in a total of $19.5 million available under the Diplomatic and Consular Programs account and $130,000 under the Repatriation Loans Program account. The $4 million in Economic Support Fund obligations supported research and development activities by the International Atomic Energy Agency to control disease-carrying mosquito populations. The $14.3 million in Diplomatic and Consular Programs obligations supported activities including medical evacuations to protect the health of pregnant U.S. government personnel and eligible family members, mosquito abatement training and other measures to reduce Zika risk to overseas staff, as well as public diplomacy efforts to further inform journalists and the public about the U.S. response to Zika. Agencies Did Not Track or Report Zika Funding by Country In their reporting to Congress on the uses of Zika funds, USAID and State included some country information but did not track or provide information on funding uses broken down on a country basis. In October 2016, USAID and State submitted a consolidated report to the appropriations committees on the anticipated uses of funds made available to USAID and State by the Zika Response and Preparedness Appropriations Act, 2016, in response to a reporting requirement in Section 203 of the act. After the initial submission, the act required the agencies to update and submit the report to the committees on appropriations every 60 days until September 30, 2017. The initial report described ongoing Zika response activities in five countries as well as planned activities in additional countries. Subsequent reports listed specific countries where USAID and State supported Zika response activities. However, USAID and State did not provide information to Congress on the uses of funding appropriated by the Zika Response and Preparedness Appropriations Act, 2016, broken down by country. The reports also included obligation and disbursement information for the fiscal year 2015 supplemental Economic Support Fund Ebola funding that was repurposed for the international Zika response; however, similar to the information provided regarding the funds appropriated by the Zika Response and Preparedness Appropriations Act, 2016, the reports’ information on the use of the repurposed Ebola funds was also not broken down by country. USAID officials told us that Zika activities were designed to be implemented on a regional and multicountry basis. While over 95 percent of all U.S. government funds available for the Zika response overseas were obligated by USAID, and the agency had a number of financial tracking systems in place, the agency did not take steps to record its funding by country at the outset of Zika response programming. Specifically, USAID officials noted that the contracts and grants the agency had signed with its implementing partners did not include provisions requiring partners to provide information to USAID that broke down their use of funds by country. Consequently, USAID was unable to track the uses of Zika funds on a country basis. Federal internal control standards state that management should use and communicate the necessary quality information both internally and externally to achieve the entity’s objectives and address related risks. According to USAID officials, tracking information on the uses of Zika response funding broken down by country would be helpful in the future for mission directors, chiefs of missions, and partner-country ministries of health, some of whom have requested this information. Moreover, data on USAID funding to address future infectious disease outbreaks if broken down by uses in each country could provide additional useful information to decision makers in assessing risks and planning responses. The ability to compile funding by country when responding to future infectious disease outbreaks would enable USAID to provide key decision makers, including Congress and agency officials, with additional information to better support spending oversight and inform budgetary and planning decisions. USAID and State Supported a Broad Range of Activities in Response to Zika USAID Supported Mosquito Control, Public Awareness, Capacity Building, and Research Activities As part of the U.S. Zika response overseas, USAID provided assistance to several countries in the Caribbean, Central America, and South America and conducted a variety of activities related to mosquito control, public awareness, capacity building, and research. Mosquito Control In support of mosquito control, USAID’s Zika AIRS Project (ZAP) conducted activities that included Entomological monitoring: collecting and reporting information on the location and population of mosquitoes; Larviciding: placing agents that kill mosquito eggs in likely breeding sites, such as water receptacles; Source reduction interventions: facilitating the removal or mitigation of likely breeding sites, such as tires, pots, barrels, or anything that may allow for standing water; and Indoor residual spraying: spraying insecticide that has a lasting effect in houses. We observed mosquito control activities during our fieldwork. For example, in Honduras we followed a team as they went house to house to implement and facilitate mosquito control activities. They collected information from mosquito egg traps, which serve as indicator of breeding activity, and recorded it for monitoring purposes. They also examined the premises for potential mosquito breeding sites, treated susceptible areas such as wash basins with larvicide, and spoke with residents about picking up trash and covering outdoor plant pots to reduce potential breeding sites. To support raising public awareness of the risk of Zika virus and to promote behavior change to reduce the spread of the disease, USAID implementing partners such as the Red Cross and CARE told us that they collaborated with communities, local government, and schools to communicate information about Zika. For example, in Trinidad, the Red Cross conducted educational campaigns at schools to improve students’ awareness. During our fieldwork, we observed a session led by adult volunteers during which children played games and engaged in discussions designed to teach Zika prevention and response methods. Implementing partners told us that the impact of such efforts extends beyond those reached directly; for example, they said the children who learned about Zika risks and prevention also conveyed the knowledge to their families, who in turn may pass it on to friends or others in the community. In Peru, CARE worked with schools to develop written education guides for application in the classroom and conducted communication campaigns. During our fieldwork, we went to schools and observed students delivering oral presentations on Zika risks and prevention. In addition, we witnessed other student activities, such as classroom discussions and art projects focused on Zika, designed to demonstrate understanding, raise awareness, and promote behavior change. Capacity Building To support capacity building, the Applying Science to Strengthen and Improve Systems (ASSIST) activity, which USAID funding supported, focused on improving Zika-related health services. Specific efforts included conducting a baseline assessment of the quality of care, improving clinical guidelines, training health care providers, and implementing a quality improvement program. During our fieldwork in Honduras, we visited a hospital and met with ASSIST-supported health workers who told us that they applied new guidance in their practice, and as a result, improved care in areas including counseling, screening, diagnosis, and follow-up of those affected by Zika. We also visited a hospital in Dominican Republic, where health care workers stated that they collaborated with ASSIST in responding to Zika by training staff and producing guidance materials. These activities raised awareness, increased prevention efforts, and improved care, according to health care workers. Research USAID supported research, training, and innovation activities through its “Grand Challenge” program as well as its interagency agreement with CDC. USAID launched a series of Grand Challenge efforts, providing $30 million in grants to foster innovation on new methods and technologies to respond to Zika. One grant, for example, supported the World Mosquito Program’s research into the feasibility and effectiveness of infecting mosquitoes with bacteria to hinder transmission of the Zika virus. We visited the program’s operations in Colombia, met with scientists, and observed the breeding lab. Program scientists told us that initial efforts have been promising and that if more tests prove successful, the potential for reducing Zika transmission could be significant. Another USAID Grand Challenge grant supports research into the possible use of genetically modified yeast to prevent mosquito eggs from hatching. We spoke with scientists, lab technicians, and viewed facilities supported by this grant in Trinidad during our field work. Scientists stated that yeast attracts mosquitoes and is inexpensive, commonly available, and environmentally friendly. Testing is ongoing, but if successful, the approach could help reduce populations of mosquitoes in critical areas, according to the scientists. The USAID–CDC interagency agreement identifies a range of activities that involve technical assistance to help strengthen surveillance, emergency operations and management, and epidemiological investigations and research. One CDC activity, for example, focuses on supporting public health surveillance and epidemiological studies to better understand the prevalence and risk factors for severe health outcomes related to Zika. Another activity aims to build laboratory capacity in areas such as Zika diagnostic test production and distribution. In addition, the objectives of CDC’s Field Epidemiology Training Program are to train qualified professionals, build sustainable capacity for detecting and responding to health threats, and develop in-country expertise so that disease outbreaks can be detected locally and prevented from spreading. In Dominican Republic, CDC officials told us that this program delivers 3 months of classroom and field project training, and that as of August 2018, four cohorts of approximately 80 students each had completed the training. CDC officials told us that in addition to implementing various activities, CDC’s Central America Regional Office in Guatemala played an important role in facilitating U.S. government cooperation with Colombia, which had the second largest outbreak of Zika after Brazil. Implementing Partners Reported Various Results from Selected Activities We reviewed status reports for six USAID activities that received among the highest amounts of funding, and each identified various results. Below, we describe the activities and examples of reported results. For more information, see appendix II. ASSIST: This activity sought to strengthen Zika-related health services and systems in Latin America and the Caribbean with a focus on pregnant women, newborns, and women of reproductive age. ASSIST reported that it conducted virtual and in-person training, courses, and workshops on Zika prevention, diagnosis, and care. ASSIST also reported that 8,133 health care workers had been trained as of March 2017, and that its efforts had supported the development of Zika care protocols and guidelines with a new emphasis on clinical care and support for affected infants and families. ASSIST further reported that through March 2018, 75 percent of children affected by Zika in Dominican Republic received specialized care at Hospital Infantil Robert Reid Cabral, an ASSIST- supported hospital in the capital, Santo Domingo. Red Cross: This activity aimed to reduce risks associated with Zika infection through community involvement, sharing lessons learned, and improving practices. The Red Cross reported that its communication efforts reached approximately 3,000 students, 29 communities, and almost 140,000 people via TV, radio, and social media engagement, providing them with information on risk and protection methods. Zika AIRS Project (ZAP): This is a mosquito control activity focused on reducing Zika transmission in Latin America and the Caribbean. Specific activities supported by USAID funding included entomological monitoring, larviciding, source reduction interventions, and indoor residual spraying. ZAP reported that five countries (El Salvador, Guatemala, Haiti, Honduras, and Jamaica) implemented comprehensive mosquito control activities. Population Services International: The purpose of this activity was to improve the capacity and raise awareness of people in countries affected by and at risk of Zika and other vector-borne diseases. Population Services International reported that through March 2018, 35 health providers in Dominican Republic, El Salvador, and Guatemala had been trained in raising awareness about Zika prevention and the use of printed educational materials. In addition, 1,006 pregnant women received counseling on Zika prevention, and 967 received prevention kits containing condoms, mosquito repellent, and printed educational materials. Additionally, 227 pharmacy attendants from 195 pharmacies received information on Zika prevention. Save the Children’s Community Action on Zika (CAZ): The goal of this project was to reduce Zika transmission and minimize the risk of Zika-related microcephaly and other neurological disorders. The project focused on helping the most vulnerable through community- based prevention strategies in Colombia, Dominican Republic, and three Central American countries. CAZ reported that it had reached approximately 65,000 students and trained 3,838 community agents and volunteers who supported efforts to strengthen the capacity to prevent Zika in 921 communities. United Nations Children’s Fund (UNICEF): This activity focused primarily on four countries: Guatemala, El Salvador, Honduras, and Dominican Republic. UNICEF worked to promote the adoption of prevention behaviors among at-risk populations through actions to raise awareness at multiple levels: individual, interpersonal, community, institutional, and national policy levels. UNICEF reported that these efforts reached more than 5.5 million people with key risk- communication messages and more than 150,000 people through coordinated social mobilization and person-to-person communication. For example, in Guatemala, UNICEF worked with a local partner to train young people and adolescents in schools and social groups to lead prevention activities in their communities. Moreover, around 25,000 pregnant women benefited from counseling sessions on Zika- prevention behaviors. State Conducted Public Awareness Initiatives and Medical Evacuations In response to Zika, State conducted public awareness and communication initiatives, medical evacuations for overseas staff, and other activities. According to a State official, State conducted Zika-related public outreach to U.S. citizens abroad through social media and the Smart Traveler Enrollment Program, a service that provides information from U.S. embassies about local safety conditions. According to a State official, State also implemented public diplomacy activities related to Zika awareness and communication. For example, one activity aimed to raise awareness of vector-borne diseases such as Zika and collect information on insect breeding grounds. Another supported the addition of a science envoy who focused specifically on Zika and mosquito-borne diseases. In addition, according to a State official, State conducted Zika-related medical evacuations as part of those normally offered to female staff who became pregnant while serving abroad. State’s medical services division also supported overseas posts by purchasing and distributing mosquito repellent. State officials also told us that they coordinated Zika response efforts internally and externally. For example, State participated in a U.S. government interagency group led by CDC to exchange information on Zika and coordinated with other agencies on the response effort. USAID Took Steps to Address Sustainability Challenge but Only Partially Mitigated Challenge to Timely Implementation USAID Implementing Partners Aligned Their Activities with Host Governments and Involved Local Communities to Address Sustainability Challenge Over the course of our fieldwork, USAID and implementing partner officials identified two key challenges to the implementation of Zika response activities. The first was the long-term sustainability of Zika response activities. The second was the timely implementation of Zika response activities in countries without bilateral USAID health programs. While USAID took steps to address the challenge related to sustainability, it only partially mitigated the challenge to timely implementation of Zika response activities in countries without bilateral USAID health programs. Agency and implementing partner officials identified the sustainability of Zika response efforts as a key challenge. While USAID did not intend to continue U.S. Zika response activities after the one-time emergency funding, sustainability was a consideration and posed a challenge due to the short implementation time frame, according to agency and implementing partner officials. One official further elaborated that Zika funding efforts occurred during the acute phase of the outbreak, which made it difficult to focus on long-term needs. For example, an implementing partner said that Zika-affected children require long-term care that host country governments may not be able to support after U.S. assistance ends. In addition, host country government officials, U.S. government officials, and implementing partners said that some Zika activities may not be sustainable after U.S. assistance is finished due to a lack of funds and limited capacity to continue the work. To address this challenge and support the long-term continuation of Zika response activities, implementing partners aligned their activities with those of host country governments and other organizations. Implementing partners reported working with governments and other organizations to incorporate Zika activities into their plans and practices so they could continue over the long term. One implementing partner and the Dominican Republic’s Ministry of Health, for example, planned mosquito control efforts together, and a Ministry of Health official said they intend to continue those control efforts after the end of Zika funding. Implementing partners in various countries also stated that Zika activities brought broader benefits to mosquito control, disability services, maternal health care, surveillance efforts, and emergency preparedness, which facilitated partners’ efforts to align their Zika response activities. For example, an implementing partner reported using Zika funding to develop organizational guidelines for treating Zika-affected children, which will be used by the health care system in Dominican Republic to treat children with related disabilities in the long term. According to some implementing partners in countries we visited, they developed Zika protocols and guidelines in response to new scientific information, trained government and other personnel on the protocols, and worked with officials of host country governments and other organizations to encourage adoption of Zika activities. For example, according to an agency official, an implementing partner in Peru developed a curriculum for epidemiologists and trained them on how to detect and contain mosquito-borne diseases, such as Zika. The agency official said that the implementing partner shared the training curriculum and materials with Peru’s Ministry of Health so it could continue the trainings after the end of Zika funding. According to implementing partners, they also involved local communities in activities to increase community ownership and address sustainability. For example, an implementing partner official said they trained a cadre of community volunteers in Guatemala and El Salvador on behavior change practices so that they can continue activities after the end of Zika funding. In addition, implementing partner officials said that engaging with communities to learn about needs and resources is important to continued community interest in activities. For example, an implementing partner that works with communities on health priorities developed an approach that includes a toolkit for identifying a community’s specific risks for Zika and the efforts best suited to helping the community eradicate mosquito breeding sites. In places affected by violence, some implementing partners engaged with communities to better understand how to prioritize community worker and volunteer safety to enable the continuation of activities. For example, an implementing partner in Guatemala engaged with local communities to understand areas they recommended health workers avoid due to safety concerns. USAID Only Partially Mitigated the Challenge to Timely Implementation in Some Countries Where It Did Not Have Health Programs Agency and implementing partner officials described timely implementation of activities in some countries without bilateral USAID health programs as a second key challenge. Twenty-two out of the 26 countries where USAID implemented its Zika response activities were countries without bilateral USAID health programs. USAID officials stated that, as a result, there were no USAID health program officials present in these countries to build on relationships with host country health officials and help facilitate the start of implementing partners’ activities during the Zika response. USAID officials noted two reasons that working with host country governments took time. First, some U.S. Zika response activities started after a decline in Zika cases, when some host country governments were no longer as focused on countering the disease. Implementing partners responded to this situation by identifying related health service improvements that could stem from implementing a Zika response and were of interest to the host country governments. Second, agency and implementing partner officials said that in some countries without bilateral USAID health programs it also took time to identify the appropriate points of contact and establish relationships—preliminary steps needed to obtain approval from the host country government before activities could get underway. According to USAID officials, these relationships are critical to navigating bureaucratic systems and assist in designing activities that meet the needs of host country governments and communities, which are needed for timely implementation. USAID took some steps to address the timely implementation challenge in countries without bilateral health programs. For example, according to USAID officials, USAID worked with multilateral partners that had a health presence in those countries and relied on regional field-based Zika coordinators to build relationships with in-country points of contact. As noted above, however, agency officials indicated that Zika response activities took additional time to deploy in some of the countries without bilateral USAID health programs. Further, implementing partners reported it took additional time to start up activities in those countries because of the time it took to obtain approval for them from the ministries of health. For example, one implementing partner reported that activity startup was postponed for nearly 3 months until it received approval from the host country government. Another implementing partner said it was a challenge to get information on Zika from the host country government or establish dialogue until USAID officials became involved. USAID officials also said that efforts to start and integrate Zika response activities in countries with ongoing USAID health programs did not face a number of the obstacles to timely implementation experienced in countries without bilateral USAID health programs. According to federal internal control standards, agencies should design control activities, such as a plan, to achieve their objectives and address related risks, such as the challenge related to timely implementation. In an effort to enhance its planning for outbreaks, USAID developed an infectious disease response plan in July 2018 during the time frame of our review. However, the plan does not provide specific guidance on how to address the challenge of initiating emergency response activities in countries without bilateral USAID health programs, such as by noting particular practices that implementing partners and other officials can use to address that challenge. For example, our fieldwork and interviews with USAID officials indicate that the following may be helpful practices for infectious disease response: Immediately establish an in-country working group that includes implementing partners, host country government officials, and U.S. government officials to help initiate and coordinate outbreak response. Communicate a current list of health ministry and other relevant government officials to implementing partners and other officials so they can quickly identify the appropriate points of contact. According to USAID officials, USAID missions maintain regular contact with host country governments, maintain contact lists, and participate in coordination meetings. However, in the case of overseas Zika response, some implementing partner officials in the field told us that they did not initially know who to contact in the host country government. Likewise, a host country government official told us that a working group on Zika outbreak response was not established until after officials recognized that implementing partner and host country government officials did not have regular channels of communication. By taking steps to improve planning for countries without bilateral USAID health programs—such as by adding specific guidance for initiating emergency response activities in such countries to its July 2018 plan—USAID would be better positioned to quickly build relationships with health ministry and other key government officials in host countries and thus be better able to provide a timely infectious disease response to future outbreaks. Conclusions The Zika virus quickly spread to dozens of countries in 2015 and 2016, prompting WHO to declare the virus and associated health risks an international public health emergency. As future infectious disease outbreaks arise, Congress will be called on to fund overseas response efforts, as it did with the Zika outbreak, and USAID is likely once again to play a vital role in those efforts. Because USAID did not provide key decision makers with information on how Zika funding was distributed across the various countries where it conducted response activities, decision makers lack visibility into a key aspect of the overall U.S. Zika response overseas. The ability to compile this information by country when responding to future infectious disease outbreaks would enable USAID to provide key decision makers, including Congress and agency officials, with additional information to better support spending oversight and inform budgetary and planning decisions. Further, while USAID took steps to address the challenge of sustaining Zika response activities over the long term, it did not fully mitigate the challenge of timely implementation of activities in countries without bilateral USAID health programs. As a result, the agency’s response to Zika took additional time in some countries without bilateral USAID health programs. Infectious disease response planning that addresses countries without bilateral USAID health programs would better position USAID to quickly respond to infectious disease outbreaks, such as Zika, whenever the need arises. Recommendations for Executive Action We are making the following two recommendations to USAID: The Administrator of USAID should take steps to ensure that, in responding to future public health emergencies of international concern, the agency is able to compile funding information broken down by country. (Recommendation 1) The Administrator of USAID should take steps to improve its infectious disease response planning to address the challenge of initiating response activities in countries without bilateral USAID health programs in a timely manner. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of this report to USAID, State, and CDC for review and comment. USAID provided written comments, which we have reproduced in appendix III. In its comments, USAID agreed with our findings and recommendations and identified a number of actions it plans to take in response. Specifically, USAID stated that in responding to future public health emergencies of international concern, it plans to compile and report on funding by country. USAID also outlined the steps it plans to take to develop additional guidance for USAID officials in countries without bilateral health programs. State and CDC did not provide formal responses. CDC provided technical comments, which we incorporated throughout the report, as appropriate. We are sending copies of this report to the appropriate congressional committees, the Administrator of USAID, the Secretaries of State and of Health and Human Services, and to other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov If you or your staff have any questions about this report, please contact me at (202) 512-3149 or gootnickd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology The Zika Response and Preparedness Appropriations Act, 2016, included a provision for us to review the status of U.S. Agency for International Development (USAID) and Department of State (State) actions to respond to Zika. In this report, we examine (1) the status of USAID and State funding for the U.S. Zika response overseas, (2) activities supported by these funds, and (3) challenges, if any, to implementing Zika response activities and actions taken to address any challenges. To examine the status of funding for U.S. Zika response overseas, we reviewed USAID and State’s reports to the Senate and House Committees on Appropriations mandated by Section 203 of the Zika Response and Preparedness Appropriations Act, 2016. We reviewed agency reporting submitted to Congress and discussed the reports with agency officials. We also reviewed USAID and State’s reports to the Senate and House Committees on Appropriations mandated by the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2015. We obtained additional funding and activity information from USAID covering a period beyond that included in the reports to Congress. We reviewed the interagency agreement between USAID and the Centers for Disease Control and Prevention (CDC), outlining the CDC’s Zika response activities supported by $78 million in funds USAID obligated to CDC. We also obtained additional funding data from CDC and interviewed CDC officials to discuss the status of the agencies’ obligations and disbursements for Zika response activities. We analyzed USAID’s and State’s obligations and disbursements that the agencies reported as supporting the U.S. Zika response overseas, as of September 30, 2018. We analyzed agency obligations and disbursements across agency bureaus, funding accounts, and activities for the Zika response. Additionally, we interviewed officials from USAID and State to discuss the agencies’ obligations and disbursements for Zika response activities. We then reviewed the funding data and related documentation and consulted with USAID and State officials on the accuracy and completeness of the data. In the small number of instances where we identified potential issues or inconsistencies in the data, we contacted relevant agency officials and obtained information from them necessary to resolve the discrepancies. We assessed USAID’s tracking of funding data against federal internal control standards related to using quality information. We also utilized information from data reliability assessments for two recent GAO reports that utilized funding data from the same USAID and State systems. We determined that the data we used were sufficiently reliable for our purposes of examining USAID’s and State’s obligations and disbursements of the funds. To examine activities that USAID and State implemented in response to Zika overseas, we conducted fieldwork, analyzed agency documents, and interviewed officials. We examined the status and progress related to Zika response activities. We conducted a teleconference with officials in Haiti and El Salvador and conducted fieldwork in Barbados, Colombia, Dominican Republic, Guatemala, Honduras, Peru, and Trinidad and Tobago. We selected these countries based on the following criteria: (1) geographic diversity to include the Caribbean, Central America, and South America; (2) coverage of the main lines of effort (mosquito control, public awareness, capacity building, and research); and (3) the presence of activities under way that accounted for a significant portion of funding. During our fieldwork, we interviewed agency officials who played a role in Zika response activities, which included officials from State, USAID, and CDC. We also interviewed host government officials, implementing partners, health care workers, community volunteers, and researchers. In addition, we visited offices, toured facilities, and observed operations. We also attended a conference in Guatemala that addressed topics including status, successes, challenges, and lessons learned related to USAID’s Zika response. We reviewed agency documents describing the plans and goals of activities. We also analyzed progress reports of six activities to provide illustrative examples of results. We selected activities from those with among with the highest amounts of funding and that together represented approximately 33 percent of all USAID funding for Zika response and a range of countries, lines of effort, and types of implementing partners (such as nongovernmental organizations and international organizations). The sample is not generalizable to all of USAID’s Zika response activities. To examine challenges, if any, to implementing Zika response activities and actions taken to address any challenges, we interviewed U.S. government officials, USAID implementing partners, and host government officials, and we analyzed progress reports from selected USAID-funded Zika response activities. We identified key challenges based on the nature of the description and the degree to which a diversity of interviewees and documents made mention of them. We reviewed USAID policy, USAID’s infectious disease response plan, federal internal controls, implementing partner progress reports, and interviews with officials to determine what agencies did to address these challenges. We assessed USAID’s infectious disease response plan against relevant federal internal control standards. We conducted this performance audit from December 2017 to May 2019 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. Appendix II: Illustrative Examples of Results for Selected Zika Response Activities To provide illustrative examples of the results of Zika response activities funded by the U.S. Agency for International Development (USAID), we analyzed implementing partners’ progress reports for a sample of six activities. We selected activities from those with among the highest amounts of funding and that together represented approximately 33 percent of all USAID funding for Zika response and a range of countries, lines of effort, and types of implementing partners (such as nongovernmental organizations and international organizations). Quantitative figures related to individual indicators listed below reflect the targeted population of the activity. Start dates and funding information provided below reflect the date of the report to Congress in which the activity first appeared and the associated funds obligated. The sample is not generalizable to all USAID’s Zika response activities. Applying Science to Strengthen and Improve Systems Table 1 presents the progress on key indicators as of March 2018 reported to USAID by the Applying Science to Strengthen and Improve Systems activity. The aim of the activity was to strengthen Zika-related health services and systems in Latin America and the Caribbean with a focus on pregnant women, newborns, and women of reproductive age. International Federation of Red Cross and Red Crescent Societies Global Health Table 2 presents the progress on key indicators as of May 2018 reported to USAID by the International Federation of Red Cross and Red Crescent Societies Global Health activity. The activity aimed to reduce risks associated with Zika infection through promoting community involvement, sharing lessons learned, and improving practices. United Nations International Children’s Emergency Fund Table 3 presents the progress on key indicators as of March 2018 reported to USAID by the United Nations International Children’s Emergency Fund activity. The activity aimed to promote the adoption of prevention behaviors among at-risk populations through actions targeting multiple levels of their environment: individual, interpersonal, community, institutional, and national policy levels. Save the Children Community Action on Zika Table 4 presents the progress on key indicators as of September 2017 reported to USAID by the Save the Children Community Action on Zika project. The goal of the project was to reduce Zika transmission and minimize the risk of Zika-related microcephaly and other neurological disorders among the most vulnerable through community-based prevention strategies. Population Services International Table 5 presents the progress on an illustrative selection of key indicators, by objective, as of March 2018 reported to USAID by the Population Services International activity. The purpose of the activity was to improve the capacity and raise awareness of people in countries affected by and at risk of Zika and other vector-borne diseases. Zika AIRS Project (ZAP) Table 6 presents illustrative examples of accomplishments as of March 2018 reported to USAID by the Zika AIRS Project (ZAP). This was a mosquito control project focused on reducing Zika transmission in Latin America and the Caribbean. Specific activities included entomological monitoring, larviciding, source reduction interventions, and indoor residual spraying. Appendix III: Comments from the U.S. Agency for International Development Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Joyee Dasgupta (Assistant Director), Marc Castellano (Analyst-in-Charge), Diana Blumenfeld, Alana Miller, Fatima Sharif, David Dayton, Francisco Enriquez, Christopher Keblitis, Amber Sinclair, and K. Nicole Willems made key contributions to this report.

The World Health Organization (WHO) declared the Zika virus a public health emergency of international concern in February 2016. According to WHO, as of March 2017, 79 countries and territories—including 48 in the Western Hemisphere—reported evidence of ongoing Zika transmission. In April 2016, USAID and State repurposed $215 million for Zika from funds appropriated for Ebola. Subsequently, the Zika Response and Preparedness Appropriations Act, 2016, provided over $175 million in supplemental funding to USAID and State to support Zika response efforts overseas. The act also included a provision for GAO to review the status of USAID and State actions to respond to Zika. In March 2019, the Centers for Disease Control and Prevention downgraded its international travel warning for Zika. This report examines (1) the status of USAID and State funding for U.S. Zika response overseas, (2) activities supported by these funds, and (3) implementation challenges, if any, and responses to any challenges. GAO reviewed information from U.S. agencies and met with U.S. and host country officials in Washington, D.C. GAO also conducted fieldwork in a nongeneralizable sample of countries in Latin America and the Caribbean where agencies implemented key response activities. The U.S. Agency for International Development (USAID) and the Department of State (State) obligated $385 million of the total $390 million available for international Zika response and disbursed $264 million as of September 2018. USAID obligated 95 percent of the total funding. USAID and State provided some country information to Congress but did not provide, or take steps to track, funding on a country basis. According to USAID officials, tracking funding information by country would be helpful in the future. The ability to compile funding by country when responding to future infectious disease outbreaks would enable USAID to provide additional information to key decision makers to better support spending oversight and inform budgetary and planning decisions. In response to the Zika outbreak, USAID and State supported a broad range of activities overseas, including mosquito control, research efforts, and medical evacuations. In one activity, USAID implementing partners monitored mosquito populations; in another, they researched methods to reduce Zika virus transmission rates. USAID implementing partners reported various outputs from selected activities. For example, an implementing partner reported that its awareness campaign on Zika prevention reached more than 5 million people. USAID faced sustainability and timeliness challenges in implementing its Zika response. According to agency and other officials, one-time funding and a short time frame posed a challenge related to sustainability of Zika response activities. In response, USAID worked to align activities with those of host governments and other organizations so they could continue in the long term. However, USAID's emergency response planning did not fully address the challenge of timely implementation of response activities in countries without bilateral USAID health programs. Twenty-two of 26 countries with Zika response activities did not have bilateral USAID health programs when the Zika outbreak began. As a result, response activities took additional time to deploy in some countries where USAID first had to establish relationships with key host country officials. Although USAID developed an infectious disease response plan in 2018, the plan does not provide guidance on how to address the timely implementation challenge in countries without bilateral health programs. By improving its planning, such as by adding such guidance in its 2018 plan, USAID would be better positioned to respond quickly to future disease outbreaks.

GAO_GAO-19-583T

Background Selected agencies’ funding for university STEM research. The five federal agencies included in our preliminary analysis provide billions of dollars annually for university research in STEM fields, with NIH providing more than the other four agencies combined. Table 1 details the total amount of research funding provided to universities by each agency in fiscal year 2017. Sexual harassment. As defined in the National Academies of Sciences, Engineering, and Medicine (NASEM) 2018 report, sexual harassment encompasses three types of behavior: Sexual coercion: Favorable treatment conditioned on sexual activity. Unwanted sexual attention: Verbal or physical unwelcome sexual advances, which can include assault. Gender harassment: Sexist hostility and crude behavior. The most common form of sexual harassment is gender harassment, which generally involves hostility, exclusion, or other discrimination based on a person’s gender. The 2018 report found that sexual harassment in academia is significantly more common among female students in engineering and medical majors than in non-STEM fields. According to the report, at least five factors create the conditions under which sexual harassment is likely to occur in STEM programs and departments in academia: Perceived tolerance for sexual harassment Environments where men outnumber women and leadership is male Environments in which the power structure of an organization is hierarchical with strong dependencies on those at higher levels or in which people are geographically isolated Increased focus on symbolic compliance with Title IX Uninformed leadership on campus Title IX of the Education Amendments of 1972. Title IX of the Education Amendments of 1972 is the primary federal law that addresses sex discrimination in all federally funded grant programs at educational institutions. Under Title IX, federal agencies that award grants to educational institutions have enforcement responsibilities to ensure such institutions do not discriminate based on sex. Enforcement responsibilities include issuing regulations, conducting periodic compliance reviews of funding recipients, and investigating timely written complaints of sex discrimination against recipients. DOJ and the Department of Education have other responsibilities for administering Title IX. DOJ is designated by Executive Order No. 12250 to coordinate Title IX compliance across federal agencies, including information sharing. Federal grant awards and grant life cycle. In general, federal agencies administer grants through a common administrative life cycle: pre-award, award, implementation, and closeout. During the pre-award stage, most of the agencies we reviewed require grantees to submit an “assurance of compliance” form as part of their grant application to attest compliance with anti-discrimination laws, including Title IX. For the award stage, the federal agency awarding the grant enters into an agreement with grantees stipulating the terms and conditions for the use of grant funds. During the implementation stage, among other things, the federal agency manages and oversees the grant, including any Title IX compliance reviews. A Title IX compliance review is an agency’s assessment of whether a grantee is complying with the law. Federal agencies may conduct these reviews onsite at an institution (grantee) or via a desk audit. In the closeout stage, the awarding federal agency and grantee bring the grant to its conclusion, once all the work associated with the grant agreement is complete, the grant end date has arrived, or both. Among the federal agencies we reviewed, different offices handle various aspects of grant compliance. Generally, each agency’s civil rights or diversity office conducts Title IX compliance reviews, develops policies and procedures for grantees, and investigates allegations and complaints involving university researchers supported by their agency’s federal STEM grants. The office that awards grants generally creates and modifies grant terms and conditions. Resources to Address Sexual Harassment Complaints Vary Our preliminary analysis indicates that the selected federal agencies’ staff and budget available to address sexual harassment complaints from individuals at grantee universities varies according to the duties and funding for the primary agency offices responsible for addressing the complaints, as well as with the number of complaints received from grantees. Duties and funding for offices responsible for addressing complaints. Our preliminary analysis shows that all five agencies (DOE, HHS, NASA, NSF, and USDA-NIFA) primarily address sexual harassment complaints through their civil rights or diversity offices. However, these offices are responsible for more than just addressing complaints and preventing sexual harassment at grantee universities; they also oversee a number of civil rights, diversity and inclusion efforts for the entire agency. Moreover, most of these offices also address internal employee sexual harassment complaints and other discrimination issues. For example, HHS officials described how staff in their Office for Civil Rights at headquarters and eight regional offices conduct compliance reviews and investigate all complaints alleging sexual harassment and other forms of discrimination against recipients of HHS federal financial assistance, including recipients of NIH grants. USDA- NIFA said their civil rights and diversity office staff are not always available when sexual harassment issues arise because they have other duties and also cover other discrimination issues. In addition, some agencies noted challenges in ensuring adequate staffing levels. For example, USDA-NIFA officials cited the need to fill vacant positions in their civil rights office, and NSF officials described a need to find staff with expertise in this complicated, specialized area. All five agencies fund their civil rights and diversity offices separately from their STEM research funding, and there is little relationship between the two budgets. For more information on selected agencies’ civil rights and diversity office staffing and budgets planned for fiscal year 2019, see table 2. Number of complaints received. Our preliminary analysis of sexual harassment complaint information indicates that four of the five selected agencies received three or fewer complaints from individuals at grantee universities from fiscal year 2015 through 2019. See table 3. Officials from DOE told us that because they receive so few sexual harassment complaints from individuals at grantee universities, they have enough resources to address those that are reported to their civil rights or diversity offices. In addition, officials from HHS told us that because they receive so few complaints, their civil rights office has used other oversight mechanisms, like Title IX compliance reviews, to examine whether sexual harassment is occurring at universities receiving HHS funds, including funds from NIH. However, as agencies continue to strengthen grantee policies or requirements, it may affect the number of complaints an agency receives from individuals at grantee universities, as well as the amount of resources an agency needs to address them. For example, NSF officials described how the number of sexual harassment complaints they receive has increased since the agency implemented new grant terms and conditions that require university grantees to report any sexual harassment findings involving a Principal Investigator or co-Principal Investigator for NSF-funded research. NSF officials also described an increased number of questions and calls about how to report incidents, requests for training and presentations, and meetings with program officers, awardee representatives and other stakeholders, among other items. Agencies Have Different Sexual Harassment Prevention Policies and Mechanisms for Communicating Them to Grantees Based on our preliminary review, all five of the selected agencies have established and communicated their own sexual harassment prevention policies to grantees within the last 2 fiscal years, but agency communication mechanisms and the content of these grantee policies vary. Specifically, our preliminary analysis shows that NASA, NIH, and NSF communicate their policies on sexual harassment in multiple forms, such as grantee policy manuals, best practices documents, and online FAQs. The result is that grantees receive a relatively high level of detail about preventing sexual harassment and mechanisms for reporting complaints. In contrast, Cabinet agencies DOE and USDA-NIFA provide fewer forms of guidance, either through their website or agency director and Secretary-level policy statements and documents, which focus more generally on the broader category of sex discrimination or provide different levels of information on sexual harassment prevention policies for grantees. See table 4 for more information. Regarding the content of the policies, our preliminary analysis shows that DOE, NIH, NSF, and USDA-NIFA updated their definitions of behaviors or actions that qualify as sexual harassment in their grantee policies and procedures, and NASA is in the process of doing so. The definitions are more specific than previous definitions; for example, they include descriptions of gender harassment, the most common form of sexual harassment. The increased specificity may make clear the behaviors or actions grantees are expected to address in their efforts to prevent sexual harassment. The agencies continue to develop and revise policies and communication mechanisms for grantees. Also, NSF and NASA have modified, or are taking steps to modify their grant terms and conditions to strengthen requirements for university grantees to report on findings of sexual harassment to the funding agency. Officials from both agencies told us these modifications will help hold grantees accountable for reporting sexual harassment; the NSF Director states on the agency’s website that these changes are “intended to provide targeted, serious consequences for harassers” while also providing “tools to make harassment stop without disturbing others’ careers and lives.” The requirement also supports the NASEM 2018 report recommendation for institutions to be transparent about reporting sexual harassment findings, which is intended to foster a culture and climate that does not tolerate sexual harassment at universities. Officials from cabinet agencies DOE, NIH (a component of HHS), and USDA-NIFA stated they would need to go through formal rulemaking processes to alter their grant terms and conditions in a similar manner. In addition, our preliminary analysis shows that two of the five selected agencies are taking steps to evaluate the effectiveness of their sexual harassment prevention policies and procedures for grantees. NSF officials told us that they are in the process of determining how best to evaluate the effectiveness of the new sexual harassment reporting requirements and how the requirements have affected grantees. Similarly, DOE is in the process of comparing its policies and procedures against other federal agencies’, according to officials. To date, the other three agencies have not yet evaluated the effectiveness of their policies, but officials at these agencies told us that they focus on ensuring grantees comply with Title IX regulations as a way to measure the effect of their policies. For example, NASA established a goal to promote compliance and encourage best practices among grantees, and the agency measures progress towards this goal through verifying grantee compliance with Title IX. USDA-NIFA officials are also in the process of creating a tool to provide a comprehensive blueprint for civil rights compliance—including Title IX compliance—and are planning to implement the tool in fiscal year 2020. We will continue to examine and assess the selected agencies’ sexual harassment prevention policies for university grantees and steps they are taking to evaluate them in our ongoing work. Agencies Have Taken Some Steps to Share Information and Collaborate Based on our preliminary review, all five selected agencies have taken some steps to promote information sharing and collaboration among agencies on Title IX compliance reviews through DOJ’s Title IX STEM working group. According to officials, the group discusses strategies for conducting joint Title IX compliance reviews to leverage limited agency resources and share best practices. For example, DOE and NSF have conducted three joint compliance reviews, and NASA and NSF told us that they are in the process of conducting a joint review. These joint reviews can be helpful, as the selected agencies conduct a small number of compliance reviews (two to four) annually relative to the number of university grantees who must comply with Title IX. Despite this collaboration, all five selected agencies reported challenges in obtaining and sharing information. For example, all five selected agencies told us they rarely discuss sexual harassment cases at DOJ’s Title IX STEM working group meetings unless they are directly related to an ongoing or planned compliance review. In addition, DOE, NASA, NIH, and NSF stated they rarely learn about instances of sexual harassment from voluntary reporting from universities or other federal agencies and instead must rely on other sources, such as news reports. This situation may change at NSF and NASA, which have taken steps to modify their grant terms and conditions to require reporting of sexual harassment findings by grantees. Challenges in obtaining and sharing information on sexual harassment cases may increase the risk of a situation known as “pass the harasser,” in which a researcher with substantiated findings of sexual harassment obtains employment at another university or grants from another funding agency without the university or funding agency being aware of the researcher’s history. Officials from all five selected agencies noted a willingness to participate in an interagency working group to address the culture of sexual harassment in STEM research that moves beyond conducting Title IX compliance reviews. The White House’s Office of Science and Technology Policy (OSTP) has taken steps to establish an interagency working group. In May 2019, OSTP established a joint committee under the National Science and Technology Council to address challenges in the research environment. OSTP, NIH, NSF, DOE, and the National Institute of Standards and Technology Directors were selected as joint committee chairs to engage with the academic and science community for policymaking insight and to convene interagency efforts. According to DOE officials, the committee will address several priorities, including the development of policies and procedures across the federal government regarding sexual harassment in the research environment. Three of the five selected agencies (NSF, NASA, and DOE) stated OSTP would be the appropriate entity to establish uniform sexual harassment policy guidelines to help provide consistency across the federal government. NSF and NASA officials suggested that DOJ or the Department of Education would be the appropriate agencies to collaborate with OSTP on the ongoing monitoring of sexual harassment policy guidelines. All five selected agencies reported taking collaborative steps with universities and federal agencies to address the culture and climate for women in STEM. For example, in 2019, NIH established a working group with university experts to collaborate with other federal agencies to assess the current state of sexual harassment allegation investigation, reporting, remediation, and disciplinary procedures at NIH-funded organizations and advise on oversight, accountability, and reporting measures for grantees, among other things. In addition, all five agencies provided examples of collaborative efforts that would help address the culture of sexual harassment in STEM research. For example, NASA officials told us that it would be helpful to conduct joint meetings with other university grantees across agencies to discuss sexual harassment in science. Lastly, efforts to improve information sharing and collaboration across agencies beyond conducting Title IX compliance reviews are consistent with findings in the 2018 NASEM report, which states, “adherence to legal requirements is necessary but not sufficient to drive the change needed to address sexual harassment.” We will continue to examine and assess selected agencies’ Title IX reviews and efforts to collaborate and share information in our ongoing work. In closing, I note that we are continuing our ongoing work on this topic. Sexual harassment is not only degrading to individual researchers, it undermines the quality and fairness of our nation’s research enterprise. It is therefore important that federal agencies ensure their grantees effectively prevent and address sexual harassment in STEM research. We look forward to continuing our work to determine whether additional federal actions may be warranted to promote this objective. Chairwoman Johnson, Ranking Member Lucas, and Members of the Committee, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. GAO Contact and Staff Acknowledgments If you or your staff have any questions about this testimony, please contact John Neumann, Managing Director, Science, Technology Assessment, and Analytics, at (202) 512-6888 or NeumannJ@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Key contributors to this testimony include Rob Marek (Assistant Director), Michelle St. Pierre (Assistant Director), Kristy Kennedy (Analyst-In-Charge), Nora Adkins, Caitlin Cusati, Nkenge Gibson, Amanda Postiglione, Janay Sam, and Ben Shouse. 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.

In fiscal year 2017, U.S. universities were awarded over $15 billion in federal grant funding for STEM research. Federal agencies are required to enforce Title IX—a law prohibiting discrimination on the basis of sex in education programs receiving federal financial assistance—including at universities they fund. Sexual harassment is not only degrading and illegal, it has a negative effect on the ability of women to engage in research at the same level as men. GAO was asked to review federal efforts to help prevent sexual harassment by STEM research grantees. This testimony is based on ongoing GAO work and provides preliminary observations on selected agencies: (1) availability of staff and budget to address sexual harassment complaints at universities they fund for STEM research; (2) efforts to establish and communicate policies and procedures for university grantees on preventing sexual harassment; and (3) steps taken to promote information sharing and collaboration among agencies to prevent sexual harassment at universities they fund for STEM research. GAO selected five federal agencies that together funded approximately 80 percent of STEM research from fiscal year 2015 through 2017, the latest data available. GAO reviewed these agencies' relevant regulations and documentation. GAO also interviewed agency officials as part of GAO's ongoing work. Based on preliminary information, the availability of agency staff and budget varies across the five selected agencies for efforts to address sexual harassment complaints at universities that use federal funds for Science, Technology, Engineering, and Mathematics (STEM) research. While four of the five agencies received three or fewer sexual harassment complaints from individuals at grantee universities from 2015 through 2019, changes to agency grantee policies or requirements could impact the number of complaints an agency receives and the amount of resources an agency needs to address them. The five selected agencies have established and communicated sexual harassment prevention policies to university grantees to varying degrees. Agencies vary in how they have: Provided detailed policies to grantees on sexual harassment. Three agencies—the National Aeronautics and Space Administration (NASA), Health and Human Services (HHS) National Institutes of Health (NIH), and the National Science Foundation (NSF)—have communicated relatively detailed policies on sexual harassment by issuing multiple forms of guidance, such as grantee policy manuals and best practices documents. In contrast, the Department of Energy (DOE) and Department of Agriculture (USDA) National Institute of Food and Agriculture (NIFA) communicated through more general documents, including policy statements that do not specifically address grantees. Modified grant terms and conditions . Two agencies are modifying the terms and conditions of grants to require grantees to report sexual harassment. NSF now requires grantees to increase transparency by reporting findings of sexual harassment to NSF, and NASA plans to implement the same requirement. Evaluated effectiveness of grantee policies. To date, the five agencies have not evaluated the effectiveness of their grantee policies and procedures to prevent sexual harassment, although two agencies are in the process of planning such evaluations. Based on our preliminary analysis and interviews, all five selected agencies have taken some steps to promote information sharing and collaboration among agencies on the prevention of sexual harassment. But they also noted challenges to these efforts, such as the lack of information on sexual harassment cases. These challenges may increase the risk that universities or agencies are unknowingly funding researchers with a history of past sexual harassment findings. The White House's Office of Science and Technology Policy has taken steps to create an interagency working group by establishing a joint committee in May 2019 under the National Science and Technology Council with NIH, NSF, DOE, and the National Institute of Standards and Technology Directors. The committee plans to address challenges in the research environment, including the lack of uniform federal sexual harassment policies.

CRS_R45820

About the U.S. Department of Health and Human Services (HHS) The mission of HHS is to "enhance the health and well-being of Americans by providing for effective health and human services and by fostering sound, sustained advances in the sciences underlying medicine, public health, and social services." HHS is currently organized into 11 main agencies, called "operating divisions" (listed below), which are responsible for administering a wide variety of health and human services programs, and conducting related research. In addition, HHS has a number of "staff divisions" within the Office of the Secretary (OS). These staff divisions fulfill a broad array of management, research, oversight, and emergency preparedness functions in support of the entire department. HHS Operating Divisions Eight of the HHS operating divisions are part of the U.S. Public Health Service (PHS). PHS agencies have diverse missions in support of public health, including the provision of health care services and supports (e.g., IHS, HRSA, SAMHSA); the advancement of health care quality and medical research (e.g., AHRQ, NIH); the prevention and control of disease, injury, and environmental health hazards (e.g., CDC, ATSDR); and the regulation of food and drugs (e.g., FDA). The three remaining HHS operating divisions—ACF, ACL, and CMS—are not PHS agencies. ACF and ACL largely administer human services programs focused on the well-being of vulnerable children, families, older Americans, and individuals with disabilities. CMS—which accounts for the largest share of the HHS budget by far—is responsible for administering Medicare, Medicaid, and the State Children's Health Insurance Program (CHIP), in addition to some aspects of the private health insurance market. (For a summary of each operating division's mission and links to agency resources related to the FY2020 budget request, see the Appendix .) Context for the FY2020 President's Budget Request The initial President's budget request for FY2020 was submitted to Congress on March 11, 2019, about five weeks after the statutory deadline. (Additional components of the FY2020 request were released in subsequent weeks.) The delay in the budget submission was attributable, in part, to protracted negotiations over seven of the FY2019 annual appropriations acts, which resulted in a five-week partial government shutdown. (Five of the 12 annual appropriations acts had already received full-year appropriations for FY2019 when the shutdown commenced.) At HHS, the FY2019 shutdown primarily affected FDA, IHS, and ATSDR. The remaining HHS operating and staff divisions generally had already received full-year FY2019 funding prior to the start of the fiscal year (Division B of P.L. 115-245 ). Full-year appropriations for FDA, IHS, and ATSDR were ultimately enacted on February 15, 2019, almost five months after the start of the fiscal year ( P.L. 116-6 ). In light of this delay, the source of the FY2019 numbers contained in the FY2020 President's budget materials varies by HHS agency. In the case of FDA, IHS, and ATSDR, amounts shown for FY2019 were estimated based on annualized funding levels under the FY2019 continuing resolution (Division C of P.L. 115-245 , as amended), not final full-year enacted levels. By contrast, amounts shown for the remaining HHS agencies generally reflect enacted full-year appropriations provided in Division B of P.L. 115-245 . Overview of the FY2020 HHS Budget Request Under the President's budget request, HHS would spend an estimated $1.286 trillion in outlays in FY2020 (see Table 1 ). This is $56 billion (+5%) more than estimated HHS spending in FY2019 and about $166 billion (+15%) more than actual HHS spending in FY2018. Historical estimates by the Office of Management and Budget (OMB) indicate that HHS has accounted for at least 20% of all federal outlays in each year since FY1995. Most recently, OMB estimated that HHS accounted for 27% of all federal outlays in FY2018. Figure 1 displays proposed FY2020 HHS outlays by major program or spending category in the President's request. As this figure shows, mandatory spending typically accounts for the vast majority of the HHS budget. In fact, two programs—Medicare and Medicaid—are expected to account for 86% of all estimated HHS spending in FY2020. Medicare and Medicaid are "entitlement" programs, meaning the federal government is required to make mandatory payments to individuals, states, or other entities based on criteria established in authorizing law. This figure also shows that discretionary spending accounts for about 8% of estimated FY2020 HHS outlays in the President's request. Although discretionary spending represents a relatively small share of total HHS spending, the department nevertheless receives more discretionary money than most federal departments. According to OMB data, HHS accounted for 7% of all discretionary budget authority across the government in FY2018, the same as the Department of Homeland Security. The Department of Defense was the only federal agency to account for a larger share of all discretionary budget authority in that year (47%). Budgetary Resources Versus Appropriations Readers should be aware that the HHS budget includes a broader set of budgetary resources than the amounts provided to HHS through the annual appropriations process. As a result, certain amounts shown in FY2020 HHS budget materials (including amounts for prior years) will not match amounts provided to HHS by annual appropriations acts and displayed in accompanying congressional documents. There are several reasons for this: M andatory spending makes up a large portion of the HHS budget, and much of that spending is provided directly by authorizing laws, not through appropriations acts. All discretionary spending is controlled and provided through the annual appropriations process. By contrast, all mandatory spending is controlled by the program's authorizing statute. In most cases, that authorizing statute also provides the funding for the program. However, the budget authority for some mandatory programs (including Medicaid), while controlled by criteria in the authorizing statute, must still be provided through the annual appropriations process; such programs are commonly referred to as "appropriated entitlements" or "appropriated mandatories." The HHS budget request takes into account the department as a whole, while the appropriations process divides HHS funding across three different appropriations bills. Most of the discretionary funding for the department is provided through the Departments of Labor, Health and Human Services, and Education, and Related Agencies (LHHS) Appropriations Act. However, funding for certain HHS agencies and activities is appropriated in two other bills—the Departments of the Interior, Environment, and Related Agencies Appropriations Act (INT) and the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act (AG). Table 2 lists HHS agencies by appropriations bill. The Administration may choose to follow different conventions than those of congressional scorekeepers for its estimates of HHS programs. For example, certain transfers of funding between HHS agencies (or from HHS to other federal agencies) that occurred in prior fiscal years, or are expected to occur in the current fiscal year, may be accounted for in the Administration's estimates but not necessarily in the congressional documents. HHS budget materials include two different estimates for mandatory spending programs in FY2019 when appropriate: proposed law and current law . Proposed law estimates take into account changes in mandatory spending proposed in the FY2020 HHS budget request. Such proposals would need to be enacted into law to affect the budgetary resources ultimately available to the mandatory spending program. HHS materials may also show a current law or current services estimate for mandatory spending programs. These estimates assume that no changes will be made to existing policies, and instead estimate mandatory spending for programs based on criteria established in current authorizing law. The HHS budget estimates in this report reflect the proposed law estimates for mandatory spending programs, but readers should be aware that other HHS, OMB, or congressional estimates might reflect current law instead. In some cases, agencies within HHS have the authority to expend user fees and other types of collections that effectively supplement their appropriations. In addition, agencies may receive transfers of budgetary resources from other sources, such as from the Public Health Service Evaluation Set-Aside (also referred to as the PHS Tap) or one of the mandatory funds established by the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended). Budgetary totals that account for these sorts of resources in the Administration estimates are referred to as being at the "program level." HHS agencies that have historically had notable differences between the amounts in the appropriations bills and their program level include FDA (due to user fees) and AHRQ (due to transfers). The program level for each agency is listed in the table entitled "Composition of the HHS Budget Discretionary Programs" in the HHS FY2020 Budget in Brief. HHS Budget by Operating Division Figure 2 provides a breakdown of the FY2020 HHS budget request by operating division. When taking into account both mandatory and discretionary budget authority (i.e., total budget authority shown in Figure 2 ), CMS accounts for the largest share of the request (nearly $1.17 trillion). The majority of the CMS budget request would go toward mandatory spending programs, such as Medicare and Medicaid. When looking exclusively at discretionary budget authority, funding for CMS is comparatively smaller, accounting for just $3.6 billion of the HHS discretionary request. The largest share of the discretionary request would go to the PHS agencies (roughly $59.4 billion in combined funding for FDA, HRSA, IHS, CDC, ATSDR, NIH, and SAMHSA; no funds would go to AHRQ under the request ). NIH would receive the largest amount ($33.5 billion) of discretionary budget authority of any HHS operating division, and ACF would receive the second-largest amount ($18.3 billion). Table 3 puts the FY2020 request for each HHS operating division and the Office of the Secretary into context, displaying it along with estimates of funding provided over the three prior fiscal years (FY2017-FY2019). These totals are inclusive of both mandatory and discretionary funding. The amounts in this table are shown in terms of budget authority (BA) and outlays. BA is the authority provided by federal law to enter into contracts or other financial obligations that will result in immediate or future expenditures involving federal government funds. Outlays occur when funds are actually expended from the Treasury; they could be the result of either new budget authority enacted in the current fiscal year or unexpended budget authority that was enacted in previous fiscal years. As a consequence, the BA and outlays in this table represent two different ways of accounting for the funding that is provided to each HHS agency through the federal budget process. For example, Table 3 shows $0 in FY2020 BA for AHRQ because the President's budget proposes to eliminate this agency; however, the table shows an estimated $299 million in FY2020 AHRQ outlays, reflecting the expected expenditure of funds previously provided to the agency. Appendix. HHS Operating Divisions: Missions and FY2020 Budget Resources This appendix provides for each operating division a brief summary of its mission, the applicable appropriations bill, the FY2020 budget request level, and links to additional resources related to that request. Food and Drug Administration (FDA) The FDA mission is focused on regulating the safety, efficacy, and security of human foods, dietary supplements, cosmetics, and animal foods; and the safety and effectiveness of human drugs, biological products (e.g., vaccines), medical devices, radiation-emitting products, and animal drugs. It also regulates the manufacture, marketing, and sale of tobacco products. Relevant Appropriations Bill: AG FY2020 Request: BA: $3.329 billion Outlays: $2.837 billion Additional Resources Related to the FY2020 Request: Congressional Justification (all-purpose table on p. 15), https://www.fda.gov/downloads/AboutFDA/ReportsManualsForms/Reports/BudgetReports/UCM633738.pdf . BIB chapter (p. 21), https://www.hhs.gov/sites/default/files/fy-2020-budget-in-brief.pdf#page=25 . Health Resources and Services Administration (HRSA) The HRSA mission is focused on "improving health care to people who are geographically isolated, economically or medically vulnerable." Among its many programs and activities, HRSA supports health care workforce training; the National Health Service Corps; and the federal health centers program, which provides grants to nonprofit entities that provide primary care services to people who experience financial, geographic, cultural, or other barriers to health care. Relevant Appropriations Bill: LHHS FY2020 Request: BA: $11.004 billion Outlays: $11.864 billion Additional Resources Related to the FY2020 Request: Congressional Justification (all-purpose table on p. 16), https://www.hrsa.gov/sites/default/files/hrsa/about/budget/budget-justification-fy2020.pdf . BIB chapter (p. 29), https://www.hhs.gov/sites/default/files/fy-2020-budget-in-brief.pdf#page=33 . Indian Health Service (IHS) The IHS mission is to provide "a comprehensive health service delivery system for American Indians and Alaska Natives" and "raise the physical, mental, social, and spiritual health of American Indians and Alaska Natives to the highest level." IHS provides health care for approximately 2.2 million eligible American Indians and Alaska Natives through a system of programs and facilities located on or near Indian reservations, and through contractors in certain urban areas. Relevant Appropriations Bill: INT FY2020 Request: BA: $6.104 billion Outlays: $5.970 billion Additional Resources Related to the FY2020 Request: Congressional Justification (all-purpose table on p. 7), https://www.ihs.gov/sites/budgetformulation/themes/responsive2017/display_objects/documents/FY2020CongressionalJustification.pdf BIB chapter (p. 36), https://www.hhs.gov/sites/default/files/fy-2020-budget-in-brief.pdf#page=40 . Centers for Disease Control and Prevention (CDC) and Agency for Toxic Substances and Disease Registry (ATSDR) The CDC mission is focused on "disease prevention and control, environmental health, and health promotion and health education." CDC is organized into a number of centers, institutes, and offices, some focused on specific public health challenges (e.g., injury prevention) and others focused on general public health capabilities (e.g., surveillance and laboratory services). In addition, the Agency for Toxic Substances and Disease Registry (ATSDR) is headed by the CDC director. For that reason, the ATSDR budget is often shown within CDC. Following the conventions of the FY2020 HHS BIB, ATSDR's budget request is included in the CDC totals shown in this report. ATSDR's work is focused on preventing or mitigating adverse effects resulting from exposure to hazardous substances in the environment. Relevant Appropriations Bills: LHHS (CDC) INT (ATSDR) FY2020 Request (CDC and ATSDR combined): BA: $6.767 billion Outlays: $7.877 billion Additional Resources Related to the FY2020 Request: CDC Congressional Justification (all-purpose table on p. 23), https://www.cdc.gov/budget/documents/fy2020/fy-2020-cdc-congressional-justification.pdf . ATSDR Congressional Justification, https://www.cdc.gov/budget/documents/fy2020/fy-2020-atsdr.pdf . BIB chapter (p. 43), https://www.hhs.gov/sites/default/files/fy-2020-budget-in-brief.pdf#page=47 . National Institutes of Health (NIH) The NIH mission is focused on conducting and supporting research "in causes, diagnosis, prevention, and cure of human diseases" and "in directing programs for the collection, dissemination, and exchange of information in medicine and health." NIH is organized into 27 research institutes and centers, headed by the NIH Director. (The FY2020 President's budget assumes that AHRQ's functions will be consolidated within NIH, in the new National Institute for Research on Safety and Quality (NIRSQ). This assumption is reflected in the figures below. ) Relevant Appropriations Bill: LHHS FY2020 Request: BA: $33.669 billion Outlays: $36.652 billion Additional Resources Related to the FY2020 Request: Congressional Justification (all-purpose table on p. 18), available at https://officeofbudget.od.nih.gov/pdfs/FY20/br/Overview-Volume-FY-2020-CJ.pdf . BIB chapter (p. 52), available at https://www.hhs.gov/sites/default/files/fy-2020-budget-in-brief.pdf#page=56 . Substance Abuse and Mental Health Services Administration (SAMHSA) The SAMHSA mission is focused on reducing the "impact of substance abuse and mental illness on America's communities." SAMHSA coordinates behavioral health surveillance to improve understanding of the impact of substance abuse and mental illness on children, individuals, and families, and the costs associated with treatment. Relevant Appropriations Bill: LHHS FY2020 Request: BA: $5.535 billion Outlays: $5.684 billion Additional Resources Related to the FY2020 Request: Congressional Justification (all-purpose table on p. 8), https://www.samhsa.gov/sites/default/files/samhsa-fy-2020-congressional-justification.pdf . BIB chapter (p. 60), https://www.hhs.gov/sites/default/files/fy-2020-budget-in-brief.pdf#page=64 . Agency for Healthcare Research and Quality (AHRQ) The AHRQ mission is focused on research to make health care "safer, higher quality, more accessible, equitable, and affordable." Specific AHRQ research efforts are aimed at reducing the costs of care, promoting patient safety, measuring the quality of health care, and improving health care services, organization, and financing. The FY2020 President's budget proposes eliminating AHRQ and consolidating certain key AHRQ functions within NIH, in the new National Institute for Research on Safety and Quality (NIRSQ). Relevant Appropriations Bill: LHHS FY2020 Request: BA: $0 Outlays: $0.299 billion Additional Resources Related to the FY2020 Request: Congressional Justification for the proposed National Institute for Research on Safety and Quality, https://www.ahrq.gov/sites/default/files/wysiwyg/cpi/about/mission/budget/2020/FY_2020_CJ_-NIRSQ.pdf . There is no FY2020 BIB chapter for AHRQ. Centers for Medicare & Medicaid Services (CMS) The CMS mission is focused on supporting "innovative approaches to improve quality, accessibility, and affordability" of Medicare, Medicaid, the State Children's Health Insurance Program (CHIP), and private insurance, and on supporting private insurance market reform programs. The President's budget estimates that in FY2020, "over 145 million Americans will rely on the programs CMS administers including Medicare, Medicaid, the Children's Health Insurance Program (CHIP), and the [Health Insurance] Exchanges." Relevant Appropriations Bill: LHHS FY2020 Request: BA: $1,169.091 billion Outlays: $1,156.333 billion Additional Resources Related to the FY2020 Request: Congressional Justification (all-purpose table on p. 9), https://www.cms.gov/About-CMS/Agency-Information/PerformanceBudget/FY2020-CJ-Final.pdf . BIB chapter (p. 65), https://www.hhs.gov/sites/default/files/fy-2020-budget-in-brief.pdf#page=69 . Administration for Children and Families (ACF) The ACF mission is focused on promoting the "economic and social well-being of children, youth, families, and communities." ACF administers a wide array of human services programs, including Temporary Assistance for Needy Families (TANF), Head Start, child care, the Social Services Block Grant (SSBG), and various child welfare programs. Relevant Appropriations Bill: LHHS FY2020 Request: BA: $52.121 billion Outlays: $53.208 billion Additional Resources Related to the FY2020 Request: Congressional Justification (all-purpose table on p. 6), https://www.acf.hhs.gov/sites/default/files/olab/acf_congressional_budget_justification_2020.pdf . BIB chapter (p. 122), https://www.hhs.gov/sites/default/files/fy-2020-budget-in-brief.pdf#page=126 . Administration for Community Living (ACL) The ACL mission is focused on maximizing the "independence, well-being, and health of older adults, people with disabilities across the lifespan, and their families and caregivers." ACL administers a number of programs targeted at older Americans and the disabled, including Home and Community-Based Supportive Services and State Councils on Developmental Disabilities. Relevant Appropriations Bill: LHHS FY2020 Request: BA: $1.997 billion Outlays: $2.238 billion Additional Resources Related to the FY2020 Request: Congressional Justification (all-purpose table on p. 13), https://acl.gov/sites/default/files/about-acl/2019-04/FY2020%20ACL%20CJ%20508.pdf . BIB chapter (p. 136), https://www.hhs.gov/sites/default/files/fy-2020-budget-in-brief.pdf#page=140 .

Historically, the U.S. Department of Health and Human Services (HHS) has been one of the larger federal departments in terms of budgetary resources. Estimates by the Office of Management and Budget (OMB) indicate that HHS has accounted for at least 20% of all federal outlays in each year since FY1995. Most recently, HHS is estimated to have accounted for 27% of all federal outlays in FY2018. Final FY2019 appropriations had not been enacted for a few HHS operating divisions and accounts prior to the development of the FY2020 President's budget request. As a result, the FY2019 estimates contained in FY2020 President's budget materials (and this report) are based on annualized amounts provided in the FY2019 continuing resolution for this subset of HHS accounts. The remainder of the HHS estimates for FY2019 are based on enacted full-year appropriations contained in Division B of P.L. 115-245 , along with current services estimates for mandatory spending. Under the FY2020 President's budget request, HHS would spend an estimated $1.286 trillion in outlays in FY2020. This is $56 billion (+5%) more than estimated HHS spending in FY2019 and $166 billion (+15%) more than actual HHS spending in FY2018. Mandatory spending typically comprises the majority of the HHS budget. Two programs—Medicare and Medicaid—are expected to account for 86% of all estimated HHS spending in FY2020, according to the President's budget request. Medicare and Medicaid are "entitlement" programs, meaning the federal government is required to make mandatory payments to individuals, states, or other entities based on criteria established in authorizing law. Discretionary spending accounts for about 8% of HHS outlays in the FY2020 President's budget request. Although discretionary spending represents a relatively small share of total HHS spending, the department nevertheless receives more discretionary money than most federal departments. According to OMB data, HHS accounted for 7% of all discretionary budget authority across the government in FY2018. This report provides information about the FY2020 HHS budget request. It begins with a review of the department's mission and structure. Next, the report provides some context for the FY2020 President's budget request. It then discusses the concept of the HHS budget as a whole, in comparison to how funding is provided to HHS through the annual appropriations process. The report continues with a breakdown of the HHS request by operating division. An appendix summarizes the mission of each HHS operating division and identifies additional agency-level resources related to the FY2020 budget request.

GAO_GAO-20-474

Background Designating Federal Programs as High Risk Since the early 1990s, our high-risk program has focused attention on government operations with greater vulnerabilities to fraud, waste, abuse, and mismanagement, or that are in need of transformation to address economy, efficiency, or effectiveness challenges. To determine which federal government programs and functions should be designated high risk, we use our guidance document, Determining Performance and Accountability Challenges and High Risks. We consider qualitative factors, such as whether the risk (1) involves public health or safety, service delivery, national security, national defense, economic growth, or privacy or citizens’ rights; or (2) could result in significantly impaired service, program failure, injury or loss of life, or significantly reduced economy, efficiency, or effectiveness. We also consider the exposure to loss in monetary or other quantitative terms. At a minimum, $1 billion must be at risk, in areas such as the value of major assets being impaired; revenue sources not being realized; major agency assets being lost, stolen, damaged, wasted, or underutilized; potential for, or evidence of improper payments; and presence of contingencies or potential liabilities. Before making a high-risk designation, we also consider corrective measures that are planned or under way to resolve a material control weakness and the status and effectiveness of these actions. We release a High-Risk Series report every two years at the start of each new Congress. Our biennial reports detail progress made on previously designated high-risk issues. We designate any new issue areas we identify as high risk, based on the above criteria, in these reports or in separate products outside of the two-year cycle. We make out-of-cycle designations—as has been the case for seven other high-risk designations we have made—to highlight urgent issues, help ensure focused attention, and maximize the opportunity for the federal government to take action. National Drug Control Program Agencies The Office of National Drug Control Policy (ONDCP) was established by the Anti-Drug Abuse Act of 1988 as a component of the Executive Office of the President, and its Director is to assist the President in the establishment of the policies, goals, objectives, and priorities for the National Drug Control Program. In October 2018, the SUPPORT Act, among other things, reauthorized ONDCP and amended its authorities. ONDCP is responsible for (1) leading the national drug control effort, (2) coordinating and overseeing the implementation of national drug control policy, (3) assessing and certifying the adequacy of National Drug Control Programs and the budget for those programs, and (4) evaluating the effectiveness of national drug control policy efforts. As part of these efforts, ONDCP is to coordinate with more than a dozen federal agencies—known as National Drug Control Program agencies— that have responsibilities for activities including education and prevention, treatment, and law enforcement and drug interdiction (see fig. 1). Within these agencies, there may be components or offices that handle specific aspects of drug control. Some examples include SAMHSA and CDC within HHS, and the Drug Enforcement Administration (DEA) within the Department of Justice. Rates of Drug Misuse and Drug Overdose Deaths Have Generally Increased in the United States Rates of drug misuse and drug overdose deaths have generally increased in the United States. Nationally representative data show that this increase in the estimated rate of drug misuse has occurred across several demographic categories such as sex and education levels. Nationally, the rate of drug overdose deaths decreased in 2018 after increasing almost every year since 2002. Drug overdose death rates vary by region and by different types of drugs. Drug Misuse Has Increased in the United States and Affected People across a Range of Demographics Drug misuse—the use of illicit drugs and the misuse of prescription drugs—has generally increased in the United States since 2002. According to SAMHSA, estimates of self-reported drug misuse among people aged 12 or older increased from 14.9 percent in 2002 to 16.7 percent in 2014, and then further increased from 17.8 percent in 2015 to 19.4 percent in 2018 (see fig. 2). The increase in estimated drug misuse from 2015 to 2018 by people aged 12 or older is evident in people across a broad range of demographic groups, including sex, race or ethnicity, military veterans, income and education levels, employment status, and geographic categories, with few exceptions (see figures 3 through 5). Additionally, the estimated percentage of drug misuse within certain demographic groups increased for some years and decreased for others, in every year more than 10 percent of the people in every demographic group reported misusing drugs. The National Rate of Drug Overdose Deaths Increased between 2002 and 2018 The rate of drug overdose deaths in the United States increased between 2002 and 2018 (see fig. 6). For context, in 2002, there were 23,518 drug overdose deaths, and in 2018, there were 67,367 drug overdose deaths, according to CDC data. Furthermore, the rate of drug overdose deaths increased more rapidly in recent years; the rate increased on average by 2 percent per year from 2006 through 2013, and by 14 percent per year from 2013 through 2016; however, the rate decreased by 4.6 percent between 2017 and 2018. Regional Rates of Drug Overdose Deaths Varied Across the Nation Rates of drug overdose deaths varied in counties across the nation in 2003 and 2017, the most recent year that county-level data were available (see fig. 7). In 2017, there were some areas of the country with high rates of drug overdose deaths. For example, in 2017, 1,354 counties (43.2 percent of counties) had estimates of more than 20 drug overdose deaths per 100,000 people, including 448 counties with rates that were significantly higher than this amount. Rates of Overdose Deaths Increased for Multiple Drug Types between 2002 and 2018 The rate of overdose deaths for different types of drugs increased between 2002 and 2018. Rates of drug overdose deaths involving synthetic opioids, natural and semi-synthetic opioids, methadone, heroin, cocaine, benzodiazepines, psychostimulants, and antidepressants generally increased between 2002 and 2018 (see fig. 8). It is important to note that drug overdose deaths may involve more than one drug, and the drugs most frequently involved in overdose deaths were often found in combination with each other. The most common drugs involved in overdose deaths vary in different parts of the United States, according to data for each of the 10 HHS public health regions (see fig. 9). Generally, in eastern regions, fentanyl was the most common drug involved in overdose deaths in 2017, the most recent year that data were available, whereas methamphetamine was the most common drug involved in overdose deaths in western regions. As previously discussed, many drug overdose deaths involve more than one drug. Negative Effects of Drug Misuse Are Widespread and Cost Billions Past GAO work, as well as other selected government and academic studies, have found that drug misuse results in high costs for society and the economy. Such costs vary and include health care costs, criminal justice costs, workplace productivity costs, education costs, human services costs, and mortality costs. Figure 10 below includes examples of costs and other effects of drug misuse in these areas. These costs are born by federal, state, and local governments; private businesses and nonprofit organizations; employers; families, and individuals who misuse drugs. While selected studies we reviewed provided estimates for some of the costs of drug misuse, one study also indicated it is difficult to precisely quantify these costs. For example, concepts such as the quality of life or the pain and suffering of family members are difficult to fully capture or quantify. Challenges Impede National Efforts to Prevent, Respond to, and Recover from the Drug Crisis Our recent work on the topic of drug misuse and its effects has highlighted challenges the federal government faces that impede national efforts to address the drug crisis. We categorized these challenges as related to sustained leadership and strengthened coordination; capacity to address the crisis; and measurement, evaluation, and demonstration of progress. In the course of our work on the topic of drug misuse, we have identified many actions that if taken could help to address challenges in each of these areas, and have made specific recommendations to federal agencies about these actions. While over 25 of these recommendations have been implemented by National Drug Control Program agencies since fiscal year 2015, over 60 of our recommendations to at least 10 federal agencies—including recommendations that have received our highest priority designation— have not yet been implemented as of February 2020. The information below describes our findings and how agencies’ inaction on our recommendations has contributed to the federal government’s lack of progress in addressing the drug crisis. Sustained leadership and strengthened coordination. Making progress in high-risk areas requires demonstrated, strong, and sustained commitment and coordination, which we have found to be a challenge facing the federal government’s drug control efforts. Our work has identified the need for ONDCP to improve its efforts to lead and coordinate the national effort to address drug misuse and for agency leaders to engage in more effective coordination across the government and with stakeholders. ONDCP has a responsibility to coordinate and oversee the implementation of the national drug control policy across the federal government, and the National Drug Control Program agencies also have important roles and responsibilities that involve reducing drug misuse and mitigating its effects. ONDCP’s responsibility to develop the National Drug Control Strategy offers the office an important opportunity to help prioritize, coordinate, and measure key efforts to address the drug crisis. Our work has shown that ONDCP can improve its efforts to develop a National Drug Control Strategy that meets statutory requirements and effectively coordinates national efforts to address drug misuse. In 2017 and 2018, ONDCP lacked a statutorily required National Drug Control Strategy, and we recently reported that the 2019 National Drug Control Strategy did not fully comply with the law. In December 2019, we recommended that ONDCP develop and document key planning elements to help ONDCP structure its ongoing efforts and to better position the agency to meet these requirements for future iterations of the National Drug Control Strategy. ONDCP subsequently issued the 2020 National Drug Control Strategy on February 3, 2020. We reviewed this Strategy and found that it made progress in addressing several statutory requirements. For example: The 2020 National Drug Control Strategy includes 17 annual quantifiable and measurable objectives and specific targets, such as reducing overdose deaths by 15 percent by 2022, whereas we found that the 2019 National Drug Control Strategy did not contain such annual targets. The 2020 Strategy also includes a description of how each of the Strategy’s long-range goals was determined, including required consultations and data used to inform the determination, and a list of anticipated challenges to achieving the Strategy’s goals, such as limitations in existing data systems that provide little insight into emerging patterns of drug misuse, and planned actions to address them. However, the 2020 Strategy fell short in meeting other requirements. For example, the 2020 Strategy does not include a list of each National Drug Control Program agencies’ activities and the role of each activity in achieving the Strategy’s long-range goals, as required by law. The federal government invests billions of dollars each year in programs spanning over a dozen agencies, and therefore the development and implementation of a comprehensive Strategy is critical to guiding and ensuring the effectiveness of federal activities to address drug misuse. In December 2019, we recommended that ONDCP routinely implement an approach to meet the requirements for future Strategy iterations, and ONDCP agreed. ONDCP is uniquely situated to promote coordination across federal agencies. For example, the National Drug Control Strategy is required to include a description of how each of the Strategy’s long-range goals will be achieved, including a list of each existing or new coordinating mechanism to achieve each goal and a description of ONDCP’s role in facilitating achievement of each goal. The 2020 Strategy partially addressed these required elements. By including these descriptions in future iterations of the Strategy and effectively implementing them, ONDCP has the potential to strengthen coordination and provide sustained leadership. ONDCP has previously used its unique position to help implement some of our recommendations aimed at improving coordination across federal agencies in their efforts to prevent and respond to drug misuse. For example, ONDCP implemented our recommendation to assess the extent of overlap and potential for duplication across federal programs engaged in drug abuse prevention and treatment activities and to identify opportunities for increased coordination as well as developed performance metrics and reporting data regarding field-based coordination to prevent drug trafficking. We have also reported on the lack of available treatment programs for pregnant women and newborns with neonatal abstinence syndrome as well as gaps in research related to the treatment of prenatal opioid use. As of February 2020, ONDCP implemented our recommendation to document the process the agency uses to identify gaps and action items to track federal activities related to prenatal opioid use and neonatal abstinence syndrome. Sustaining and building on these coordination efforts will help maximize opportunities, leverage resources, and better position ONDCP to identify opportunities for increased efficiencies in preventing and treating drug misuse. National Drug Control Program agencies also have a responsibility to coordinate their efforts, and we have reported that gaps in agency coordination have hindered national drug control efforts. For example, the Department of Homeland Security (DHS), the U.S. Postal Service (USPS), and U.S. Customs and Border Protection (CBP) each have important roles in enforcing certain data-sharing and enforcement requirements of the Synthetics Trafficking and Overdose Prevention Act of 2018 (STOP Act). The STOP Act requires DHS to promulgate regulations detailing additional USPS responsibilities—beyond those included in the Act—related to sharing advance electronic data with CBP that can be used to identify shipments at high risk of transporting illegal drugs by October 24, 2019. However, as of November 2019, DHS had not drafted these regulations, and therefore USPS’s and CBP’s responsibilities for sharing advance electronic data—a key tool that could help stop the flow of illicit drugs into the United States—remain unclear. As we reported in December 2019, DHS does not have a plan for drafting these regulations, and therefore we recommended that DHS develop a timeline to do so; DHS agreed with this recommendation. It is also important for the federal government to coordinate among different levels of government and across issue areas, including with state, local, and tribal agencies, as well as with community groups and organizations in the private sector working to address the drug crisis. Our prior work has also found ways in which coordination between federal efforts to address drug misuse and those of local governments and other stakeholders could be more effective. In January 2018, we reported that states cited the need for additional guidance, training, and technical assistance from HHS to address the needs of infants born with prenatal drug exposure. HHS disagreed with our recommendation to provide such guidance regarding the safe care for substance-affected infants, and has not implemented the recommendation. HHS stated that it had already clarified guidance in this area and believed that states needed flexibility to meet the program requirements in the context of each state’s program. We found that states continued to report issues with the guidance, and that the clarifications did not address an ongoing challenge regarding the program requirements. We continue to believe our recommendation is warranted. As of February 2020, HHS continues to disagree with us and with the states. Without adequate supports and services to ensure their safety, these vulnerable infants may be at risk for child abuse and neglect. We have also recently recommended in January 2020 that DEA should, in consultation with industry stakeholders—such as drug distributors— identify solutions to address the limitations of the ARCOS Enhanced Lookup Buyer Statistic Tool, to ensure industry stakeholders have the most useful information possible to assist them in identifying and reporting suspicious opioid orders to DEA. DEA agreed with our recommendation, and is starting to assess how to address this recommendation. These limitations, including a lack of appropriately detailed data, may limit the usefulness of the tool in assisting distributors in determining whether an order is suspicious. In addition, we have previously reported in 2019 that coordination across private health plans, health-care prescribers, pharmacists, and at-risk beneficiaries could contribute to the success of Medicare drug monitoring programs, which are designed to identify beneficiaries at risk of opioid misuse. We also have ongoing work on how federal departments and agencies coordinate their drug prevention efforts in schools as well as on how effectively federal agencies coordinated their counter-drug activities with Mexico. Capacity to address the crisis. We have identified ongoing challenges related to the nation’s capacity to address the drug crisis. Sufficient capacity and efficient use of that capacity are key components for making progress in high-risk areas; they are necessary for federal, state, and local agencies to achieve strategic goals in addressing drug misuse, such as implementing the National Drug Control Strategy. In our work designating high-risk government programs and functions, we define capacity as having the people and resources sufficient to address the risk. Our prior work has found that the nation faces insufficient capacity to successfully address persistent, troubling trends in drug misuse, including the lack of treatment options. In addition, the nation’s existing capacity may be plagued by inefficiencies and gaps in information about what resources are most effective in addressing drug misuse. These capacity challenges permeate every level of government and affect the nation’s key social services and health care programs. As a result, effectively addressing the drug crisis requires harnessing capacity across agencies within the federal government as well as coordinating with state and local governments and community-based nongovernment organizations. The availability of treatment for substance use disorders has not kept pace with needs, and the federal government has faced barriers to increasing treatment capacity. For example, we have reported on barriers to increasing access to evidence-based treatment for opioid use disorder, and federal efforts to address these barriers. Such barriers to treatment include a lack of Medicaid coverage for treatment medications in some states, delays that can be caused by the need for prior authorizations for some treatment medications, and the unwillingness of some health care providers to obtain the federal waiver required to prescribe some treatment medications. We have also reported that, according to officials at the Veterans Health Administration (VHA), many veterans lack access to residential substance use treatment programs because of high demand relative to capacity. Developing and maintaining sufficient capacity to address the drug crisis also requires that federal agencies use existing resources—such as data—effectively. For example, we have recently reported in January 2020 that DEA should be more proactive in using the data it already collects from DEA registrants to identify problematic drug transaction patterns. According to DEA officials, one analysis that they conduct on a quarterly basis involves using a computer algorithm when comparing large volumes of drugs purchased in a given geographic area to the area’s population data. However, DEA did not report conducting active and recurring monitoring of transactions using algorithms to detect and flag transactions that indicate potential diversion, either on a real-time or near real-time basis, to help identify questionable patterns in the data or unusual patterns of drug distribution on a more routine basis. Such analyses could be used to proactively support or generate leads for investigations of potential drug diversion. Registrants already report data on controlled-substance transactions to the DEA. DEA could use these data to identify trends in distribution or purchases of drugs in a given geographic area. DEA could also look for and compare unusual patterns in drug order activity in different locations to identify potential issues that warrant further investigation. Further, DEA has not established a way to manage all of the data it collects and maintains. DEA agreed with three of our four recommendations to better manage and use the data it collects. DEA neither agreed nor disagreed with the fourth recommendation. However, DEA has not yet implemented any of the recommendations. By implementing these recommendations, DEA could ensure that important data assets are formally managed and fully utilized to inform investigations and prevent diversion of prescription opioids to be sold illegally. Overall, federal efforts to address the drug crisis could make better use of available data to assist in identifying emerging patterns of misuse, allowing the government to respond more quickly to evolving trends. Beyond specific capacity challenges that we have identified, in December 2019 we reported on challenges federal agencies face in assessing the resources they will need to achieve the goals of the National Drug Control Strategy. ONDCP is required to issue drug control funding guidance to the heads of departments and agencies with responsibilities under the National Drug Control Program by July 1 of each year, and such funding guidance must address funding priorities developed in the National Drug Control Strategy. Since ONDCP did not issue a Strategy in 2017 or 2018, ONDCP could neither provide funding guidance to National Drug Control Program agencies based on the Strategy, nor could it review and certify budget requests of these agencies to determine if they are adequate to meet the goals of the Strategy, in accordance with and as required by law. Without a National Drug Control Strategy in 2017 or 2018, ONDCP used other sources—such as policy priorities identified in the President’s Budget from fiscal year 2018—to identify drug policy priorities and develop funding guidance. ONDCP issued a National Drug Control Strategy in 2019 and 2020, but neither Strategy included a 5-year projection for program and budget priorities, as required by law. In December 2019, we recommended that ONDCP develop and document key planning elements to help ONDCP structure its ongoing efforts and to better position the agency to meet these requirements for future iterations of the National Drug Control Strategy. We also found that the 2020 National Drug Control Strategy does not include estimates of federal funding or other resources needed to achieve each of ONDCP’s long-range goals. The 2020 Strategy includes a plan to expand treatment of substance use disorders that identifies unmet needs for substance use disorder treatment and a strategy for closing the gap between available and needed treatment. The plan also describes the roles and responsibilities of relevant National Drug Control Program agencies for implementing the plan. However, the plan does not identify resources required to enable National Drug Control Program agencies to implement the plan or resources required to eliminate the treatment gap, as required by law. The National Drug Control Strategy is important for assessing the nation’s capacity to address drug misuse through both the development of federal funding estimates and the certification of agency budget requests that aim to meet the goals of the Strategy. Additionally, we have ongoing work on the federal government’s capacity to address the drug crisis. For example, we are studying gaps in the capacity of the health care system to treat substance use disorders, and examining how grantees use funding from selected SAMHSA grant programs to increase access to substance use disorder treatment. We are also studying school-based drug prevention programs and the effects of drug misuse on the workforce. This work will examine challenges that states and local educational entities face in serving the needs of communities affected by the drug crisis. We also have planned work examining the effectiveness of federal funding to combat the ongoing opioid crisis. Measurement, evaluation, and demonstration of progress. The federal government faces challenges related to measuring, evaluating, and demonstrating progress towards addressing the crisis. We have reported that key data needed to measure and evaluate progress towards strategic goals are not reliable or are not collected and reported. We have also found that some agencies lack plans or metrics to measure the effectiveness of specific programs to address the drug crisis and to demonstrate that these programs are making progress towards stated national goals, including reducing drug overdose deaths and expanding access to addiction treatment. Successfully addressing drug misuse requires ongoing measurement and evaluation of efforts towards stated goals and the ability to share and use performance information to make midcourse changes and corrections where needed. Regarding challenges related to data, we have identified gaps in the availability and reliability of data for measuring progress. ONDCP and other federal, state, and local government officials have identified challenges with the timeliness, accuracy, and accessibility of data from law enforcement and public health sources related to both fatal and non- fatal overdose cases. In March 2018, we recommended that ONDCP lead a review on ways to improve overdose data; ONDCP did not indicate whether it agreed with our recommendation. Additionally, in December 2019, we found that ONDCP’s Drug Control Data Dashboard did not include all of the data required by the SUPPORT Act, such as data sufficient to show the extent of the unmet need for substance use disorder treatment. We recommended that ONDCP establish the planning elements to ensure that these data were included in the Data Dashboard, and ONDCP disagreed with our recommendation. Having accessible and reliable data, including data on drug overdoses will help ONDCP and other agencies better measure the scope and nature of the drug crisis. We also found in 2019 that the State Department cannot ensure the reliability of its program monitoring data for its Caribbean Basin Security Initiative, which seeks to reduce illicit drug trafficking. The State Department agreed with the recommendation to ensure the development and implementation of a data management system for centrally collecting reliable program monitoring data for all Caribbean Basin Security Initiative activities, but has not yet implemented it. Without this action, there may be discrepancies in how Caribbean Basin Security Initiative program performance data is defined and collected, and the State Department cannot report comprehensively or accurately on the Initiative’s activities to reduce illicit drug trafficking or track data trends across countries. While ONDCP is responsible for evaluating the effectiveness of national drug control policy efforts across the government, we found that ONDCP has not developed performance evaluation plans for the goals in the 2020 National Drug Control Strategy. Some of the long-range goals listed in the 2020 Strategy include expanding access to evidence-based treatment, reducing the availability of illicit drugs in the United States, and decreasing the over-prescribing of opioid medications. However, the 2020 National Drug Control Strategy does not include performance evaluation plans to measure progress against each of the Strategy’s long-range goals, as required by law. These performance evaluation plans are required by statute to include (1) specific performance measures for each National Drug Control Program agency, (2) annual and—to the extent practicable—quarterly objectives and targets for each measure, and (3) an estimate of federal funding and other resources necessary to achieve each performance objective and target. Without effective long-term plans that clearly articulate goals and objectives and without specific measures to track performance, federal agencies cannot fully assess whether taxpayer dollars are invested in ways that will achieve desired outcomes such as reducing access to illicit drugs and expanding treatment for substance use disorders. Additionally, National Drug Control Program agencies are responsible for evaluating their progress toward achieving the goals of the National Drug Control Strategy, and in some cases have improved how to measure this progress. For example, although the federal government continues to face barriers to increasing access to treatment for substance use disorders, HHS has recently implemented our recommendation to establish performance measures with targets to expand access to medication-assisted treatment (MAT) for opioid use disorders. As of March 2020, HHS has established such performance measures with targets to increase the number of prescriptions for MAT medications and to increase treatment capacity, as measured by the number of providers authorized to treat patients using MAT. Monitoring progress against these targets will help HHS determine whether its efforts to expand treatment are successful or whether new approaches are needed. We have also identified challenges regarding how federal agencies demonstrate the progress of specific programs toward addressing the drug crisis. We reported in 2018 on DEA’s 360 Strategy—which aims to coordinate DEA enforcement, diversion control, and demand reduction efforts—as well as on ONDCP’s Heroin Response Strategy under its High Intensity Drug Trafficking Areas program. We found that neither DEA’s 360 Strategy nor ONDCP’s Heroin Response Strategy included outcome- oriented performance measures for its activities and goals, respectively. DEA disagreed with and has not yet implemented our recommendation to establish these types of performance measures for its activities. ONDCP neither agreed nor disagreed with our recommendation to establish outcome-oriented performance measures for the goals of the Heroin Response Strategy, and has not yet implemented the recommendation. Without these measures, it is unclear the extent to which DEA or ONDCP can accurately and fully gauge their efforts and their overall effectiveness in combatting heroin and opioid use and reducing overdose deaths. Additionally, we have found that DEA does not have outcome-oriented goals and performance targets for its use of data in opioid diversion activities, making DEA likely not able to adequately assess whether its investments and efforts are helping to limit the availability of and better respond to the opioid prescription diversion threat. DEA neither agreed nor disagreed with our recommendation to establish these outcome- oriented goals and related performance targets for its opioid diversion activities, and has not implemented this recommendation. We have also reported that the Department of State has not established performance indicators for its Caribbean Basin Security Initiative to facilitate performance evaluation across agencies, countries, and activities, inhibiting the assessment of the program’s progress to reduce illicit drug trafficking. The State Department agreed with our recommendation to develop and implement a data management system for centrally collecting reliable program monitoring data. The State Department has not yet implemented this recommendation. Without robust assessments of how specific programs help to achieve the goals of the National Drug Control Strategy, federal agencies may be unable to demonstrate progress in addressing the drug crisis, and may be unable to make any needed adjustments to their strategies. Concluding Observations Illicit drug use and misuse of prescription drugs is a long-standing national problem that will continue to evolve. The terrible effects of drug misuse on families and communities have persisted over decades, despite ongoing federal, state, and local efforts. Federal agencies and Congress can and must work to ensure that available resources are coordinated effectively to mitigate and respond to the drug misuse crisis. Maintaining sustained attention on preventing, responding to, and recovering from drug misuse will be challenging in the coming months as many of the federal agencies responsible for addressing drug misuse are currently focused on addressing the COVID-19 pandemic. However, the severe public health and economic effects of the pandemic could fuel some of the contributing factors of drug misuse, such as unemployment— highlighting the need to sustain drug misuse prevention, response, and recovery efforts. Addressing these challenges will require sustained leadership and strengthened coordination; the necessary capacity to address the crisis; and the systems to measure, evaluate, and demonstrate progress. The more than 60 related GAO recommendations that have yet to be implemented are an indication of how federal agencies may begin addressing these challenges. For example: ONDCP should ensure future iterations of the National Drug Control Strategy include all statutorily required elements. Examples of statutorily required elements include a 5-year projection for the National Drug Control Program and budget priorities; a description of how each of the Strategy’s long-range goals will be achieved, including a list of each National Drug Control Program agency’s activities, and the role of each activity in achieving these goals, and estimates of federal funding or other resources needed to achieve these goals; performance evaluation plans for each year covered by the Strategy for each long-range goal for each National Drug Control Program agency; and resources required to enable National Drug Control Program agencies to implement the plan to expand treatment of substance use disorders and eliminate the treatment gap; ONDCP should take steps to ensure effective, sustained implementation of the 2020 National Drug Control Strategy and future strategies; HHS should provide guidance to states for the safe care for infants born with prenatal drug exposure, who may be at risk for child abuse and neglect; DEA should take steps to better analyze and use drug transaction data to identify suspicious opioid orders and prevent diversion of prescription opioids to be sold illegally; and the State Department should develop and implement a data management system for all Caribbean Basin Security Initiative activities to reduce illicit drug trafficking or track data trends across countries. Through our ongoing and planned work, we will continue to review the effects of drug misuse, the federal response, and opportunities for improvement. Agency Comments and Our Evaluation We provided draft report excerpts regarding our analysis of the 2020 National Drug Control Strategy to the Office of National Drug Control Policy for review and comment. ONDCP officials stated that they plan to address the statutory requirements that we identified as missing in additional documents, including the Fiscal Year 2021 Budget and Performance Summary. We will review and assess any additional materials that ONDCP publishes in response to the requirements for the 2020 National Drug Control Strategy. Findings regarding other programs and activities are drawn from past GAO work and our follow-up work on our recommendations; the related content was previously provided to the respective agencies for review as part of the original work. We are sending copies of this report to the appropriate congressional committees, the Director of the Office of National Drug Control Policy, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Triana McNeil at (202) 512-8777 or McNeilT@gao.gov, Mary Denigan- Macauley at (202) 512-7114 or DeniganMacauleyM@gao.gov, or Jacqueline M. Nowicki at (617) 788-0580 or NowickiJ@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 II. Appendix I: List of Selected Related GAO Reports Fiscal Year 2020 Reports International Mail: Stakeholders' Views on Possible Changes to Inbound Mail Regarding Customs Fees and Opioid Detection Efforts. GAO-20- 340R. Washington, D.C.: February 27, 2020. Medicaid: States' Changes to Payment Rates for Substance Use Disorder Services. GAO-20-260. Washington, D.C.: January 30, 2020. Drug Control: Actions Needed to Ensure Usefulness of Data on Suspicious Opioid Orders. GAO-20-118. Washington, D.C.: January 29, 2020. Opioid Use Disorder: Barriers to Medicaid Beneficiaries’ Access to Treatment Medications. GAO-20-233. Washington, D.C.: January 24, 2020. Social Security Disability: Action Needed to Help Agency Staff Understand and Follow Policies Related to Prescription Opioid Misuse. GAO-20-120. Washington, D.C.: January 9, 2020. Countering Illicit Finance and Trade: U.S. Efforts to Combat Trade-Based Money Laundering. GAO-20-314R. Washington, D.C.: December 30, 2019. Drug Control: The Office of National Drug Control Policy Should Develop Key Planning Elements to Meet Statutory Requirements. GAO-20-124. Washington, D.C.: December 18, 2019. International Mail: Progress Made in Using Electronic Data to Detect Illegal Opioid Shipments, but Additional Steps Remain. GAO-20-229R. Washington, D.C.: December 18, 2019. Counternarcotics: Treasury Reports Some Results from Designating Drug Kingpins, but Should Improve Information on Agencies’ Expenditures. GAO-20-112. Washington, D.C.: December 16, 2019. Mental Health and Substance Use: State and Federal Oversight of Compliance with Parity Requirements Varies. GAO-20-150. Washington, D.C.: December 13, 2019. Veterans Health Care: Services for Substance Use Disorders, and Efforts to Address Access Issues in Rural Areas. GAO-20-35. Washington, D.C.: December 2, 2019. Coast Guard: Assessing Deployable Specialized Forces' Workforce Needs Could Improve Efficiency and Reduce Potential Overlap or Gaps in Capabilities. GAO-20-33. Washington, D.C.: November 21, 2019. Substance Use Disorder: Prevalence of Recovery Homes, and Selected States’ Investigations and Oversight. GAO-20-214T. Washington, D.C.: October 24, 2019. Medicaid: Opioid Use Disorder Services for Pregnant and Postpartum Women, and Children. GAO-20-40. Washington, D.C.: October 24, 2019. Fiscal Year 2019 Reports U.S. Assistance to Central America: Department of State Should Establish a Comprehensive Plan to Assess Progress Toward Prosperity, Governance, and Security. GAO-19-590. Washington, D.C.: September 26, 2019. Science & Tech Spotlight: Opioid Vaccines. GAO-19-706SP. Washington, D.C.: September 16, 2019. U.S. Assistance to Mexico: State and USAID Allocated over $700 Million to Support Criminal Justice, Border Security, and Related Efforts from Fiscal Year 2014 through 2018. GAO-19-647. Washington, D.C.: September 10, 2019. Prescription Opioids: Patient Options for Safe and Effective Disposal of Unused Opioids. GAO-19-650. Washington, D.C.: September 3, 2019. Land Ports of Entry: CBP Should Update Policies and Enhance Analysis of Inspections. GAO-19-658. Washington, D.C.: August 6, 2019. Drug Control: Certain DOD and DHS Joint Task Forces Should Enhance Their Performance Measures to Better Assess Counterdrug Activities. GAO-19-441. Washington, D.C.: July 9, 2019. VA Mental Health: VHA Improved Certain Prescribing Practices, but Needs to Strengthen Treatment Plan Oversight. GAO-19-465. Washington, D.C.: June 17, 2019. Health Centers: Trends in Revenue and Grants Supported by the Community Health Center Fund. GAO-19-496. Washington, D.C.: May 30, 2019. Prescription Opioids: Voluntary Medicare Drug Management Programs to Control Misuse. GAO-19-446. Washington, D.C.: May 20, 2019. Drug Policy: Assessing Treatment Expansion Efforts and Drug Control Strategies and Programs. GAO-19-535T. Washington, D.C.: May 9, 2019. Drug Policy: Preliminary Observations on the 2019 National Drug Control Strategy. GAO-19-370T. Washington, D.C.: March 7, 2019. Behavioral Health: Research on Health Care Costs of Untreated Conditions is Limited. GAO-19-274. Washington, D.C.: February 28, 2019. Security Assistance: U.S. Agencies Should Establish a Mechanism to Assess Caribbean Basin Security Initiative Progress. GAO-19-201. Washington, D.C.: February 27, 2019. Drug Control: DOD Should Improve Its Oversight of the National Guard Counterdrug Program.GAO-19-27. Washington, D.C.: January 17, 2019. Colombia: U.S. Counternarcotics Assistance Achieved Some Positive Results but State Needs to Review the Overall U.S. Approach. GAO-19-106. Washington, D.C.: December 12, 2018. Illegal Marijuana: Opportunities Exist to Improve Oversight of State and Local Eradication Efforts. GAO-19-9. Washington, D.C.: November 14, 2018. Fiscal Year 2018 Reports Opioid Crisis: Status of Public Health Emergency Authorities. GAO-18-685R. Washington, D.C.: September 26, 2018. Adolescent and Young Adult Substance Use: Federal Grants for Prevention, Treatment, and Recovery Services and for Research. GAO-18-606. Washington, D.C.: September 4, 2018. Foster Care: Additional Actions Could Help HHS Better Support States’ Use of Private Providers to Recruit and Retain Foster Families. GAO-18-376. Washington, D.C.: May 30, 2018. VA Health Care: Progress Made Towards Improving Opioid Safety, but Further Efforts to Assess Progress and Reduce Risk Are Needed. GAO-18-380. Washington, D.C.: May 29, 2018. Prescription Opioids: Medicare Needs Better Information to Reduce the Risk of Harm to Beneficiaries. GAO-18-585T. Washington, D.C.: May 29, 2018. Illicit Opioids: Office of National Drug Control Policy and Other Agencies Need to Better Assess Strategic Efforts. GAO-18-569T. Washington, D.C.: May 17, 2018. Substance Use Disorder: Information on Recovery Housing Prevalence, Selected States’ Oversight, and Funding. GAO-18-315. Washington, D.C.: March 22, 2018. Illicit Opioids: While Greater Attention Given to Combating Synthetic Opioids, Agencies Need to Better Assess their Efforts. GAO-18-205. Washington, D.C.: March 29, 2018. Substance-Affected Infants: Additional Guidance Would Help States Better Implement Protections for Children. GAO-18-196. Washington, D.C.: January 19, 2018. Prescription Opioids: Medicare Should Expand Oversight Efforts to Reduce the Risk of Harm. GAO-18-336T. Washington, D.C.: January 17, 2018. Preventing Drug Abuse: Low Participation by Pharmacies and Other Entities as Voluntary Collectors of Unused Prescription Drugs. GAO-18-25. Washington, D.C.: October 12, 2017. Border Patrol: Issues Related to Agent Deployment Strategy and Immigration Checkpoints. GAO-18-50. Washington, D.C.: November 8, 2017. Prescription Opioids: Medicare Needs to Expand Oversight Efforts to Reduce the Risk of Harm. GAO-18-15. Washington, D.C.: October 6, 2017. Opioid Use Disorders: HHS Needs Measures to Assess the Effectiveness of Efforts to Expand Access to Medication-Assisted Treatment. GAO-18-44. Washington, D.C.: October 31, 2017. Counternarcotics: Overview of U.S. Efforts in the Western Hemisphere. GAO-18-10. Washington, D.C.: October 13, 2017. Newborn Health: Federal Action Needed to Address Neonatal Abstinence Syndrome. GAO-18-32. Washington, D.C.: October 4, 2017. Fiscal Year 2017 Reports Anti-Money Laundering: U.S. Efforts to Combat Narcotics-Related Money Laundering in the Western Hemisphere. GAO-17-684. Washington, D.C.: August 22, 2017. Nonviolent Drug Convictions: Stakeholders’ Views on Potential Actions to Address Collateral Consequences. GAO-17-691. Washington, D.C.: September 7, 2017. Medicaid: States Fund Services for Adults in Institutions for Mental Disease Using a Variety of Strategies. GAO-17-652. Washington, D.C.: August 9, 2017. International Mail Security: Costs and Benefits of Using Electronic Data to Screen Mail Need to Be Assessed. GAO-17-606. Washington, D.C.: August 2, 2017. Drug Control Policy: Information on Status of Federal Efforts and Key Issues for Preventing Illicit Drug Use. GAO-17-766T. Washington, D.C.: July 26, 2017. Medicaid Expansion: Behavioral Health Treatment Use in Selected States in 2014. GAO-17-529. Washington, D.C.: June 22, 2017. Border Security: Additional Actions Could Strengthen DHS Efforts to Address Subterranean, Aerial, and Maritime Smuggling. GAO-17-474. Washington, D.C.: May 1, 2017. VA Health Care: Actions Needed to Ensure Medical Facilities’ Controlled Substance Programs Meet Requirements. GAO-17-442T. Washington, D.C.: February 27, 2017. VA Health Care: Actions Needed to Ensure Medical Facility Controlled Substance Inspection Programs Meet Agency Requirements. GAO-17-242. Washington, D.C.: February 15, 2017. Drug Free Communities Support Program: Agencies Have Strengthened Collaboration but Could Enhance Grantee Compliance and Performance Monitoring. GAO-17-120. Washington, D.C.: February 7, 2017. Highlights of a Forum: Preventing Illicit Drug Use. GAO-17-146SP. Washington, D.C.: November 14, 2016. Fiscal Year 2016 Reports Opioid Addiction: Laws, Regulations, and Other Factors Can Affect Medication-Assisted Treatment Access. GAO-16-833. Washington, D.C.: September 27, 2016. Drug Enforcement Administration: Additional Actions Needed to Address Prior GAO Recommendations. GAO-16-737T. Washington, D.C.: June 22, 2016. Controlled Substances: DEA Should Take Additional Actions to Reduce Risks in Monitoring the Continued Eligibility of Its Registrants. GAO-16-310. Washington, D.C.: May 26, 2016. Office of National Drug Control Policy: Progress toward Some National Drug Control Strategy Goals, but None Have Been Fully Achieved. GAO-16-660T. Washington, D.C.: May 17, 2016. Veterans Justice Outreach Program: VA Could Improve Management by Establishing Performance Measures and Fully Assessing Risks. GAO-16-393. Washington, D.C.: April 28, 2016. State Marijuana Legalization: DOJ Should Document Its Approach to Monitoring the Effects of Legalization. GAO-16-419T. Washington, D.C.: April 5, 2016. DOD and VA Health Care: Actions Needed to Help Ensure Appropriate Medication Continuation and Prescribing Practices. GAO-16-158. Washington, D.C.: January 5, 2016. State Marijuana Legalization: DOJ Should Document Its Approach to Monitoring the Effects of Legalization. GAO-16-1. Washington, D.C.: December 30, 2015. Office of National Drug Control Policy: Lack of Progress on Achieving National Strategy Goals. GAO-16-257T. Washington, D.C.: December 2, 2015. Drug Control: Additional Performance Information Is Needed to Oversee the National Guard’s State Counterdrug Program. GAO-16-133. Washington, D.C.: October 21, 2015. Fiscal Year 2015 Reports Medicaid: Additional Reporting May Help CMS Oversee Prescription-Drug Fraud Controls. GAO-15-390. Washington, D.C.: July 8, 2015. Prescription Drugs: More DEA Information about Registrants’ Controlled Substances Roles Could Improve Their Understanding and Help Ensure Access. GAO-15-471. Washington, D.C.: June 25, 2015. Behavioral Health: Options for Low-Income Adults to Receive Treatment in Selected States. GAO-15-449. Washington, D.C.: June 19, 2015. Drug-Impaired Driving: Additional Support Needed for Public Awareness Initiatives. GAO-15-293. Washington, D.C.: February 24, 2015. Prenatal Drug Use and Newborn Health: Federal Efforts Need Better Planning and Coordination. GAO-15-203. Washington, D.C.: February 10, 2015. Medicare Program Integrity: CMS Pursues Many Practices to Address Prescription Drug Fraud, Waste, and Abuse. GAO-15-66. Washington, D.C.: October 24, 2014. Reports from Fiscal Years 1972-2014 Office of National Drug Control Policy: Office Could Better Identify Opportunities to Increase Program Coordination. GAO-13-333. Washington, D.C.: March 26, 2013. Drug Control: Initial Review of the National Strategy and Drug Abuse Prevention and Treatment Programs. GAO-12-744R. Washington, D.C.: July 6, 2012. Prescription Pain Reliever Abuse: Agencies Have Begun Coordinating Education Efforts, but Need to Assess Effectiveness. GAO-12-115. Washington, D.C.: December 22, 2011. Adult Drug Courts: Studies Show Courts Reduce Recidivism, but DOJ Could Enhance Future Performance Measure Revision Efforts. GAO-12-53. Washington, D.C.: December 9, 2011. Drug Control: U.S. Assistance Has Helped Mexican Counternarcotics Efforts, but Tons of Illicit Drugs Continue to Flow into the United States. GAO-07-1018. Washington, D.C.: August 17, 2007. Adult Drug Courts: Evidence Indicates Recidivism Reductions and Mixed Results for Other Outcomes. GAO-05-219. Washington, D.C.: February 28, 2005. Prescription Drugs: OxyContin Abuse and Diversion and Efforts to Address the Problem. GAO-04-110. Washington, D.C.: December 19, 2003. Drug Courts: Better DOJ Data Collection and Evaluation Efforts Needed to Measure Impact of Drug Court Programs. GAO-02-434. Washington, D.C.: April 18, 2002. Drug Abuse: Efforts under Way to Determine Treatment Outcomes. T-HEHS-00-60. Washington, D.C.: February 17, 2000. Emerging Drug Problems: Despite Changes in Detection and Response Capability, Concerns Remain. HEHS-98-130. Washington, D.C.: July 20, 1998. Drug Courts: Overview of Growth, Characteristics, and Results. GGD-97- 106. Washington, D.C.: July 31, 1997. Drug Control: Reauthorization of the Office of National Drug Control Policy. T-GGD-97-97. Washington, D.C.: May 1, 1997. Confronting the Drug Problem: Debate Persists on Enforcement and Alternative Approaches. GGD-93-82. Washington, D.C.: July 1, 1993. War on Drugs: Federal Assistance to State and Local Drug Enforcement. GGD-93-86. Washington, D.C.: April 29, 1993. Drug Control: Coordination of Intelligence Activities.GGD-93-83BR. Washington, D.C.: April 2, 1993. Drug Abuse Prevention: Federal Efforts to Identify Exemplary Programs Need Stronger Design. PEMD-91-15. Washington, D.C.: August 22, 1991. VA Health Care: Inadequate Controls over Addictive Drugs. HRD-91-101. Washington, D.C.: June 6, 1991. The War on Drugs: Arrests Burdening Local Criminal Justice Systems. GGD-91-40. Washington, D.C.: April 3, 1991. Drug Treatment: Targeting Aid to States Using Urban Population as Indicator of Drug Use. HRD-91-17. Washington, D.C.: November 27, 1990. Controlling Drug Abuse: A Status Report. GGD-88-39. Washington, D.C.: March 1, 1988. Drug Abuse Prevention: Further Efforts Needed To Identify Programs That Work. HRD-88-26. Washington, D.C.: December 4, 1987. Comprehensive Approach Needed To Help Control Prescription Drug Abuse. GGD-83-2. Washington, D.C.: October 29, 1982. Action Needed To Improve Management and Effectiveness of Drug Abuse Treatment. HRD-80-32 Washington, D.C.: April 14, 1980. Identifying and Eliminating Sources of Dangerous Drugs: Efforts Being Made, but Not Enough. B-175425. Washington, D.C.: Jun 7, 1974. United States Efforts to Increase International Cooperation in Controlling Narcotics Trafficking. B-176625. Washington, D.C.: October 4, 1972. Efforts to Prevent Dangerous Drugs from Illicitly Reaching the Public. B- 175425. Washington, D.C.: April 17, 1972. Appendix II: GAO Contacts and Staff Acknowledgments GAO Contacts Triana McNeil at (202) 512-8777 or McNeilT@gao.gov; Mary Denigan- Macauley at (202) 512-7114 or DeniganMacauleyM@gao.gov; or Jacqueline M. Nowicki at (617) 788-0580 or NowickiJ@gao.gov. Staff Acknowledgments In addition to the contacts named above, Alana Finley (Assistant Director), Bill Keller (Assistant Director), Will Simerl (Assistant Director), Meghan Squires (Analyst-in-Charge), James Bennett, Ben Bolitzer, Breanne Cave, Billy Commons, Holly Dye, Wendy Dye, Brian Egger, Kaitlin Farquharson, Sally Gilley, Sarah Gilliland, Mara McMillen, Amanda Miller, Sean Miskell, Jan Montgomery, Dae Park, Bill Reinsberg, Emily Wilson Schwark, Herbie Tinsley, and Sirin Yaemsiri made key contributions to this report. Key contributors to the prior work discussed in this report are listed in each respective product.

Drug misuse—the use of illicit drugs and the misuse of prescription drugs—has been a persistent and long-standing public health issue in the United States. Ongoing drug control efforts seek to address drug misuse through education and prevention, addiction treatment, and law enforcement and drug interdiction, as well as programs that serve populations affected by drug misuse. These efforts involve federal, state, local, and tribal governments as well as community groups and the private sector. In recent years, the federal government has spent billions of dollars and has enlisted more than a dozen agencies to address drug misuse and its effects. This report provides information on (1) trends in drug misuse (2) costs and other effects of drug misuse on society and the economy, and (3) challenges the nation faces in addressing the drug crisis. GAO analyzed nationally representative federal data on drug misuse and deaths from overdoses for 2002–2018 (the most recent available); reviewed selected empirical studies published from 2014–2019; and compared GAO's High-Risk list criteria to findings and recommendations in over 75 GAO reports issued from fiscal year 2015 through March 2020. Nationally, since 2002, rates of drug misuse have increased, according to GAO's analysis of federal data. In 2018, the Substance Abuse and Mental Health Services Administration reported that an estimated 19 percent of the U.S. population (over 53 million people) misused or abused drugs, an increase from an estimated 14.7 percent in 2003. People across a broad range of demographic groups—including sex, race or ethnicity, education levels, employment status, and geographic categories—reported misusing drugs (see figure below). The rates of drug overdose deaths have also generally increased nationally since the early 2000s. Over 716,000 people have died of a drug overdose since 2002, and in 2018 alone, over 67,000 people died as a result of a drug overdose, according to the Centers for Disease Control and Prevention. Although the number of drug overdose deaths in 2018 decreased compared to 2017, drug misuse in the United States continued to rise. Rates of drug overdose deaths varied in counties across the nation in 2003 and 2017, the most recent year that county-level data were available (see figure below). In 2017, 43.2 percent of counties had estimates of more than 20 drug overdose deaths per 100,000 people, including 448 counties with rates that were significantly higher than this amount. Note: CDC's National Center for Health Statistics used a statistical model to estimate rates of drug overdose deaths to account for counties where data were sparse because of small population size. GAO work and other government and academic studies have found that the negative health and societal effects of drug misuse are widespread and costly—for example, the increased need for health care, human services, and special education; increased crime, childhood trauma, reduced workforce productivity; and loss of life. The federal government is making progress in some areas, but a strategic, coordinated, and effective national response—with key sustained leadership from federal agencies—is needed. This report identifies opportunities to strengthen the federal government's efforts to address this persistent and increasing problem. These opportunities include addressing challenges in providing sustained leadership and strengthened coordination; the necessary capacity to address the crisis; and systems to measure, evaluate, and demonstrate progress. For example: the Office of National Drug Control Policy should ensure future iterations of the National Drug Control Strategy include all statutorily required elements. Examples of statutorily required elements include a 5-year projection for the National Drug Control Program and budget priorities; a description of how each of the Strategy's long-range goals will be achieved, including estimates of needed federal resources; and performance evaluation plans for these goals, among other requirements; the Office of National Drug Control Policy should ensure effective, sustained implementation of the 2020 Strategy and future strategies; the Department of Health and Human Services should provide guidance to states for the safe care for infants born with prenatal drug exposure, who may be at risk for child abuse and neglect; the Drug Enforcement Administration should take steps to better analyze and use drug transaction data to prevent diversion of prescription opioids to be sold illegally; and the State Department should develop and implement a data management system for all Caribbean Basin Security Initiative activities to reduce illicit drug trafficking or track data trends across countries. In GAO's March 2019 High-Risk report, GAO named drug misuse as an emerging issue requiring close attention. Based on 25 GAO products issued since that time and this update, GAO has determined that this issue is high risk. Moreover, the severe public health and economic effects of the Coronavirus Disease 2019 (COVID-19) pandemic could fuel some of the contributing factors of drug misuse, such as unemployment—highlighting the need to sustain and build upon ongoing efforts. However, maintaining sustained attention on preventing, responding to, and recovering from drug misuse will be challenging in the coming months, as many of the federal agencies responsible for addressing drug misuse are focused on addressing the pandemic. Therefore, GAO will include this issue in the 2021 High-Risk Series update and make the high-risk designation effective at that time.

GAO_GAO-20-158

Background U.S.–North Macedonia Relations The United States has maintained a cooperative relationship with North Macedonia across a broad range of political, economic, cultural, military, and social issues since North Macedonia gained its independence from Yugoslavia in 1991. The United States formally recognized North Macedonia in 1994, and the countries established full diplomatic relations in 1995. Following a civil conflict between the country’s ethnic Albanian minority and the Macedonian majority in 2001, the United States and the EU mediated a resolution and supported efforts to agree to a peaceful, political solution to the crisis, known as the Ohrid Framework Agreement. Figure 1 shows Macedonia’s location in southeastern Europe. corridor from Western and Central Europe to the Aegean Sea 2,118,945 (146th largest in the world, 2018 $31.03 billion gross domestic product in 2017 22.4 percent unemployment rate (2017 est.) Macedonian, 64.2 percent; Albanian, 25.2 percent; Turkish, 3.9 percent; Romani, 2.7 percent; Serb, 1.8 percent; other, 2.2 percent (2002 est.) In 2011, USAID and State assessed that North Macedonia’s conservative party, the Internal Macedonian Revolutionary Organization–Democratic Party for Macedonian National Unity (known as VMRO-DPMNE, or VMRO) was consolidating political power when it became the ruling party in 2006. USAID and State found that government control over North Macedonia’s judiciary, Parliament, media, civil society, and local government was increasing. In December 2012, security personnel ejected members of the Social Democratic Union of Macedonia (SDSM), the main opposition party, from the Parliament building, along with journalists who had been observing the session, after SDSM members protested VMRO’s proposed budget. SDSM boycotted Parliament for approximately 2 months after this incident but returned in March 2013, when the parties reached an agreement. In May 2014, SDSM boycotted Parliament again, accusing VMRO of having violated the country’s electoral code in April 2014 elections, in which VMRO retained its parliamentary majority. In December 2014, USAID concluded that inadequate mechanisms for competition and political accountability represented the primary democracy and governance problems in North Macedonia. USAID noted, among other things, that the ruling party had deployed public resources and control of the media to limit competition; captured executive, legislative, and judicial institutions; and put pressure on, and excluded, civil society. North Macedonia’s 2015 Political Crisis In February 2015, the leader of SDSM began releasing phone conversations allegedly recorded by the government’s counterintelligence service that revealed widespread corruption and state capture by the ruling party, VMRO, triggering a political crisis. (See fig. 2 for a timeline of the crisis.) Street protests followed these leaks. The four main political parties invited the United States and EU to facilitate negotiations to broker a peaceful resolution to the crisis, known as the Przino Agreement, in June 2015. The parties agreed to, among other things, hold free and fair elections by the end of April 2016. After two failed attempts to hold elections in early 2016, the United States and EU convened North Macedonia’s political parties for another round of negotiations in the summer of 2016. The parties reached agreement on a number of key reforms and set the conditions for parliamentary elections by the end of 2016. These elections took place on December 11, 2016, without a clear majority winner. Although SDSM leader Zoran Zaev formed a majority coalition in February 2017, then-President Ivanov refused to give Zaev the mandate to form a new government until May 2017, following a violent storming of Parliament by hundreds of protesters in April. In May 2017, President Ivanov authorized SDSM to form a government with a coalition of ethnic Albanian parties. The new coalition government expressed support for North Macedonia’s accession to the EU and membership in the North Atlantic Treaty Organization (NATO). On February 12, 2019, the Republic of Macedonia formally changed its name to the Republic of North Macedonia, ending a longstanding dispute over its name with Greece, which had for years exercised its veto power in NATO to block North Macedonia’s membership (see the text box for details of North Macedonia’s NATO aspirations and name dispute with Greece). On February 6, 2019, NATO members signed an accession protocol with North Macedonia, paving the way for North Macedonia to become the 30th member of NATO. The EU states also opened the path to potential EU accession negotiations with North Macedonia in June 2019, contingent on the country’s full implementation of its agreement with Greece and its demonstrated progress in implementing EU-recommended reforms. However, the EU postponed the decision until no later than October 2019. On February 15, 2019, the U.S. government recognized North Macedonia’s name change. North Macedonia’s NATO Aspirations and Name Dispute with Greece In 2008, having determined that North Macedonia met North Atlantic Treaty Organization (NATO) membership criteria, NATO allies decided that North Macedonia would be invited to join NATO as soon as North Macedonia and Greece, a NATO member, resolved a dispute regarding North Macedonia’s name. A brief timeline of this dispute follows. 1991: The “Republic of Macedonia” declared its independence from the former Yugoslavia. Greece objected to this name, viewing “Macedonia” as representing territorial claims against Greece, which has a northern province by the same name. Because Greece has veto power in NATO, it was able to prevent the Republic of Macedonia from joining the organization. 1995: Greece and the Republic of Macedonia reached an interim accord in which Greece agreed not to block applications by the Republic of Macedonia to international organizations if made under the name “Former Yugoslav Republic of Macedonia.” 2008: At a NATO Summit in Bucharest, Greece blocked the Republic of Macedonia’s bid to join NATO. Dec. 2011: The International Court of Justice ruled that Greece had been wrong to block the Republic of Macedonia’s bid to enter NATO in 2008, but the decision did not affect NATO’s consensus-based decision-making process. June 12, 2018: The foreign ministers of Greece and the Republic of Macedonia signed the Prespa agreement, whereby the Republic of Macedonia would change its name to the Republic of North Macedonia, Greece would no longer object to North Macedonia’s Euro- Atlantic integration, and both countries would promise to respect existing borders. Sept. 30, 2018: The Republic of Macedonia held a referendum on changing its name to the Republic of North Macedonia, with nearly 92 percent of votes in favor of the change. Overall turnout for the referendum was about 37 percent, as opponents of the name change boycotted the referendum. Oct. 19, 2018: A two-thirds majority in North Macedonia’s Parliament voted in favor of the name change. Jan. 11, 2019: North Macedonia’s Parliament approved a constitutional amendment that renamed the country to the Republic of North Macedonia. Jan. 25, 2019: The Greek Parliament voted to approve the deal outlined in the Prespa agreement. Feb. 6, 2019: NATO’s 29 members signed an accession protocol with North Macedonia, paving the way for the country to become the 30th member of the alliance. Feb. 8, 2019: Greece became the first NATO member to ratify the accession protocol. Feb. 12, 2019: The Republic of Macedonia formally changed its name to the Republic of North Macedonia. Feb. 15, 2019: The U.S. government recognized the Prespa Agreement’s entry into force and North Macedonia’s name change. Overview of U.S. Democracy Assistance According to State, democracy assistance seeks to advance freedom and dignity by assisting governments and citizens to establish, consolidate, and protect democratic institutions, processes, and values. These components include participatory and accountable governance, rule of law, authentic political competition, civil society, human rights, and the free flow of information. Democracy assistance falls into six program areas—Rule of Law, Good Governance, Political Competition and Consensus-Building, Civil Society, Independent Media and Free Flow of Information, and Human Rights—each with different program elements. See appendix V for descriptions of democracy program areas and program elements. The U.S. government provides democracy assistance through multiple bureaus and offices in USAID, State, and NED. For a list of these agencies’ roles and responsibilities related to democracy assistance overseas, see table 1. Agency Operational Policies for Assistance Federal laws governing agencies’ use of contracts and grants seek to promote discipline in the selection and use of procurement contracts, grant agreements, and cooperative agreements; maximize competition in making procurement contracts; and encourage competition in making grants and cooperative agreements. USAID’s operational policy, the Automated Directives System, incorporates these requirements into agency guidance. Thus, in selecting recipients of democracy assistance, agency staff are required to guarantee the integrity of the competitive award process by ensuring overall fairness and considering all eligible applications for an award. Strategic Objectives for Democracy Assistance in North Macedonia Since North Macedonia’s separation from Yugoslavia in 1991, the United States has provided democracy assistance to support North Macedonia’s Euro-Atlantic integration and the development of prosperous and democratic institutions. This assistance has focused on promoting rule of law, political processes, citizen engagement, and free media. In light of North Macedonia’s 2015 political crisis, as well as democratic backsliding observed in the years before the crisis, USAID narrowed its assistance goals for the country to focus on more inclusive citizen engagement in civic life, political processes, and the free flow of information to support better functioning checks on executive authority. The USAID mission in North Macedonia’s strategic plan for 2011 through 2015 identified three primary objectives of U.S. democracy assistance in North Macedonia: Promote greater checks and balances in democratic processes by empowering local governments, promoting greater equilibrium among the branches of government at the national level, and promoting political accountability. Develop a basic education system that prepares youth for a modern economy and stable democracy by improving students’ basic skills, expanding workforce skills, and enhancing ethnic integration in the education sector. Increase job-creating private-sector growth in targeted sectors by improving the country’s business environment in critical areas and strengthening key private-sector capacities. Additionally, USAID and State relied on a broader strategic framework, the integrated country strategy, when developing democracy projects in North Macedonia. This interagency, multiyear, overarching strategy outlines U.S. policy priorities and objectives for North Macedonia. Its objectives include improving North Macedonia’s democratic and civil society environment to improve the country’s prospects for joining NATO and for completing accession negotiations with the EU. U.S. Agencies Obligated More Than $45 Million for Assistance for North Macedonia, but Total State Department Obligations Cannot Be Reliably Reported U.S. government agencies obligated more than $45 million in democracy assistance funding for North Macedonia in fiscal years 2012 through 2017, according to agency award documents and data (see table 2). This assistance was provided to support U.S. strategic objectives for North Macedonia, including promoting the rule of law, political processes, citizen engagement, and free media. USAID obligated approximately $38 million, and NED obligated approximately $4.2 million. Additionally, the Public Affairs Section of the U.S. Embassy in Skopje provided about $3.7 million in assistance. However, we are unable to report total State obligations for democracy assistance for North Macedonia because of uncertainty about the reliability of award data from State’s Bureau of International Narcotics and Law Enforcement Affairs (INL). In addition, State’s Bureau of Democracy, Human Rights, and Labor (DRL) provided democracy assistance in North Macedonia solely through regional grants and did not specify which obligated funds were provided for democracy assistance in North Macedonia. See appendixes II through IV for a full list of USAID, NED, and State awards for democracy assistance in North Macedonia in fiscal years 2012 through 2017. USAID Obligated Approximately $38 Million for Democracy Assistance Program Areas USAID provided about $38 million in democracy assistance for North Macedonia in fiscal years 2012 through 2017. As table 3 shows, the majority of USAID funding—approximately $17 million—supported projects in the civil society program area, while more than $7 million supported political competition and consensus building. Several USAID bureaus and offices provided democracy assistance in North Macedonia during that period. The Bureau for Democracy, Conflict, and Humanitarian Assistance and the Bureau for Europe and Eurasia provided such assistance through contracts, grants, and cooperative agreements. According to agency documents, USAID supported U.S. foreign policy in North Macedonia by promoting democracy and respect for the rule of law and human rights, through activities such as supporting civil society organizations and developing the capacity of independent media outlets in the country. USAID also promoted political competition and accountability by working with political parties and state institutions to enable an environment for free and fair elections. In addition, USAID’s Office of Transition Initiatives (OTI) provided short- term assistance to groups in the country. OTI established an office in North Macedonia in September 2015 to support reform processes outlined in the Przino Agreement. According to OTI documents, OTI supports U.S. foreign policy objectives by promoting stability, peace, and democracy through fast, flexible, short-term assistance targeted to key political transition and stabilization needs. The office works with civil society organizations, media groups, and government institutions to increase access to reliable information, promote free and open civic discourse, and support democratic reforms. In North Macedonia, OTI funded initiatives such as a televised debate series that presented civil dialogue and diverse viewpoints on issues affecting citizens of North Macedonia. OTI grants have also supported digital media initiatives and civic engagement projects. USAID assistance supported initiatives in a range of democracy program areas. Table 4 shows examples of USAID projects across different program areas, some of which are related to democracy assistance. NED Obligated Approximately $4.2 Million for Democracy Assistance Activities NED awarded 72 grants totaling nearly $4.2 million in North Macedonia in fiscal years 2012 through 2017. Of these, six grants, totaling almost $1.7 million, were awarded to two of NED’s core institutes—the National Democratic Institute and the Center for International Private Enterprise— while 66 grants, totaling about $2.6 million, were awarded to other organizations. In addition, NED awarded 61 grants totaling more than $17.1 million for regional programs that included North Macedonia. NED does not disaggregate cost data by individual country due to the nature of the Balkan regional programs NED supports. Thus, we are unable to report the amounts NED provided in North Macedonia through regional programs during the period of our review. After the onset of the political crisis in 2015, NED focused its democracy assistance in North Macedonia on three program areas: promoting good governance, supporting independent media, and fostering positive interethnic relations. NED grants supported a range of initiatives, including projects to improve investigative reporting on democratic reforms and rule-of-law matters, and to encourage youth leadership and activism. NED’s funding to the National Democratic Institute and the Center for International Private Enterprise supported a range of activities in North Macedonia. The institute worked with the country’s Parliament to improve its management and organization of the legislative process by, among other things, assisting Parliament in reviewing its legislative and oversight procedures. Other National Democratic Institute initiatives included encouraging participation by various groups in the democratic process, including the Roma population, women, and civil society organizations. The Center for International Private Enterprise received funding for one grant devoted to developing youth leadership. State Obligated At Least $3.7 Million for Democracy Assistance, but Some Project-Level Funding Could Not Be Determined Several State offices—U.S. Embassy Skopje, INL, and DRL—provided funding for democracy assistance in North Macedonia, but only the funding provided by the embassy can be reliably reported. The embassy’s Public Affairs Section provided at least $3.7 million in democracy assistance in North Macedonia in fiscal years 2012 through 2017. INL was unable to provide reliable data on obligations on its awards in North Macedonia. DRL obligated more than $2 million to support democracy assistance activities at the regional level but due to the regional nature of its projects, was unable to provide country-level breakdowns of obligations. U.S. Embassy Skopje Provided Democracy Assistance Grants to Organizations in North Macedonia In fiscal years 2012 through 2017, Embassy Skopje’s Public Affairs Section obligated approximately $3.7 million in democracy assistance grants to organizations in North Macedonia. According to State officials, the embassy works with the Coordinator of U.S. Assistance for Europe and Eurasia to allocate democracy assistance and helps align assistance activities with the U.S. strategic goals for North Macedonia. The embassy’s Public Affairs Section also provides democracy assistance through other means, including media training programs, youth engagement projects, speaker programs, and the Democracy Commission Small Grants Program. The embassy granted $1.8 million for 91 grants through the Democracy Commission Small Grants Program in fiscal years 2012 through 2017. According to the embassy, grants through this program, which cannot exceed $24,000, support nongovernmental organizations’ efforts to promote the rule of law, independent media, interethnic community building, the empowerment of women and youth, human rights, and the institutionalization of open and pluralistic democratic political processes. Examples of awards for Democracy Commission grant–funded activities include the following: Women’s Rights Center ($22,900). This award funded a program to strengthen the capacities of organizations that are working with women victims of domestic violence. Civil Lyceum Project ($17,830). This project aimed to mobilize youth in Skopje to become more involved in the civil society sector and to help create young leaders who understand the value of civic engagement and advance democratic values. Way Out ($7,858). This award funded the maintenance and development of the online version of a student magazine. The remainder of the embassy’s Public Affairs Section awards for assistance in North Macedonia supported activities such as youth engagement projects, speakers, and media training programs, which included short-term trips for journalists from North Macedonia to receive training in the United States. INL Project-Level Funding Data Are Unreliable, but INL Reported Bulk Obligations for Democracy Assistance in North Macedonia INL provided democracy assistance to organizations in North Macedonia in fiscal years 2012 through 2017. INL was unable to provide reliable data on project-level obligations; however, it reported bulk obligations for democracy assistance projects that supported efforts to reform North Macedonia’s criminal justice system to meet rule-of-law benchmarks for Euro-Atlantic integration. INL’s assistance in North Macedonia focused on three primary areas: developing the country’s criminal justice system, developing legal professionals’ skills, and professionalizing the police. According to agency officials, this assistance is intended to strengthen North Macedonia’s justice sector and independent institutions. Specific INL activities included assisting with revisions to the criminal procedure code to promote a more adversarial justice system, providing technical advisors and equipment to the Special Prosecutor’s Office, and promoting accountable policing efforts by providing training to local police on crime scene management. In December 2017, we reported that INL funding data for democracy assistance projects were unreliable and we recommended that State identify and address factors that affect the reliability of its democracy assistance data. State concurred with this recommendation. As of July 2019, INL reported continued efforts to improve data quality and reliability, including ensuring that current and future transactions would maintain coding integrity. However, officials stated that, because of missing codes or miscoded items, they were unable to provide reliable data on obligations for INL awards for democracy assistance projects in North Macedonia for fiscal years 2012 through 2017. Although we determined that data for specific INL democracy awards were unreliable, INL reported providing bilateral assistance of approximately $14.2 million in North Macedonia in fiscal years 2012 through 2017, including $6.9 million for democracy assistance. However, we did not independently verify that INL provided this amount of bilateral assistance. DRL Funded Regional Democracy Assistance Awards That Included North Macedonia DRL funded four awards that benefited North Macedonia in fiscal years 2012 through 2017. However, DRL awarded this assistance at the regional level and does not track country-level obligations for North Macedonia. One regional award with obligations of roughly $300,000 supported a project focusing on Roma populations in Bulgaria, North Macedonia, Romania, and Serbia. A second regional award provided more than $2 million for a project promoting the rule of law in the Balkans. The two remaining DRL awards provided $25,000 to organizations supporting local civil society organizations working to promote human rights. USAID Generally Followed Operational Policy in Selecting Recipients of Democracy Assistance in North Macedonia Our review of 13 USAID grants and cooperative agreements for democracy assistance—representing roughly half of USAID obligations in North Macedonia in fiscal years 2012 through 2017—found that in selecting recipients, the agency generally followed operational policies intended to ensure a fair and transparent selection process. (See table 5 for a list of the awards in our sample.) We found that staff at the USAID mission in North Macedonia generally evaluated applicants against the merit review criteria stated in public notices. We also found that USAID considered and recorded the strengths and weaknesses of applicants in selection committee memorandums for 10 of the 13 awards in our sample. For three awards originating from the same public notice, we were unable to determine, on the basis of available documentation, whether USAID considered the strengths and weaknesses of all applicants. Finally, we found that USAID documented the review procedures it used to assess applicants in selection committee memorandums. USAID Considered Published Merit Review Criteria in Selecting Recipients of Assistance USAID’s selection committee considered merit review criteria that were consistent with those included in the agency’s public notices for 10 of the 13 awards for democracy assistance in North Macedonia that we reviewed. USAID’s process for selecting recipients of assistance for competitive awards requires announcing opportunities, reviewing applications, and making award decisions on the basis of published merit review criteria. USAID announces a grant opportunity by developing a notice of funding opportunity. Merit review criteria are developed by the USAID staff and reflect the agency’s strategic priorities for democracy assistance. After interested parties have submitted applications, a selection committee, also known as a technical evaluation committee, is appointed to review applications. All 13 awards in our sample included merit review criteria in public notices during the concept paper phase of awards, while 10 of the awards included merit review criteria for the full application phase. Many of the awards required selection committees to consider some of the same merit review criteria in assessing applicants. Examples of commonly applied criteria include the following: Technical approach. Reviewers are to assess the extent to which an applicant’s proposed activity is clear, logical, and technically sound and meets the objectives of the funding outlined in the public notice. Management plan and key personnel. Reviewers are to assess the extent to which an applicant considered staffing, roles and responsibilities, and other management issues for their proposed activity. Organizational capacity and past performance. Reviewers are to assess the extent to which the applicant demonstrated the technical and managerial resources and expertise to achieve their program objectives. Reviewers are also to assess the extent to which the applicant demonstrated technical and managerial resources and expertise in past programs and performed satisfactorily in similar programs executed in recent years. We found that in reviewing the 13 awards in our sample, USAID generally applied the criteria published for each award. Six of the 13 awards in our sample were two-phased awards, for which the mission required potential applicants to first submit an executive summary or concept paper for their proposed activity. For these awards, the mission published separate merit review criteria for concept papers and full applications, and selection committees assessed each type of submission against the relevant set of criteria. The selection committee memorandums for three awards showed that these merit review criteria were consistent with the criteria outlined in the public notices for each award. Specifically, in the first phase of the award process, staff at the USAID mission in North Macedonia applied the published criteria for concept papers in reviewing the submitted papers and selected those that best met the criteria. In the second phase for three awards, USAID solicited applications from the selected applicants and applied the published criteria for full applications in reviewing the submitted applications. In the case of three awards that originated from the same public notice, the notice lacked merit review criteria for the full application phase. The public notice for these three awards did not include the merit review criteria the selection committee would use to evaluate full applications. For the remaining seven one-phased awards in our sample, the selection committee memorandums showed that USAID applied the criteria published in the award solicitations in reviewing the applications that were submitted, consistent with USAID’s operational policies. USAID Generally Assessed Strengths and Weaknesses of Applicants for Democracy Awards We found that USAID officials generally assessed applicants’ strengths and weaknesses when reviewing applications for awards for democracy assistance in North Macedonia. USAID operational policy requires selection committees to evaluate the strengths and weaknesses of each applicant for an award relative to the merit review criteria. The committee then prepares a written selection memorandum recording its assessments, which is then sent to the agreement officer. For the 13 awards in our sample, selection committee memorandums show that officials generally considered and recorded their assessments of applicants’ strengths and weaknesses against the criteria outlined in the public notices. For example, in considering the applicants for one award in our sample, the selection committee assessed the strengths and weaknesses of applicants’ technical approaches by looking at the logical connection between their activities and stated objectives, their plans for community outreach, and their awareness of potential problems that might arise over the course of their projects. The committee also assessed applicants’ strengths and weaknesses with regard to management plans and key personnel by considering, among other things, applicants’ plans to train staff, their knowledge of the stakeholders they planned to engage, and the relevant experience of the organizations’ leaders. In addition, the committee assessed applicants’ strengths and weaknesses with regard to organizational capacity and past performance, primarily by examining whether applicants had successfully managed projects of similar magnitude, scope, and sensitivity in recent years. For this award, the selection committee provided an overall score for each criterion based on the numerical scoring outlined in the award’s public notice and ultimately recommended the top-scoring applicant to the agreement officer. For three of the six two-phased awards we reviewed, selection committee officials considered and recorded their assessments of applicants’ concept papers as well as the full applications they received. For three two-phased awards that originated from the same public notice, we could not determine, on the basis of available documentation, whether the selection committee assessed the strengths and weaknesses of applicants relative to the merit review criteria. USAID Recorded Review Procedures, Consistent with Its Operational Policy We found that USAID documented its review procedures, consistent with USAID policy. USAID operational policy requires that the selection committee include in its review documentation a discussion of its procedures for reviewing awards. For all 13 awards, the selection committee memorandums included a discussion of the review procedures that the committee used to assess applicants. These review procedures included actions such as the following: The establishment of the selection committee, including its purpose and composition A requirement for selection committee members to sign a certificate regarding nondisclosure, conflict of interest, or rules of conduct Individual reviews of the applications by each selection committee member A review of the rating system the committee used to assess A joint meeting to discuss individual reviews and ratings of applications, resulting in consensus among selection committee members about the strengths and weaknesses of each application For the two-phased awards in our sample, the selection committee memorandums include documentation of review procedures for both the concept paper and full application phases of awards. The selection committee memorandum for the full application phase of these awards included other actions that the selection committee took, such as the following: A summary of the committee’s procedures and results in the concept An evaluation of the proposals from applicants who were invited to A discussion of the programmatic weaknesses that USAID asked applicants to address before submitting their full applications We are sending copies of this report to the USAID Administrator, the Secretary of State, and the President of NED. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3149 or gootnickd@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 VII. Appendix I: Objectives, Scope, and Methodology Our objectives were to examine (1) U.S. funding for democracy assistance in North Macedonia in fiscal years 2012 through 2017 and (2) the extent to which the U.S. Agency for International Development (USAID) adhered to relevant operational policies in selecting recipients of democracy assistance in North Macedonia. To identify the United States’ strategic objectives and goals for providing democracy assistance in North Macedonia, we reviewed USAID and Department of State (State) strategic documents and interviewed cognizant USAID and State officials in Washington, D.C. To examine U.S. funding for democracy assistance in North Macedonia, we analyzed award data from USAID, State, and the National Endowment for Democracy (NED) for fiscal years 2012 through 2017, the most recent 5-year period for which these data were available. To determine the data’s reliability, we interviewed agency officials and reviewed relevant documentation. We determined that USAID’s and NED’s data were sufficiently reliable for the purposes of our reporting objectives. We further determined that State’s data on the U.S. Embassy in Skopje’s Public Affairs Section awards were reliable for these purposes. However, on the basis of interviews with State officials, our review of their data, and our prior work, we determined that the data maintained by State’s Bureau of International Narcotics and Law Enforcement Affairs (INL) could not be reliably reported. We determined that data provided by State’s Bureau of Democracy, Human Rights, and Labor Affairs (DRL) were reliable; however, we could not determine what portion of DRL funding went only to North Macedonia, because DRL made regional awards during this period that benefited several Balkan countries. Therefore, we report State obligations as approximations for awards for which we had more reliable data. To identify the recipients of democracy assistance in North Macedonia and describe the process through which the U.S. government grants such assistance, we reviewed award data, relevant award documents, and bilateral agreements and other communications between the United States and North Macedonia regarding this assistance. We interviewed USAID, State, and NED officials in Washington, D.C., who oversee democracy assistance in North Macedonia regarding U.S. funding for such assistance. We also interviewed representatives of organizations that implement this assistance that have offices in Washington, D.C. In addition, during audit work in Skopje, North Macedonia, we interviewed USAID and State officials who manage democracy assistance. We also met with officials from the government of North Macedonia, including the Minister of Defense and members of Parliament, the State Election Commission, and the Agency for Audio and Audiovisual Services, to determine the types of activities the U.S. government supported during the period of our review. In addition, we conducted individual and group interviews with representatives of 41 implementing partners of USAID, State, and NED in Skopje who received funding during the period of our review. To assess the extent to which USAID officials followed operational policies in selecting recipients of democracy assistance, we analyzed award data and documentation for a sample of awards made between fiscal years 2012 through 2017. We excluded from our sample any contracts and other awards for which no public notice was issued, because these awards were not openly competed. We further excluded grants under contract arrangements that USAID entered into with local partners in North Macedonia, because these awards also were not openly competed. Such awards include those made by USAID’s Office of Transition Initiatives and under the Consortium for Elections and Political Process Strengthening process. Our sample comprised the 13 largest- value grants and cooperative agreements that USAID made for North Macedonia in fiscal years 2012 through 2017, constituting 46 percent of all USAID obligations in North Macedonia during this period. We analyzed USAID operational policies contained in the Automated Directives System (ADS) and other USAID policy documents outlining the agency’s strategic plan and assistance priorities for North Macedonia. We analyzed relevant documents for the awards in our sample, including the notices of funding opportunity and selection committee memorandums, and we assessed the extent to which these documents showed that USAID had met the requirements of its operational policy outlined in the ADS. In particular, for each award, we examined the extent to which the merit review criteria published in the notice of funding opportunity matched the criteria the selection committee used, the selection committee assessed the strengths and weaknesses of the submitted applications and recorded these assessments, and the selection committee included a discussion of its review procedures in its review documentation. Finally, we interviewed USAID officials in Washington and Skopje regarding USAID’s operational policies in fiscal years 2012 through 2017 as well as its process for selecting recipients of democracy assistance. We conducted this performance audit from May 2017 to October 2019 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. Appendix II: U.S. Agency for International Development Democracy Assistance in North Macedonia Table 6 lists the U.S. Agency for International Development’s (USAID) awards for democracy assistance in North Macedonia in fiscal years 2012 through 2017. Appendix III: National Endowment for Democracy Assistance in North Macedonia Table 7 lists the National Endowment for Democracy’s (NED) democracy assistance awards in North Macedonia in fiscal years 2012 through 2017. Appendix IV: Department of State Democracy Assistance in North Macedonia Tables 8 and 9 list the Department of State’s (State) awards for democracy assistance to North Macedonia in fiscal years 2012 through 2017. These awards were provided by U.S. Embassy Skopje through its Public Affairs Section. Table 8 shows the grants that the embassy’s Public Affairs Section awarded through the Democracy Commission Small Grants Program, and table 9 shows other, non–Democracy Commission grants awarded by the Public Affairs Section. Appendix V: Democracy Assistance Program Areas and Program Elements Table 10 provides an overview of the program areas and program elements that fall into democracy, human rights, and governance assistance according to the Department of State (State). U.S. foreign assistance is categorized through a system called the Standardized Program Structure and Definitions, which comprises broadly agreed-on definitions for foreign assistance programs and provides a common language to describe programs. According to this system, democracy assistance includes the following six program areas. Appendix VI: Comments from the U.S. Agency for International Development Appendix VII: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Rob Ball (Assistant Director), Cheryl Goodman (Assistant Director), Rachel Dunsmoor (Analyst-in- Charge), Parul Aggarwal, R. Gifford Howland, Ashley Alley, Justin Fisher, Christopher Keblitis, and Reid Lowe made key contributions to this report.

Since fiscal year 1991, the United States has provided over a billion dollars in assistance to North Macedonia. In recent years, USAID and State have expressed concern about an erosion of democracy in the country. These concerns were heightened by the onset of a political crisis in February 2015, when the then-opposition party released phone conversations revealing alleged corruption in the ruling party. This crisis prompted the four major political parties to invite the United States and the European Union to help broker an agreement. The parties later agreed to hold early parliamentary elections in December 2016. Though the opposition party formed a majority coalition, the President refused to give the opposition leader a mandate to form a new government until May 2017, after protesters violently attacked North Macedonia's Parliament. This report examines (1) U.S. government funding for democracy assistance in North Macedonia and (2) the extent to which USAID adhered to relevant policies in selecting recipients of democracy assistance in North Macedonia. GAO analyzed U.S. government data and documents and interviewed U.S. officials in Washington, D.C., and in Skopje, North Macedonia. The U.S. government provided more than $45 million for democracy assistance in North Macedonia through the U.S. Agency for International Development (USAID), National Endowment for Democracy (NED), and U.S. Department of State (State) in fiscal years 2012 through 2017. During this 5 year period—the most recent for which funding data were available—USAID obligated about $38 million to support rule of law and human rights, governance, political competition and consensus building, civil society, and an independent media and free flow of information. NED—a nongovernmental organization funded largely through appropriated funds—provided $4.2 million for activities such as training in investigative reporting and rule of law. The U.S. embassy in Skopje obligated at least $3.7 million for rule of law and human rights, governance, and civil society. State's Bureau of International Narcotics and Law Enforcement Affairs (INL) and Bureau of Democracy, Human Rights, and Labor (DRL) also provided funding for democracy initiatives. However, GAO is unable to report State's total obligations, because INL's data were unreliable and because DRL, due to the regional nature of its projects, does not track country-level obligations for North Macedonia. Legend: USAID = U.S. Agency for International Development, NED = National Endowment for Democracy, State = U.S. Department of State. Note: Only obligations from the Public Affairs Section of the U.S. Embassy in Skopje are shown for State. State's other funding data were either unreliable or not tracked at the country level. GAO's review of 13 USAID democracy assistance awards, representing roughly half of USAID obligations in fiscal years 2012 through 2017, found that the agency generally complied with operational policy intended to ensure a fair and transparent selection process. USAID policy requires officials to consider merit review criteria specified in public notices and to assess applicants against these criteria. GAO found that the merit review criteria USAID included in public notices were generally consistent with the criteria that selection committees used to evaluate applicants. GAO also found that selection committees generally discussed the relative strengths and weaknesses of award applications and recorded these discussions in selection memorandums, consistent with USAID policy.

CRS_R45864

T ax policy is one of several policy tools that can be used for disaster relief. At various points in time, Congress has passed legislation to provide tax relief and to support recovery following disaster incidents. Permanent tax relief provisions may take effect following qualifying disaster events. Targeted, temporary tax relief provisions can be designed to respond to specific disaster events. The Internal Revenue Code (IRC) contains a number of permanent disaster-related tax provisions. These include provisions providing that qualified disaster relief payments and certain insurance payments are excluded from income, and thus not subject to tax. Taxpayers are also able to deduct casualty losses and defer gain on involuntary conversions (an involuntary conversion occurs when property or money is received in payment for destroyed property). The Internal Revenue Service (IRS) can also provide administrative relief to taxpayers affected by disasters by delaying filing and payment deadlines, waiving underpayment of tax penalties, and waiving the 60-day requirement for retirement plan rollovers. For disasters declared after December 20, 2019, the IRS is required to postpone federal tax deadlines for 60 days. The availability of certain tax benefits is triggered by a federal disaster declaration. Before 2017, casualty losses were generally deductible. However, changes made in the 2017 tax revision (commonly referred to as the "Tax Cuts and Jobs Act" [TCJA]; P.L. 115-97 ) restrict casualty loss deductions to federally declared disasters. Temporary tax-related disaster relief measures were enacted following a number of major disasters that occurred between 2001 and 2019. The following measures addressed specific disasters: The Job Creation and Worker Assistance Act of 2002 (Job Creation Act; P.L. 107-147 ) responded to the terrorist attacks of September 11, 2001. The Katrina Emergency Tax Relief Act of 2005 (KETRA; P.L. 109-73 ) responded to Hurricane Katrina. The Gulf Opportunity Zone Act of 2005 (GO Zone Act; P.L. 109-135 ) responded to Hurricanes Katrina, Rita, and Wilma. The Food, Conservation, and Energy Act of 2008 (2008 Farm Bill; P.L. 110-246 ) responded to severe storms and tornadoes in Kansas in 2007. The Heartland Disaster Tax Relief Act of 2008, enacted as Title VII of Division C of P.L. 110-343 (the Heartland Act), and other provisions in P.L. 110-343 responded to severe Midwest storms in summer 2008 and Hurricane Ike and provided general disaster relief for events occurring before January 1, 2010. The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (Disaster Tax Relief Act of 2017; P.L. 115-63 ) responded to Hurricanes Harvey, Irma, and Maria. The 2017 tax act ( P.L. 115-97 ; commonly referred to using the title of the bill as passed in the House, the "Tax Cuts and Jobs Act") responded to disasters occurring in 2016. The Bipartisan Budget Act of 2018 (BBA18; P.L. 115-123 ) responded to the 2017 California wildfires. The Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Division Q of the Further Consolidated Appropriations Act, 2020; P.L. 116-94 ) provided relief for major disasters that generally occurred in 2018 or 2019. This report provides an overview of permanent and temporary disaster tax provisions that have been enacted in response to specific disaster events. The report also summarizes which types of temporary provisions have been used to support different disaster events. Policy considerations related to business, individual, and charitable disaster relief are also addressed. Permanent Disaster Tax Relief Provisions There are several permanent disaster tax relief provisions. In some cases, these provisions apply to any property that is destroyed or damaged due to casualty or theft. In other cases, relief is limited to property lost as a result of federally declared disasters or for disasters for which the IRS undertakes administrative actions. Additionally, as discussed further below, there are instances where these permanent relief provisions have been temporarily enhanced in response to specific disaster events. Disaster Casualty Losses Taxpayers may be able to deduct casualty losses resulting from damage to or destruction of personal property (property not connected to a trade or business). For tax years 2018 through 2025, the casualty loss deduction is limited to losses attributable to federally declared disasters. After 2025, under current law, the deduction is to be available to losses arising from any fire, storm, shipwreck, or other casualty or theft. Casualty losses are an itemized deduction. Each casualty is subject to a $100 floor, meaning that only losses in excess of $100 are deductible for each casualty. Additionally, casualty losses are deductible only to the extent that aggregate losses exceed 10% of the taxpayer's adjusted gross income (AGI). Only casualty losses not compensated for by insurance or otherwise can be deducted. Involuntary Conversions An involuntary conversion occurs when property is destroyed, stolen, condemned, or disposed of under threat of condemnation, and the owner of the property receives money or payment for the property, such as an insurance payment. An involuntary conversion can also be viewed as a forced sale of property. The IRC allows taxpayers to defer recognizing a gain on property that is involuntarily converted. The replacement period—the time within which a taxpayer must replace converted property to receive complete deferral—is two years (three years for condemned business property). For a taxpayer's principal residence and its contents, the replacement period for an involuntary conversion stemming from a federally declared disaster is four years. Taxpayers whose principal residence or any of its contents are involuntarily converted as a result of a federally declared disaster qualify for additional special rules. First, gain realized from the receipt of insurance proceeds for unscheduled personal property (property in the home that is not listed as being covered under the insurance policy) is not recognized. Second, any other insurance proceeds received for the residence or its contents are treated as a common fund. If the fund is used to purchase property that is similar or related in service or use to the converted residence or its contents, then the owner may elect to recognize gain only to the extent that the common fund exceeds the cost of the replacement property. If a taxpayer's business property is involuntarily converted as a result of a federally declared disaster, then the taxpayer is not required to replace it with property that is similar or related in service to the original property in order to avoid having to recognize gain on the conversion, as long as the replacement property is still held for a type of business purpose. Disaster Relief for Low-Income Housing Credit The low-income housing tax credit allows owners of qualified residential rental property to claim a credit over a 10-year period that is based on the costs of constructing, rehabilitating, or acquiring the building attributable to low-income units. Owners may claim a credit based on 130% of the project's costs if the housing is in a low-income or difficult development area. Owners must be allocated this credit by a state. Each state is limited in the amount of credits it may allocate to the greater of $2,000,000 or $1.75 multiplied by the state's population (both figures are adjusted for inflation and are $3,166,875 and $2.75625, respectively, for 2019), with adjustments. Owners of low-income housing tax credit (LIHTC) properties are eligible for relief from certain requirements of the program if the property is located in a major disaster area. Specifically, property owners are provided relief from credit recapture, carryover allocation rules, and income certifications for displaced households temporarily housed in an LIHTC unit. Property owners may also qualify for additional credits for rehabilitation expenditures, and, for severely damaged buildings in the first year of the credit period, the allocation of credits may either be treated as having been returned, or the first year of the credit period can be extended. State LIHTC allocating agencies are eligible for relief from compliance monitoring under the same IRS guidance. Additionally, households are eligible to occupy an LIHTC unit without being subject to the program's income limits if their principal residence was located in a major disaster area. Exclusion for Disaster Assistance Payments to Individuals Taxpayers can exclude from income qualified disaster relief and disaster mitigation payments. Excludable relief payments include payments for expenses that are not compensated for by insurance (or otherwise compensated). Excludable relief payments can include personal, family, living, or funeral expenses incurred as a result of the disaster; payments for home repairs or to replace damaged and destroyed contents; payments by a transportation provider for injuries or deaths resulting from a disaster; and payments from governments (or similar entities) for general welfare when disaster relief is warranted. Qualified disaster mitigation payments include amounts paid under the Robert T. Stafford Disaster Relief and Emergency Assistance Act or the National Flood Insurance Act (as in effect on April 15, 2005) for hazard mitigation. Exclusion for Insurance Living Expense Payments Taxpayers whose principal residence is damaged in a disaster (including a fire, storm, or other casualty) can exclude insurance reimbursements for living expenses while temporarily occupying another residence from income. This exclusion also applies to taxpayers who are denied access to their home by government authorities due to the threat of casualty or disaster. IRS Administrative Relief The IRS is authorized to postpone any federal tax deadline, including deadlines for filing returns, paying taxes, or claiming refunds, for up to one year for taxpayers affected by federally declared disasters. The IRS may also postpone certain Individual Retirement Account (IRA) deadlines. Specifically, the IRS can extend the 60-day period for plan participants to deposit rollover retirement plan distributions to another qualified plan or IRA. Additionally, the IRS may extend the time for a qualified plan to make a required minimum distribution. The IRS is required to postpone federal tax deadlines for 60 days for disasters declared after December 20, 2019. Taxpayers for whom deadlines are automatically postponed include (1) those whose principal residence is in a disaster area; (2) those whose principal place of business is in a disaster area; (3) individuals who are relief workers assisting in a disaster area; (4) individuals whose tax records are maintained in a disaster area; (5) any individual visiting a disaster area who was killed or injured as a result of the disaster; or (6) spouses filing a joint return with any person described in (1) to (5). The IRS is also authorized to waive underpayment penalties when a casualty, disaster, or other unusual circumstances have made it such that the imposition of a penalty would be against equity and good conscience. Past Temporary Disaster-Relief Provisions At times, Congress has chosen to use tax policy to provide temporary relief and support following disaster incidents. Temporary and event-specific disaster tax policy has been enacted following many major disaster events in recent years. However, temporary or targeted tax relief has not been enacted following all major disaster events. For example, no temporary or targeted disaster tax relief was enacted in response to Hurricane Irene in 2011 or Hurricane Sandy in 2012. The specific tax relief provisions enacted to respond to past disaster events are summarized in Table 3 and Table 4 . The following discussion provides additional information on these provisions. Tax provisions that have been used to respond to disasters most recently are discussed first . Temporary Provisions Enacted to Respond to Recent Disasters The disaster tax relief packages enacted in 2017 to respond to Hurricanes Harvey, Irma, and Maria; in 2018 to respond to the 2017 California wildfires; and in 2019 to respond to disasters that occurred in 2018 and 2019 contained the same five provisions: (1) an enhanced casualty loss deduction; (2) expanded access to retirement plan funds; (3) increased limits on charitable deductions; (4) employee retention tax credits; and (5) EITC/CTC credit computation look-back rules. Enhanced casualty loss deductions were allowed for losses associated with any federally declared disaster occurring in 2016 and 2017, and access to retirement plan funds was enhanced for 2016 disasters. Certain areas of California that were affected by natural disasters in 2017 and 2018 will receive additional LIHTC allocations in 2020. Additionally, disaster tax relief for 2018 and 2019 disasters will also be available in U.S. possessions. Enhanced Casualty Loss Deduction An enhanced casualty loss deduction has been made available for losses attributable to certain disasters or for losses occurring during certain periods of time. Most recently, an enhanced casualty loss deduction was provided for 2018 and 2019 disasters in the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Division Q of P.L. 116-94 ). Before that, an enhanced casualty loss deduction was provided for California wildfires in the Bipartisan Budget Act of 2018 (BBA18; P.L. 115-123 ); any disaster-related casualty loss in calendar years 2016 or 2017 in the 2017 tax act, commonly called the "Tax Cuts and Jobs Act" (TCJA; P.L. 115-97 ); and Hurricanes Harvey, Irma, and Maria in the Disaster Tax Relief and Airport and Airway Extension Act of 2017 ( P.L. 115-63 ). The enhancements (1) waive the 10% of AGI floor; (2) increase the $100 floor for each casualty to $500; and (3) allow taxpayers not itemizing deductions to add the deduction to their standard deduction. Generally, casualty loss deductions are claimed in the year of the loss. However, a loss in a federally declared disaster area may be deducted on the prior year's tax return. A similar provision was enacted in response to several previous disasters. Retirement Plan Distributions The Disaster Tax Relief Act of 2019, BBA18, TCJA, and the Disaster Tax Relief Act of 2017 all provided tax relief relating to retirement plan distributions. First, each act waived the 10% penalty that would otherwise apply on early withdrawals made from a qualifying retirement plan if the individual's principal place of abode was in the disaster area and the individual sustained an economic loss due to the disaster. The distributions were required to occur within a specified time frame, and the maximum amount that could be withdrawn without penalty was $100,000 or 100% of the present value of the plan participant's benefits (but not less than $10,000). Funds could be recontributed to a qualified plan over a three-year period and receive tax-free rollover treatment. Additionally, with respect to any taxable portion of the distribution, the individual could include one-third of such amount in gross income each year over the course of three tax years rather than including the entire amount on the tax return for the year of distribution. The acts increased the amount disaster victims could borrow from their retirement plans without immediate tax consequences. Under current law, the maximum amount that may be borrowed without being treated as a taxable distribution is the lesser of (1) $50,000, reduced by certain outstanding loans, or (2) the greater of $10,000 or 50% of the present value of the employee's vested benefits. For loans made during the applicable period, the acts increased this to the lesser of (1) $100,000, reduced by certain outstanding loans, or (2) the greater of $10,000 or 100% of the present value of the employee's vested benefits, as well as extending certain loan repayment dates by one year. A similar provision was enacted in response to several previous disasters. Increased Limits on Charitable Deductions Taxpayers are generally permitted to deduct contributions made to 501(c)(3) charitable organizations, subject to various limitations. Individuals may not claim a charitable deduction that exceeds 50% (temporarily increased to 60% beginning in 2018 through 2025) of their "contribution base" (adjusted gross income with certain adjustments), and corporations may not claim a deduction that exceeds 10% of their taxable income with certain adjustments. Any excess contributions may generally be carried forward for five years. The Disaster Tax Relief Act of 2019, BBA18, and the Disaster Tax Relief Act of 2017 temporarily suspended the 50% and 10% limitations for qualified contributions made for disaster relief efforts. An additional deduction is allowed for amounts by which the taxpayer's charitable contribution base exceeds the amount of all other allowable charitable contributions in the tax year. For individuals, the deduction could not exceed the amount by which the charitable contribution base exceeded other charitable contributions. For individuals, the earlier acts also suspended the overall limitation on itemized deductions for qualified contributions that was in effect through 2017. A similar provision was enacted in response to several previous disasters. Employee Retention Credit The Disaster Tax Relief Act of 2019, BBA18, and the Disaster Tax Relief Act of 2017 provided a temporary retention credit for disaster-damaged businesses that continued to pay wages to their employees who were unable to work after the disaster rendered the business inoperable. Eligible employees were those whose principal place of employment was in the applicable disaster area. The credit equaled 40% of the employee's first $6,000 in wages paid between the date the business became inoperable and the date it resumed significant operations at that location (or the end of the first calendar year, whichever came first). Wages can be those paid even if the employee provides no services for the employer, or for wages paid for services performed at a different location or before significant operations resume. This employee retention may not be for an employee during any period that the employer claims a work opportunity credit for the employee. A similar provision was enacted in response to several previous disasters. EITC/CTC Credit Computation Look-Back The Disaster Tax Relief Act of 2019 and BBA18 permitted individuals affected by 2018 and 2019 disasters or California wildfires in 2017 to elect to use their earned income from the previous year for computing the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC), instead of their disaster-year income, if previous-year income was greater than disaster-year income. The Disaster Tax Relief Act of 2017 also included this provision for those affected by Hurricanes Harvey, Irma, and Maria. This may have benefited taxpayers whose income was reduced in the year of the disaster. Taxpayers generally qualified only if they lived in the disaster zone or lived in the disaster area and the disaster caused them to be displaced from their principal place of abode. A similar provision was enacted in response to several previous disasters. Low-Income Housing Tax Credit The Disaster Tax Relief Act of 2019 increased credits available to California in 2020. Specifically, for certain areas of California that were affected by natural disasters in 2017 and 2018, the act increased California's 2020 LIHTC allocation by the lesser of the state's 2020 LIHTC allocations to buildings located in qualified 2017 and 2018 California disaster areas, or 50% of the state's combined 2017 and 2018 total LIHTC allocations. In the past, disaster relief legislation has provided additional LIHTC allocations to disaster-affected areas. The GO Zone Act temporarily increased the credits available to Alabama, Louisiana, and Mississippi for use in the GO Zone by up to $18.00 multiplied by the state's population that was located in the GO Zone prior to the date of Hurricane Katrina. It also temporarily treated the disaster zones as difficult development areas and used an alternate test for determining whether certain GO Zone projects qualified as low-income housing. The Heartland Act permitted affected states to allocate additional amounts for use in the disaster area of up to $8.00 multiplied by the state's disaster area population. Treatment of Certain U.S. Possessions Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, and the Commonwealth of the Northern Mariana Islands are U.S. territories. Each has a local tax system with features that help determine the territory's local public finances. Guam, the U.S. Virgin Islands, and the Northern Mariana Islands are mirror code possessions, meaning these territories use the Internal Revenue Code as their territorial tax law. Puerto Rico and American Samoa are non-mirror code possessions. These two possessions have their own tax laws. The Disaster Tax Relief Act of 2019 requires payments from the U.S. Treasury to possessions for the temporary tax relief provided in the bill. Mirror code possessions will receive an amount equal to the loss in revenue by reason of the temporary disaster-related tax relief provided in the legislation. Non-mirror code possessions may receive a similar payment (a payment equal to the amount of temporary disaster tax relief that would have been provided if a mirror code had been in effect) if the possession has an approved plan for prompt distribution of payments . Temporary Tax Provisions Used to Respond to Disasters Before 2010 Provisions used to respond to 2016, 2017, 2018, and 2019 disasters were also used to respond to some disasters before 2010. Additionally, a number of other temporary tax provisions were used to respond to these pre-2010 disasters. The first time a temporary disaster tax relief package was enacted was in response to the September 11 terrorist attacks. The following sections summarize the various provisions included in temporary disaster tax relief legislation before 2010. Expensing In general, capital expenditures must be added to a property's basis rather than being expensed (i.e., deducted in the current year). IRC Section 179 provides an exception so that a business may expense the costs of certain property in the year it is placed in service. After 2018, the maximum expensing allowance is $1 million, with an investment limitation of $2.5 million (both amounts are adjusted for inflation). In the past, these thresholds have been lower. For example, in 2007, the maximum expensing allowance under Section 179 was $125,000, and the deduction decreased dollar-for-dollar as the total cost of all property the business placed in service during the year exceeded $500,000. The Heartland Act increased the Section 179 limitations by up to $100,000 and $600,000 for qualified disaster area property for federally declared disasters occurring prior to January 1, 2010. Increased expensing allowances were enacted in response to several disasters before 2007 as well. The Heartland Act also added IRC Section 198A, which permitted full expensing (subject to depreciation recapture) of qualified expenditures for the abatement or control of hazardous substances released on account of a federally declared disaster, the removal of debris or the demolition of structures on business-related real property damaged by such a disaster, and the repair of business-related property damaged by such a disaster. This provision applied only to federally declared disasters occurring prior to January 1, 2010. Net Operating Loss Carryback Under current law, a business's net operating loss (NOL) can be carried forward indefinitely. Additionally, NOLs are limited to 80% of taxable income. There is no carryback of NOLs. This treatment was enacted in the 2017 tax act ( P.L. 115-97 ). Before 2018, in general, a taxpayer's net operating loss (NOL) could be carried back and deducted in the two tax years before the NOL year, and then carried forward for up to 20 years after the NOL year. Additionally, before 2018, the carryback was extended to three years for individuals who had a loss of property arising from a casualty or theft. A three-year period also applied for small businesses and farmers for NOLs attributable to federally declared disasters. The Heartland Act provided for a five-year carryback period for qualified losses from any federally declared disaster occurring prior to January 1, 2010. For such disasters, it also suspended the alternative minimum tax (AMT) provision that generally limits NOL deductions to 90% of alternative minimum taxable income. The corporate AMT was repealed in the 2017 tax act. Bonus Depreciation For eligible property acquired and placed in service after September 27, 2017, and before January 1, 2023, businesses may claim a 100% expensing (or bonus depreciation) allowance under Section 168(k). Like expensing limitations, the bonus depreciation allowance has changed over time. The Heartland Act provided a 50% bonus depreciation provision for qualified disaster assistance property from a federally declared disaster occurring prior to January 1, 2010. However, since other legislation provided 50% bonus depreciation during this time period, the provision was probably not meaningful. With 100% bonus depreciation in effect through 2022, providing additional bonus depreciation is not currently a policy option. Mortgage Revenue Bonds Mortgage revenue bonds are tax-exempt bonds used to finance below-market-rate mortgages for low- and moderate-income homebuyers. In general, the homebuyers must not have owned a residence for the past three years, and the houses' costs may not exceed 90% of the average purchase price for the area. However, for areas that are low income or in chronic economic distress, the three-year restriction does not apply, and the purchase price limitation is increased to 110%. For individuals whose homes were declared unsafe or ordered to be demolished or relocated due to a federally declared disaster occurring prior to January 1, 2010, the Heartland Act waived the three-year restriction and increased the purchase price limitation from 90% to 110%. It also permitted individuals whose homes were damaged by the disaster to treat the amount of owner financing provided for home repair and construction as a qualified rehabilitation loan, limited to $150,000 (the amount is generally limited to $15,000), which had the effect of waiving the three-year requirement for such financing. The GO Zone Act and KETRA contained similar provisions. In the Heartland Act, the maximum amount of bonds each state could issue was $1,000 multiplied by that state's population in the disaster area, and need-based prioritization for state allocations was established. The GO Zone Act also expanded qualified private activity bond issuances for mortgage revenue bonds in disaster areas. The Go Zone Act added $2,500 per person in the federally declared Katrina disaster areas in which the residents qualify for individual and public assistance. The increased capacity added approximately $2.2 billion for Alabama, $7.8 billion for Louisiana, and $4.8 billion for Mississippi in aggregate bonds over the subsequent five years through 2010. Expensing of Environmental Remediation Costs ("Brownfields") Capital expenditures must generally be added to the property's basis rather than being expensed (i.e., deducted in the current year). IRC Section 198 provided an exception by allowing taxpayers to expense any qualifying environmental remediation costs paid or incurred prior to January 1, 2012, for the abatement or control of hazardous substances at a qualified contaminated site. Unlike the other provisions discussed in this report, Section 198 is not limited to federally declared disasters or specific disasters. The provision was enacted as a temporary one in the Taxpayer Relief Act of 1997 ( P.L. 105-34 ) and was extended a number of times before expiring at the end of 2011. The Heartland Act was among those laws that temporarily extended Section 198. The GO Zone Act had also extended the provision, but only for those costs for contaminated sites in the GO Zone, and treated petroleum products as a hazardous substance for the purposes of environmental remediation. Charitable Contributions of Inventory Before 2005, donors of food inventory that were not C corporations could only claim a charitable deduction equal to their basis in the inventory (typically, its cost). C corporations were allowed an enhanced deduction, which was the lesser of (1) the basis plus 50% of the property's appreciated value, or (2) two times basis. KETRA provided special rules that allowed all donors of wholesome food inventory to benefit from the enhanced deduction and allowed C corporations to claim an enhanced deduction for donations of book inventory to public schools. Neither provision was limited to donations related to the hurricane, but both were originally set to expire on December 31, 2005. The provisions have been extended several times since then, including by the Heartland Act (as part of its tax extenders package, rather than its disaster relief provisions). The enhanced deduction for charitable contributions of food inventory was made permanent in the Protecting Americans from Tax Hikes Act of 2015, enacted as Division Q in the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ). The enhanced deduction for book inventory expired as scheduled at the end of 2011. Involuntary Conversions In addition to the general treatment of involuntary conversions (discussed above), the Job Creation Act, KETRA, the 2008 Farm Bill, and the Heartland Act increased the two-year time period to purchase the replacement property to five years for property in the applicable disaster area so long as substantially all of the use of the replacement property occurred in such area. Discharge of Indebtedness When all or part of a debt is forgiven, the amount of the cancellation is ordinarily included in the income of the taxpayer receiving the benefit of the discharge. However, there are several exceptions to this general rule. For example, no amount of the discharge is included in income if the cancellation is intended to be a gift or is from the discharge of student loans for the performance of qualifying services. The Mortgage Forgiveness Debt Relief Act of 2007 ( P.L. 110-142 ) temporarily excluded qualified canceled mortgage debt income that is associated with a primary residence from taxation (this provision was extended multiple times, and expired at the end of 2017). There are also certain situations in which the taxpayer may defer taxation, with the possibility of permanent exclusion, on income from the discharge of indebtedness, such as if discharge occurs when the debtor is in Title 11 bankruptcy proceedings or legally insolvent. Both KETRA and the Heartland Act included provisions that allowed victims to exclude nonbusiness debt forgiveness from income in certain conditions. Victims of Hurricane Katrina were allowed to exclude nonbusiness debt that was forgiven by a governmental agency or certain financial institutions if the discharge occurred after August 24, 2005, and before January 1, 2007. Individuals were eligible for this benefit if (1) their principal place of abode was in the core disaster area, or (2) it was in the Hurricane Katrina disaster area and they suffered an economic loss due to the hurricane. Individuals with certain tax attributes (such as basis) were required to reduce them by the amount excluded from income, which has the effect of deferring (rather than permanently eliminating) the tax on the cancelled debt. For victims with a principal place of abode in a Midwestern disaster area, the Heartland Act provided similar relief. However, if that home was in an area determined by the President to warrant only public assistance, the individual also had to have suffered an economic loss due to the severe weather. Employer-Provided Housing Both the GO Zone Act and the Heartland Act excluded the value of certain employer-provided housing, limited to $600 per month, from the employee's income and allowed the employer to claim a credit equal to 30% of that amount. Among other requirements, the employee must have had a principal residence in the applicable disaster area and have performed substantially all employment services for that employer in that area. The employer must have had a trade or business located within the applicable disaster area. Tax-Exempt Bonds Both the GO Zone Act and the Heartland Act temporarily allowed affected states to issue tax-exempt bonds to finance (1) qualified activities involving residential rental projects, nonresidential real property, and public utility property located in the disaster area; and (2) below-market rate mortgages for low- and moderate-income homebuyers. Under the GO Zone Act, the maximum amount of bonds that each state could issue was $2,500 multiplied by that state's population located in the GO Zone as determined prior to the date of Hurricane Katrina. Under the Heartland Act, the maximum amount of bonds each state could issue was capped at $1,000 multiplied by that state's population in the disaster area, and the act expressly stated that the bonds would have to be designated by the appropriate state authority on the basis of providing assistance to where it was most needed. The Job Creation Act, meanwhile, allowed New York to issue up to $8 billion (divided equally between the state and New York City) in tax-exempt bonds to finance qualified activities involving residential rental projects, nonresidential real property, and public utility property located in the disaster zone. The Job Creation Act and the GO Zone Act also allowed one additional advance refunding of qualifying bonds that were issued by those states. The GO Zone Act, the 2008 Farm Bill, and the Heartland Act allowed operators of low-income residential rental projects financed by IRC Section 142(d) bonds to rely on the representations of displaced individuals regarding their income qualifications so long as the tenancy began within six months of the displacement. Tax Credit Bonds Both the GO Zone Act and the Heartland Act permitted affected states to issue tax credit bonds to pay the principal, interest, or premiums on qualified governmental bonds or to make loans to political subdivisions to make such payments. Bondholders may claim a credit based on the product of a credit rate and the bonds' outstanding face amount. The bonds were required to be issued within a certain time period and could not have a maturity date beyond two years, among other requirements. Further, each state was capped in the amount of bonds it could issue—for example, under the Heartland Act, the maximum amount of bonds that could be issued by states with disaster area populations of at least 2 million was $100 million; the cap was $50 million for states with disaster area populations between 1 million and 2 million; and the other states could not issue any bonds. Bonds could not be used for certain activities. Housing Exemption Both KETRA and the Heartland Act provided tax relief to those who provided free housing to those displaced by the storms. Individuals could claim additional personal exemptions of $500 each for up to four displaced people whom they housed for at least 60 consecutive days. These exemptions could be claimed in both the year of the disaster and the next year; however, no person could qualify the taxpayer for the exemption in both years. Among other requirements, the displaced person must have had a principal place of abode in the disaster area; if the home was not in the core disaster area, then the person must have been displaced due to either storm damage to the home or evacuation caused by the storm. Mileage Rate and Reimbursement Generally, individuals who use their personal vehicles for charitable purposes may claim a deduction based on the number of miles driven. The amount is set by statute at 14 cents per mile. KETRA and the Heartland Act each temporarily increased the charitable mileage rate to 70% of the standard business mileage rate if the vehicle was used for hurricane or Midwest disaster relief. The standard business mileage rate is periodically set by the IRS. In 2019, the standard mileage rate is 56 cents per mile. Additionally, both acts provided a temporary exclusion from a charitable volunteer's gross income for any qualifying mileage reimbursements received from the charity for the operating expenses of a volunteer's passenger automobile, when used for disaster relief. Treasury Authority to Make Adjustments Relating to Status KETRA, the GO Zone Act, and the Heartland Act all contained similar provisions that authorized the Treasury Secretary to make adjustments in the application of the tax laws for the tax years of the disaster and the immediate subsequent year so that temporary relocations due to the disaster did not cause taxpayers to lose any deduction or credit or to experience a change of filing status. Education Credits Individuals with eligible tuition and related expenses may claim certain higher education tax credits. Under the law existing when KETRA, the GO Zone Act, and the Heartland Act were enacted, the Hope credit was 100% of the first $1,000 of eligible expenses plus 50% of the next $1,000 of eligible expenses, both adjusted for inflation. The maximum Lifetime Learning credit is and was 20% of up to $10,000 of eligible expenses. Beginning in 2009, the partially refundable American Opportunity Tax Credit (AOTC) temporarily increased the Hope credit, allowing 100% of eligible expenses up to $2,000 plus 25% of the next $2,000 of eligible expenses. The Protecting Americans from Tax Hikes (PATH) Act (Division Q of P.L. 114-113 ) made the AOTC permanent, effectively eliminating the Hope credit. For individuals attending school in the GO Zone for 2005 and 2006, the GO Zone Act allowed certain nontuition expenses (e.g., books, equipment, and room and board) to qualify for the Hope and Lifetime Learning credits; doubled the $1,000 limitations in the Hope credit to $2,000; and increased the 20% limitation in the Lifetime Learning credit to 40%. The Heartland Act provided similar rules for students attending school in a Midwestern disaster area during 2008 or 2009. However, to take advantage of this provision for 2009, taxpayers were required to waive application of the AOTC provisions. Rehabilitation Credit Taxpayers may claim a credit equal to 10% of the qualifying expenditures to rehabilitate a qualified building or 20% of such expenditures for a certified historic structure. Both the GO Zone Act and the Heartland Act temporarily increased these percentages to 13% and 26%, respectively, for rehabilitating qualifying buildings and structures damaged by the applicable disasters. Public Utility Losses Under IRC Section 172, certain net operating losses, called specified liability losses, may be carried back for 10 years. Under IRC Section 165(i), certain disaster losses may be deducted in the year prior to the disaster. The GO Zone Act treated public utility casualty losses as a Section 172 loss. The GO Zone Act and the 2008 Farm Bill allowed public utility disaster losses to be deducted in the fifth taxable year preceding the disaster. Gulf Coast Recovery Bonds The GO Zone included provisions to encourage the Treasury Secretary to designate at least one series of bonds as Gulf Coast Recovery Bonds. The Treasury designated Series I inflation-indexed savings bonds purchased through financial institutions as "Gulf Coast Recovery Bonds." New Markets Tax Credit Under the new markets tax credit, taxpayers are allocated a credit for investments made in qualified community development entities. The credit is claimed over a period of seven years and equals the amount of the investment multiplied by a percentage: 5% for the first three years and 6% for the next four years. The credit was capped at $2 billion for 2005 and $3.5 billion for 2006 and 2007. The GO Zone Act increased the cap by $300 million for 2005 and 2006 and by $400 million for 2007, and it allocated these amounts to entities making low-income community investments in the GO Zone. Small Timber Producers Under IRC Section 194, taxpayers may expense up to $10,000 of qualifying reforestation expenditures. Under IRC Section 172, the general rule is that taxpayers may carry net operating losses back for two years. The GO Zone Act created two special rules for timber producers with less than 501 acres of timber property: it (1) increased the Section 194 limit by up to $10,000 for expenditures made for qualified timber property in the applicable disaster zones; and (2) increased the Section 172 carry back period to five years for certain losses attributable to timber property in those zones. Work Opportunity Tax Credit Generally, businesses that hire individuals from groups with high unemployment rates or special employment needs, such as high-risk youths and veterans, may claim the work opportunity tax credit. The credit may be claimed for the wages of up to $6,000 that were paid during the employee's first year. For an employee who worked at least 400 hours, the credit equals 40% of his or her wages—thus, the maximum credit is $2,400. KETRA allowed businesses to claim the work opportunity credit on wages paid to certain employees hired after Hurricane Katrina. Eligible employees were those who had a principal place of abode in the core disaster area and either (1) were hired during the two-year period beginning August 28, 2005, for a position in the area, or (2) were displaced by the hurricane and hired after August 27, 2005, and before January 1, 2006. Congress later extended the WOTC's expiration from August 28, 2007, to August 28, 2009, for firms who hire "Hurricane Katrina employees" to work in the core disaster area (see the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 in P.L. 110-343 ). The Job Creation Act provided similar treatment for New York Liberty Zone business employees and certain employees outside the zone. Leasehold Improvements For purposes of depreciation, the Job Creation Act generally shortened the recovery period for leasehold improvement property to five years for qualifying property located in the New York disaster zone. Economic and Policy Considerations57 Tax policy for disaster relief might be motivated by multiple objectives. One objective could be distributional or relief-oriented. Tax policy could be designed to provide additional resources to businesses or individuals who experienced an uncompensated disaster loss. This relief could be targeted toward the low-income, although there are limitations when using tax policy to address low-income individuals and businesses. Tax policy can also be used to encourage investment in disaster-affected areas. Absent government intervention, some level of private rebuilding will occur. A policy question, however, is whether this private building is sufficient, or if there are other barriers to investment in the disaster-affected region that call for government intervention. When investment subsidies are provided, there is the question of how much new investment is supported relative to how much investment is subsidized that would have occurred absent the subsidy. There are also challenges associated with identifying the disaster area for the purposes of providing tax relief. In some cases, relief has been provided to a certain geographic area. In other cases, relief has been tied to a federal disaster declaration or provided only when individual assistance or individual and public assistance is provided. Narrowly defined geographic areas can limit tax benefits to those most likely to be harmed by the disaster, but can exclude some disaster victims. The following sections discuss considerations by examining instances in which disaster relief was provided through the tax code for businesses and individuals, as well as through tax policy designed to support disaster-related charitable giving. Providing Disaster Tax Relief to Businesses For businesses, hurricanes like Katrina, Maria, Irma, and Harvey caused unprecedented property and earnings losses. Employee displacement can create labor market challenges that persist over time. Further, longer-term supply chain disruptions can make it difficult for businesses to resume operations after initial clean-up efforts are complete. In the past, tax policy has been used to reduce the cost of business investment in cleanup and repairs. Bonus depreciation and enhanced expensing were used to provide disaster tax relief to businesses following several disasters before 2010. However, at present, with bonus depreciation at 100% (100% bonus depreciation is expensing), this policy tool is not readily available. Expensing allowances are higher than they have been historically, but could, if deemed necessary and under certain circumstances, be expanded further to provide additional expensing allowances in disaster areas. For instance, this could be a policy option should bonus depreciation be set at a rate of less than 100%, or eliminated altogether. An expansion to expensing for disaster-relief purposes could be accomplished through raising the expensing limit; expensing is currently allowed for investments up to $1,040,000. Expansions to net operating loss (NOL) carrybacks and lengthening of replacement periods for involuntary conversions have also been used to provide tax relief following past disasters. Under current law, there is no carryback of NOLs. Allowing an NOL carryback for disaster-related losses could provide relief for taxpayers experiencing losses who had positive tax liability in a recent tax year. Expanding the replacement period for involuntary conversions could provide more flexibility to taxpayers looking to rebuild or reestablish businesses in the disaster area. Tax policy can also be used to encourage businesses to provide employment and housing following disaster events. Employee retention credits encourage employers to continue paying employees in circumstances where the disaster affects business operations. Targeted hiring credits, such as the WOTC, can be used to provide an incentive to hire workers who were displaced by a disaster. With respect to housing, tax policy has been used to encourage employers to provide housing to their employees, as well as to support more low-income housing development in disaster-affected areas. Disaster recovery and rebuilding has also been supported following certain disasters by providing targeted tax benefits to disaster-impacted geographic zones. The New York Liberty Zone was established following the September 11 terrorist attacks. The Gulf Opportunity Zone was established following the 2005 Gulf Coast hurricanes. These zones can receive additional allocations of allocated tax credits, such as the NMTC or the LIHTC. Past disaster tax relief has also provided additional allocations of tax-exempt or tax-credit bonds in disaster-affected zones. Some have questioned the effectiveness of tax-exempt private activity bonds as a tool for disaster relief, noting that in the case of the GO Zone, areas with the most damage were less likely to have access to bonds to help finance recovery and rebuilding. Should special bond allocations be deployed in response to future disasters, there may be ways to improve the bond allocation process to better target small businesses or heavily impacted areas. Other provisions might be designed to support specific industries or sectors affected by the disaster. For example, tax provisions for small timber producers and public utilities have been included in past disaster tax legislation. Narrowly targeted tax benefits, however, might leave out disaster-affected taxpayers that suffered losses yet have business activities that differ from the sector targeted for relief. One consideration related to tax relief provisions for business is timing. The tax code is not well-suited to provide capital for cleanup, rebuilding, or recovery in the short term. Reduced tax liabilities provide a future financial benefit, but past disaster tax relief has not been designed to provide immediate access to capital that may be needed following a disaster. Another consideration related to business disaster tax relief is the potential scope of the benefit. For many business-related provisions, the benefit is limited to businesses with positive taxable income. Accelerated cost recovery, special deductions, and nonrefundable tax credits provide limited benefits to businesses with little profit or no tax liability. Businesses with limited current income or tax liability may, however, benefit from expanded NOL carrybacks. One policy question is whether certain disaster-related tax benefits are necessary or effective in achieving intended policy goals, given that much of the tax relief accrues to taxpayers who would have rebuilt without incentives. This critique raises the question of whether disaster-related tax benefits are intended to encourage certain behavior (rebuilding, for example), or primarily provide financial relief for businesses affected by the disaster. Providing Disaster Tax Relief to Individuals Tax provisions might be used to provide financial relief to individuals who have lost property, income, or both following a disaster. To provide relief for taxpayers experiencing a loss of property, Congress has enacted legislation following certain past disasters to expand the deduction for casualty losses (beyond what is available under the permanent provision). Relief has been provided to taxpayers experiencing a loss of income by providing enhanced access to retirement plan funds or by using look-back rules for computing refundable tax credits. Several past disaster relief packages have also included provisions to support providing housing to affected individuals. There are limits to using tax policy to provide disaster relief to low- and moderate-income taxpayers. Many low- and moderate-income individuals have zero individual income tax liability. For these individuals, additional exclusions from income or deductions will provide little or no relief, as there is no tax burden to eliminate. Further, low- and moderate-income individuals may have limited wealth. Tax provisions designed to enhance access to certain forms of savings (e.g., retirement accounts) also provide limited relief to the least well-off. Allowing refundable tax credits—the EITC and CTC—to be computed using the previous year's income is one form of individual disaster tax relief that is targeted at low- and moderate-income taxpayers. Tax policy is generally better suited for providing relief to taxpayers higher in the income distribution. These taxpayers tend to have a positive tax liability that can be offset with various forms of tax reductions. Additionally, taxpayers in higher tax brackets receive a larger tax benefit from additional deductions (a deduction of $100 is worth $35 to someone in the 35% tax bracket, but worth $12 to someone in the 12% tax bracket, for example). Empirical evidence suggests access to savings via retirement account withdrawals helped some taxpayers replace lost income or destroyed assets following Hurricane Katrina. Thus, policies that reduce penalties associated with early withdrawals from retirement accounts or otherwise enhance access to this form of savings is one option for providing relief to taxpayers that have such resources to draw on. There are also timing concerns in using the tax code to provide individuals relief following a disaster. As was noted for businesses, the tax code does not lend itself to providing immediate relief. Another question regarding individual disaster tax relief is whether relief should be contingent on an individual having suffered losses due to a federally declared disaster, as opposed to some other disaster event. Through 2025, the casualty loss deduction is limited to federally declared disasters. However, after 2025, individuals may be able to claim a deduction for casualty losses arising from a fire, storm, shipwreck, or other casualty, regardless of whether the casualty was caused by an event with a federal disaster declaration. Is there something about having one's personal property destroyed in a federally declared disaster that merits special relief, different from what is provided when property is destroyed from a disaster without a federal disaster declaration? As it stands, disaster tax policy is inconsistently applied across different types of disaster events (e.g., federally declared versus non-federally declared disasters; disaster areas receiving or not receiving individual or individual and public assistance). Disaster tax policy can also be designed to prevent taxpayers from facing a tax burden triggered by receipt of disaster relief. The permanent exclusions from income for disaster relief payments and insurance living expense payments clarify that these items are excluded from income for income tax purposes, and thus do not result in additional tax liability. In response to past disasters, temporary provisions have provided that certain forgiven debt would not be treated as income for income tax purposes. Charitable Giving to Support Disaster Relief The charitable sector supports a wide range of activities associated with disaster relief and longer-term recovery. At times, Congress has acted following a disaster to provide additional tax incentives to support charitable disaster-related activities. To encourage charitable giving in the wake of a disaster, Congress has, in the past, relaxed certain income limitations associated with the deduction for charitable giving. The amount individuals can deduct for charitable use of a vehicle (the charitable mileage rate) was also temporarily increased in response to certain past disasters. Qualifying mileage reimbursements have also been allowed to be excluded from income. Other tax incentives enacted in response to disasters have encouraged particular types of charitable giving. Provisions designed to encourage charitable contributions of food inventory and books were enacted following Hurricane Katrina. The enhanced deduction for contributions of food inventory was later made permanent, while the enhanced deduction for book inventory expired in 2011. In some instances, Congress has relaxed charitable giving deadlines to allow contributions for disaster relief made early in the year to be deducted on the previous year's tax return. A key question regarding enhanced deductions for charitable giving is how much additional giving results from the policy change. Is it the tax benefits that drive giving, or individuals' desire to aid those affected by the storm? Another question to consider is whether individuals shift their giving to disaster-related causes at the expense of other charitable activities (i.e., does disaster-related giving "crowd out" other forms of charitable giving?). When evaluating enhanced charitable giving incentives following a disaster, another question is how much giving is for disaster-related charitable activities, as opposed to other activities or uses. Charitable giving incentives are often applied broadly, and it can be difficult to target them to a particular event or geographic region. Another consideration is who benefits from an enhanced charitable giving deduction. On the individual side, the value of the tax benefit of the charitable deduction is highly concentrated among high-income taxpayers. Concluding Remarks Since 2001, a variety of temporary tax policies have been used to respond to various disaster events. Following some disaster events, tax relief packages providing numerous types of tax relief were passed by Congress and became law. Following other disaster events, no temporary disaster relief was enacted. Certain permanent tax provisions provide tax relief to all affected by qualifying disasters, even in cases where specific or targeted disaster tax relief is not enacted. Disasters are inevitable. Each disaster is also unique, with damages affecting individuals, businesses, industries, and other economic sectors differently. This poses a challenge for policymakers in determining what type of disaster relief can provide efficient and effective one-size-fits-all relief. Some disasters may require a targeted and tailored policy response. Some disasters are especially catastrophic events that fundamentally change the economy of the affected region. If disasters cause economic hardships across the region, disaster relief might include broader economic development measures, ones that go beyond compensating individuals or businesses for lost income or property. Disaster tax relief as presently applied combines a base set of permanent disaster tax provisions, with additional provisions or relief provided for certain disaster events, targeted disaster zones, or time periods. Conceptually, this provides policymakers with flexibility regarding relief provided after certain disaster events. A question to consider is whether the current balance of permanent and temporary disaster tax relief provides the desired policy response efficiently and effectively. If temporary tax relief cannot be relied upon to deliver relief that is efficient and effective, one option could be to expand the set of permanent disaster-triggered tax relief provisions. Tax relief that is provided broadly, however, may not be particularly efficient, as it is not designed to provide the specific type of relief needed in the wake of a certain disaster event.

The Internal Revenue Code (IRC) contains a number of provisions intended to provide disaster relief. Following certain disasters, Congress has passed legislation with temporary and targeted tax relief policies. At other times, Congress has passed legislation providing tax relief to those affected by all federally declared major disasters (disasters with Stafford Act declarations) occurring during a set time period. In addition, several disaster tax relief provisions are permanent features of the IRC. This report discusses the following permanent provisions: disaster casualty loss deductions; deferral of gain from involuntary conversions of property destroyed by a disaster; disaster relief for owners of low-income housing tax credit properties; income exclusion for disaster relief payments to individuals; income exclusion for certain insurance living expense payments; and IRS administrative relief in the form of extended deadlines and waiving of certain penalties. Congress began enacting tax legislation generally intended to assist victims of specific disasters in 2002 in the wake of the September 11, 2001, terrorist attacks. Laws targeting specific disasters contained provisions that were temporary in nature. Three acts, however—the Heartland Disaster Tax Relief Act of 2008 ( P.L. 110-343 ), the 2017 tax act ( P.L. 115-97 ), and the Taxpayer Certainty and Disaster Tax Relief Act of 2019 ( P.L. 116-94 )—provided more general, but still temporary, relief for any federally declared disaster occurring during designated time periods. The acts providing temporary relief include the following: The Job Creation and Worker Assistance Act of 2002 ( P.L. 107-147 ), which provided tax benefits for areas of New York City damaged by the terrorist attacks of September 11, 2001; The Katrina Emergency Tax Relief Act of 2005 (KETRA; P.L. 109-73 ), which provided tax relief to assist the victims of Hurricane Katrina in 2005; The Gulf Opportunity Zone (GO Zone) Act of 2005 ( P.L. 109-135 ), which provided tax relief to those affected by Hurricanes Katrina, Rita, and Wilma in 2005; The Food, Conservation, and Energy Act of 2008 (2008 Farm Bill; P.L. 110-234 ), which provided tax relief intended to assist those affected by severe storms and tornadoes in Kansas in 2007; The Heartland Disaster Tax Relief Act of 2008 ( P.L. 110-343 ), which provided tax relief to assist recovery from both the severe weather that affected the Midwest during summer 2008 and Hurricane Ike (this act also included general disaster tax relief provisions that applied to federally declared disasters occurring before January 1, 2010); The Disaster Tax Relief and Airport and Airway Extension Act of 2017 ( P.L. 115-63 ), which provided tax relief to those affected by Hurricanes Harvey, Irma, and Maria in 2017; The 2017 tax act ( P.L. 115-97 , commonly referred to using the title of the bill as passed in the House, the "Tax Cuts and Jobs Act") responded to major disasters occurring in 2016; The Bipartisan Budget Act of 2018 (BBA18; P.L. 115-123 ), which provided relief to those affected by the 2017 California wildfires; and The Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Division Q of the Further Consolidated Appropriations Act, 2020; P.L. 116-94 ), which provided relief for major disasters generally occurring in 2018 and 2019. This report provides a basic overview of existing, permanent disaster tax provisions, as well as past, targeted legislative responses to specific disasters. The report also includes a discussion of economic and policy considerations related to providing disaster tax relief to individuals and businesses, and encouraging charitable giving to support disaster relief.

CRS_R42567

Introduction This report provides background information and potential oversight issues for Congress on the Coast Guard's programs for procuring 8 National Security Cutters (NSCs), 25 Offshore Patrol Cutters (OPCs), and 58 Fast Response Cutters (FRCs). The Coast Guard's proposed FY2020 budget requests a total of $657 million in procurement funding for the NSC, OPC, and FRC programs. The issue for Congress is whether to approve, reject, or modify the Coast Guard's funding requests and acquisition strategies for the NSC, OPC, and FRC programs. Congress's decisions on these three programs could substantially affect Coast Guard capabilities and funding requirements, and the U.S. shipbuilding industrial base. The NSC, OPC, and FRC programs have been subjects of congressional oversight for several years, and were previously covered in other CRS reports that are now archived. CRS testified on the Coast Guard's cutter acquisition programs most recently on November 29. The Coast Guard's plans for modernizing its fleet of polar icebreakers are covered in a separate CRS report. Background Older Ships to Be Replaced by NSCs, OPCs, and FRCs The 91 planned NSCs, OPCs, and FRCs are intended to replace 90 older Coast Guard ships—12 high-endurance cutters (WHECs), 29 medium-endurance cutters (WMECs), and 49 110-foot patrol craft (WPBs). The Coast Guard's 12 Hamilton (WHEC-715) class high-endurance cutters entered service between 1967 and 1972. The Coast Guard's 29 medium-endurance cutters include 13 Famous (WMEC-901) class ships that entered service between 1983 and 1991, 14 Reliance (WMEC-615) class ships that entered service between 1964 and 1969, and 2 one-of-a-kind cutters that originally entered service with the Navy in 1944 and 1971 and were later transferred to the Coast Guard. The Coast Guard's 49 110-foot Island (WPB-1301) class patrol boats entered service between 1986 and 1992. Many of these 90 ships are manpower-intensive and increasingly expensive to maintain, and have features that in some cases are not optimal for performing their assigned missions. Some of them have already been removed from Coast Guard service: eight of the Island-class patrol boats were removed from service in 2007 following an unsuccessful effort to modernize and lengthen them to 123 feet; additional Island-class patrol boats are being decommissioned as new FRCs enter service; the one-of-a-kind medium-endurance cutter that originally entered service with the Navy in 1944 was decommissioned in 2011; and Hamilton-class cutters are being decommissioned as new NSCs enter service. A July 2012 Government Accountability Office (GAO) report discusses the generally poor physical condition and declining operational capacity of the Coast Guard's older high-endurance cutters, medium-endurance cutters, and 110-foot patrol craft. Missions of NSCs, OPCs, and FRCs NSCs, OPCs, and FRCs, like the ships they are intended to replace, are to be multimission ships for routinely performing 7 of the Coast Guard's 11 statutory missions, including search and rescue (SAR); drug interdiction; migrant interdiction; ports, waterways, and coastal security (PWCS); protection of living marine resources; other/general law enforcement; and defense readiness operations. Smaller Coast Guard patrol craft and boats contribute to the performance of some of these seven missions close to shore. NSCs, OPCs, and FRCs perform them both close to shore and in the deepwater environment, which generally refers to waters more than 50 miles from shore. NSC Program National Security Cutters ( Figure 1 )—also known as Legend (WMSL-750) class cutters because they are being named for legendary Coast Guard personnel —are the Coast Guard's largest and most capable general-purpose cutters. They are larger and technologically more advanced than Hamilton-class cutters, and are built by Huntington Ingalls Industries' Ingalls Shipbuilding of Pascagoula, MS (HII/Ingalls). The Coast Guard's acquisition program of record (POR)—the service's list, established in 2004, of planned procurement quantities for various new types of ships and aircraft—calls for procuring 8 NSCs as replacements for the service's 12 Hamilton-class high-endurance cutters. The Coast Guard's FY2019 budget submission estimated the total acquisition cost of a nine-ship NSC program at $6.030 billion, or an average of about $670 million per ship. Although the Coast Guard's POR calls for procuring a total of 8 NSCs to replace the 12 Hamilton-class cutters, Congress through FY2018 has funded 11 NSCs, including the 10 th and 11 th in FY2018. The seventh was delivered to the Coast Guard on September 19, 2018, and the eighth was delivered on April 30, 2019. The ninth through 11th are under construction; the ninth is scheduled for delivery in 2021. The Coast Guard's proposed FY2020 budget requests $60 million in procurement funding for the NSC program; this request does not include funding for a 12 th NSC. For additional information on the status and execution of the NSC program from a May 2018 GAO report, see Appendix C . OPC Program Offshore Patrol Cutters ( Figure 2 , Figure 3 , and Figure 4 )—also known as Heritage (WMSM-915) class cutters because they are being named for past cutters that played a significant role in the history of the Coast Guard and the Coast Guard's predecessor organizations —are to be somewhat smaller and less expensive than NSCs, and in some respects less capable than NSCs. In terms of full load displacement, OPCs are to be about 80% as large as NSCs. Coast Guard officials describe the OPC program as the service's top acquisition priority. OPCs are being built by Eastern Shipbuilding Group of Panama City, FL. The Coast Guard's POR calls for procuring 25 OPCs as replacements for the service's 29 medium-endurance cutters. The Coast Guard's FY2019 budget submission estimated the total acquisition cost of the 25 ships at $10.523 billion, or an average of about $421 million per ship. The first OPC was funded in FY2018 and is to be delivered in 2021. The second OPC and long leadtime materials (LLTM) for the third were funded in FY2019. The Coast Guard's proposed FY2020 budget requests $457 million in procurement funding for the third OPC, LLTM for the fourth and fifth, and other program costs. The Coast Guard's Request for Proposal (RFP) for the OPC program, released on September 25, 2012, established an affordability requirement for the program of an average unit price of $310 million per ship, or less, in then-year dollars (i.e., dollars that are not adjusted for inflation) for ships 4 through 9 in the program. This figure represents the shipbuilder's portion of the total cost of the ship; it does not include the cost of government-furnished equipment (GFE) on the ship, or other program costs—such as those for program management, system integration, and logistics—that contribute to the above-cited figure of $421 million per ship. At least eight shipyards expressed interest in the OPC program. On February 11, 2014, the Coast Guard announced that it had awarded Preliminary and Contract Design (P&CD) contracts to three of those eight firms—Bollinger Shipyards of Lockport, LA; Eastern Shipbuilding Group of Panama City, FL; and General Dynamics' Bath Iron Works (GD/BIW) of Bath, ME. On September 15, 2016, the Coast Guard announced that it had awarded the detail design and construction (DD&C) contract to Eastern Shipbuilding. The contract covers detail design and production of up to 9 OPCs and has a potential value of $2.38 billion if all options are exercised. For additional information on the status and execution of the OPC program from a May 2018 GAO report, see Appendix C . FRC Program Fast Response Cutters ( Figure 5 )—also called Sentinel (WPC-1101) class patrol boats because they are being named for enlisted leaders, trailblazers, and heroes of the Coast Guard and its predecessor services of the U.S. Revenue Cutter Service, U.S. Lifesaving Service, and U.S. Lighthouse Service —are considerably smaller and less expensive than OPCs, but are larger than the Coast Guard's older patrol boats. FRCs are built by Bollinger Shipyards of Lockport, LA. The Coast Guard's POR calls for procuring 58 FRCs as replacements for the service's 49 Island-class patrol boats. The POR figure of 58 FRCs is for domestic operations. The Coast Guard, however, operates six Island-class patrol boats in the Persian Gulf area as elements of a Bahrain-based Coast Guard unit, called Patrol Forces Southwest Asia (PATFORSWA), which is the Coast Guard's largest unit outside the United States. Providing FRCs as one-for-one replacements for all six of the Island-class patrol boats in PATFORSWA would result in a combined POR+PATFORSWA figure of 64 FRCs. The Coast Guard's FY2019 budget submission estimated the total acquisition cost of the 58 cutters at $3.748.1 billion, or an average of about $65 million per cutter. A total of 56 FRCs have been funded through FY2019, including six in FY2019. Four of the 56 (two of the FRCs funded in FY2018 and two of the FRC funded in FY2019) are to be used for replacing PATFORSWA cutters and consequently are not counted against the Coast Guard's 58-ship POR for the program. Excluding these four OPCs, a total of 52 FRCs for domestic operations have been funded through FY2019. The 32nd FRC was commissioned into service on May 1, 2019. The Coast Guard's proposed FY2020 budget requests $140 million in acquisition funding for the procurement of two more FRCs for domestic operations. For additional information on the status and execution of the FRC program from a May 2018 GAO report, see Appendix C . Funding in FY2013-FY2020 Budget Submissions Table 1 shows annual requested and programmed acquisition funding for the NSC, OPC, and FRC programs in the Coast Guard's FY2013-FY2020 budget submissions. Actual appropriated figures differ from these requested and projected amounts. Issues for Congress FY2020 Funding for a 12th NSC One issue for Congress is whether to whether to provide funding in FY2020 for the procurement of a 12 th NSC. Funding long leadtime materials (LLTM) for a 12 th NSC in FY2020 could require tens of millions of dollars; fully funding the procurement of a 12 th NSC in FY2020 could require upwards of $700 million. Supporters of providing funding for a 12 th NSC in FY2020 could argue that a total of 12 NSCs would provide one-for-one replacements for the 12 retiring Hamilton-class cutters; that Coast Guard analyses showing a need for no more than 9 NSCs assumed dual crewing of NSCs—something that has not worked as well as expected; and that the Coast Guard's POR record includes only about 61% as many new cutters as the Coast Guard has calculated would be required to fully perform the Coast Guard's anticipated missions in coming years (see " Planned NSC, OPC, and FRC Procurement Quantities " below, as well as Appendix A ). Skeptics or opponents of providing funding for a 12 th NSC in FY2019 could argue that the Coast Guard's POR includes only 8 NSCs, that the Coast Guard's fleet mix analyses (see " Planned NSC, OPC, and FRC Procurement Quantities " below, as well as Appendix A ) have not shown a potential need for more than 9 NSCs, and that in a situation of finite Coast Guard budgets, providing funding for a 12 th NSC might require reducing funding for other FY2020 Coast Guard programs. Whether to Procure Two FRCs or a Higher Number in FY2020 Another issue for Congress is whether to fund the procurement in FY2020 of two FRCs, as requested by the Coast Guard, or some higher number, such as four or six. Supporters of funding the procurement of a higher number could argue that FRCs in past years have been procured at annual rates of up to six per year; that procuring them at higher annual rates reduces their unit procurement costs due to improved production economies of scale; and that procuring four or six FRCs in FY2020 would accelerate the replacement of aging and less-capable Island-class patrol boats with new and more capable FRCs. Opponents of procuring more than two FRCs in FY2020, while acknowledging these points, could argue that in a situation of finite Coast Guard funding, procuring more than two could require offsetting reductions in funding for other FY2020 Coast Guard programs, producing an uncertain net result on overall Coast Guard capabilities, and that replacing Island-class patrol boats, while desirable, is not so urgent a requirement that the procurement of FRCs needs to be accelerated beyond what the Coast Guard plans under its FY2020 budget submission. Annual or Multiyear (Block Buy) Contracting for OPCs Another issue for Congress is whether to acquire OPCs using annual contracting or multiyear contracting. The Coast Guard currently plans to use a contract with options for procuring the first nine OPCs. Although a contract with options may look like a form of multiyear contracting, it operates more like a series of annual contracts. Contracts with options do not achieve the reductions in acquisition costs that are possible with multiyear contracting. Using multiyear contracting involves accepting certain trade-offs. One form of multiyear contracting, called block buy contracting, can be used at the start of a shipbuilding program, beginning with the first ship. (Indeed, this was a principal reason why block buy contracting was in effect invented in FY1998, as the contracting method for procuring the Navy's first four Virginia-class attack submarines.) Section 311 of the Frank LoBiondo Coast Guard Authorization Act of 2018 ( S. 140 / P.L. 115-282 of December 4, 2018) provides permanent authority for the Coast Guard to use block buy contracting with economic order quantity (EOQ) purchases (i.e., up-front batch purchases) of components in its major acquisition programs. The authority is now codified at 14 U.S.C. 1137. CRS estimates that if the Coast Guard were to use block buy contracting with EOQ purchases of components for acquiring the first several OPCs, and either block buy contracting with EOQ purchases or another form of multiyear contracting known as multiyear procurement (MYP) with EOQ purchases for acquiring the remaining ships in the program, the savings on the total acquisition cost of the 25 OPCs (compared to costs under contracts with options) could amount to roughly $1 billion. CRS also estimates that acquiring the first nine ships in the OPC program under the current contract with options could forego roughly $350 million of the $1 billion in potential savings. One potential option for the subcommittee would be to look into the possibility of having the Coast Guard either convert the current OPC contract at an early juncture into a block buy contract with EOQ authority, or, if conversion is not possible, replace the current contract at an early juncture with a block buy contract with EOQ authority. Replacing the current contract with a block buy contract might require recompeting the program, which would require effort on the Coast Guard's part and could create business risk for Eastern Shipbuilding Group, the shipbuilder that holds the current contract. On the other hand, the cost to the Coast Guard of recompeting the program would arguably be small relative to a potential additional savings of perhaps $300 million, and Eastern arguably would have a learning curve advantage in any new competition by virtue of its experience in building the first OPC. Annual OPC Procurement Rate The current procurement profile for the OPC, which reaches a maximum projected annual rate of two ships per year, would deliver OPCs many years after the end of the originally planned service lives of the medium-endurance cutters that they are to replace. Coast Guard officials have testified that the service plans to extend the service lives of the medium-endurance cutters until they are replaced by OPCs. There will be maintenance and repair expenses associated with extending the service lives of medium-endurance cutters, and if the Coast Guard does not also make investments to increase the capabilities of these ships, the ships may have less capability in certain regards than OPCs. One possible option for addressing this situation would be to increase the maximum annual OPC procurement rate from the currently planned two ships per year to three or four ships per year. Doing this could result in the 25 th OPC being delivered about four years or six years sooner, respectively, than under the currently planned maximum rate. Increasing the OPC procurement rate to three or four ships per year would require a substantial increase to the Coast Guard's Procurement, Construction, and Improvements (PC&I) account, an issue discussed in Appendix B . Increasing the maximum procurement rate for the OPC program could, depending on the exact approach taken, reduce OPC unit acquisition costs due to improved production economies of scale. Doubling the rate for producing a given OPC design to four ships per year, for example, could reduce unit procurement costs for that design by as much as 10%, which could result in hundreds of millions of dollars in additional savings in acquisition costs for the program. Increasing the maximum annual procurement rate could also create new opportunities for using competition in the OPC program. Notional alternative approaches for increasing the OPC procurement rate to three or four ships per year include but are not necessarily limited to the following: increasing the production rate to three or four ships per year at Eastern Shipbuilding—an option that would depend on Eastern Shipbuilding's production capacity; introducing a second shipyard to build Eastern's design for the OPC; introducing a second shipyard (such as one of the other two OPC program finalists) to build its own design for the OPC—an option that would result in two OPC classes; or building additional NSCs in the place of some of the OPCs—an option that might include descoping equipment on those NSCs where possible to reduce their acquisition cost and make their capabilities more like that of the OPC. Such an approach would be broadly similar to how the Navy is using a descoped version of the San Antonio (LPD-17) class amphibious ship as the basis for its LPD-17 Flight II (LPD-30) class amphibious ships. Impact of Hurricane Michael on OPC Program at Eastern Shipbuilding Another potential issue for Congress concerns the impact of Hurricane Michael on Eastern Shipbuilding of Panama City, FL, the shipyard that is to build the first nine OPCs. A May 22, 2019, press report states: A Category 5 hurricane that battered Florida's panhandle region last fall, including shipbuilder Eastern Shipbuilding Group, will impact the new medium-endurance cutter ship the company is building for the Coast Guard but at the moment it's unclear what the effects will be on cost and schedule, Coast Guard Commandant Adm. Karl Schultz said on Tuesday [May 21]. Eastern Shipbuilding's analysis of Hurricane Michael's impact on the Offshore Patrol Cutter (OPC) is due to the Coast Guard by May 31, and from there the service expects to have an understanding on the way forward with the program before the end of June, Schultz said in response to questions from Rep. Garret Graves (R-La.), during a hearing hosted by the House Transportation and Infrastructure Coast Guard and Maritime Transportation Subcommittee. He said Eastern Shipbuilding will provide "perspectives" on the cost and schedule and any other impacts. "It's safe to say that we understand the impacts of a Category 5 hurricane on Eastern Shipbuilding Group will have an impact on the OPC program," Shultz said. He expects there to be some "puts and takes" after Eastern Shipbuilding submits its analysis. Rep. Peter DeFazio (D-Ore.), citing a press report earlier in the hearing, said that Sen. Marco Rubio (R-Fla.) has inserted language in a draft disaster assistance bill allowing the Coast Guard and Eastern Shipbuilding to renegotiate the firm fixed-price contract the shipbuilder is working under for the OPC to account for damage to shore side facilities from Hurricane Michael and increased labor costs. DeFazio said he is skeptical of the company's claim, noting, "I'm pretty sure they had insurance," and adding that "I question whether or not this has something to do with their original bid, which some thought was low." He also said he has concerns that a former Coast Guard Commandant that works for Eastern Shipbuilding has said he'll have authority to negotiate with his former service. Retired Adm. Robert Papp, the 24th commandant of the Coast Guard, runs Eastern Shipbuilding's Washington, D.C., operations. Eastern Shipbuilding did not respond to a query from Defense Daily about impacts to the OPC program from Hurricane Michael and any relief it may need from the current contract. Schultz said that the OPC contract can't be renegotiated without legislative authorities from Congress. He said the Coast Guard, in response to an "ask" from Congress, provided language to help with drafting the proposed legislation related to the OPC in the disaster bill. Schultz also said that the Coast Guard is not involved in Eastern Shipbuilding's lobbying efforts with Congress. A May 17, 2019, press report stated: As the Senate continues to negotiate the particulars of the supplemental disaster relief bill that seems poised to go to a vote next week, a new provision to save something many likely didn't know was at risk has been added. A new line in the draft bill will let Eastern Shipbuilding Group renegotiate its contract with the U.S. Coast Guard to build up to 25 new off-shore patrol cutters. "Under the old contract we were prohibited from negotiating for additional money for increased costs," said Admiral Bob Papp, President of Washington Operations for Eastern. That meant that after Hurricane Michael, they would be unable to negotiate with the Coast Guard to help cover a slew of new costs associated with both the project and the hurricane, such as the damage from the Category 5 storm that needed repairs, the prolonged schedule and the "skyrocketing" costs of labor, Papp said. The contract—the largest in the Coast Guard's history at more than $10 billion—didn't account for a natural disaster. It was going to be hard, Papp said, for Eastern to complete the project and to "stay healthy" without some negotiations. At stake in the community are 900 planned jobs and up to 5,000 indirect jobs officials believe will help jump-start the region's manufacturing economy. But an official in Sen. Marco Rubio's office said the latest version of the supplemental disaster relief bill now includes a provision that will allow negotiations. Rubio, according to the official, spoke with the President Donald Trump on Air Force One following the president's rally in Panama City Beach last week, helping to secure the language that made it into the bill. "We've waited far too long (for disaster relief), and we're also involved in some Florida-specific issues," Rubio said in a recent video. "For example, the Hurricane had an impact on a very important Coast Guard project that's in Northwest Florida and we want to make sure that project stays on target and continues to feed jobs because Northwest Florida desperately needs those jobs to recover. We're very hopeful. Cautiously optimistic, that next week can be a very good week." Papp thanked the area's congressional delegation for stepping up to advocate for this project, saying the company is "honored and delighted" to receive help. A January 28, 2019, press release from Eastern Shipbuilding stated: Panama City, FL, Eastern Shipbuilding Group [ESG] reports that steel cutting for the first offshore patrol cutter (OPC), Coast Guard Cutter ARGUS (WMSM-915), commenced on January 7, 2019 at Eastern's facilities. ESG successfully achieved this milestone even with sustaining damage and work interruption due to Hurricane Michael. The cutting of steel will start the fabrication and assembly of the cutter's hull, and ESG is to complete keel laying of ARGUS later this year. Additionally, ESG completed the placement of orders for all long lead time materials for OPC #2, Coast Guard Cutter CHASE (WMSM-916). Eastern's President Mr. Joey D'Isernia noted the following: "Today represents a monumental day and reflects the dedication of our workforce - the ability to overcome and perform even under the most strenuous circumstances and impacts of Hurricane Michael. ESG families have been dramatically impacted by the storm, and we continue to recover and help rebuild our shipyard and community. I cannot overstate enough how appreciative we are of all of our subcontractors and vendors contributions to our families during the recovery as well as the support we have received from our community partners. Hurricane Michael may have left its marks but it only strengthened our resolve to build the most sophisticated, highly capable national assets for the Coast Guard. Today's success is just the beginning of the construction of the OPCs at ESG by our dedicated team of shipbuilders and subcontractors for our customer and partner, the United States Coast Guard. We are excited for what will be a great 2019 for Eastern Shipbuilding Group and Bay County, Florida." A November 1, 2018, statement from Eastern Shipbuilding states that the firm resumed operations at both of its two main shipbuilding facilities just two weeks after Hurricane Michael devastated Panama City Florida and the surrounding communities…. … the majority of ESG's [Eastern Shipbuilding Group's] workforce has returned to work very quickly despite the damage caused by the storm. "Our employees are a resourceful and resilient group of individuals with the drive to succeed in the face of adversity. This has certainly been proven by their ability to bounce back over the two weeks following the storm. Our employees have returned to work much faster than anticipated and brought with them an unbreakable spirit, that I believe sets this shipyard and our community apart" said [Eastern Shipbuilding] President Joey D'Isernia. "Today, our staffing levels exceed 80% of our pre-Hurricane Michael levels and is rising daily." Immediately following the storm, ESG set out on an aggressive initiative to locate all of its employees and help get them back on the job as soon as practical after they took necessary time to secure the safety and security of their family and home. Together with its network of friends, partners, and customers in the maritime community, ESG organized daily distribution of meals and goods to employees in need. Additionally, ESG created an interest free deferred payback loan program for those employees in need and has organized Go Fund Me account to help those employees hardest hit by the storm. ESG also knew temporary housing was going to be a necessity in the short term and immediately built a small community located on greenfield space near its facilities for those employees with temporary housing needs. ESG has worked closely with its federal, state and commercial partners over the past two weeks to provide updates on the shipyard as well as on projects currently under construction. Power was restored to ESG's Nelson Facility on 10-21-18 and at ESG's Allanton Facility on 10-24-18 and production of vessels under contract is ramping back up. Additionally, all of the ESG personnel currently working on the US Coast Guard's Offshore Patrol Cutter contract have returned to work…. "We are grateful to our partners and the maritime business community as a whole for their support and confidence during the aftermath of this historic storm. Seeing our incredible employees get back to building ships last week was an inspiration," said D'Isernia. "While there is no doubt that the effects of Hurricane Michael will linger with our community for years to come, I can say without reservation that we are open for business and excited about delivering quality vessels to our loyal customers." An October 22, 2018, press report states the following: U.S. Coast Guard officials and Eastern Shipbuilding Group are still assessing the damage caused by deadly category 4 Hurricane Michael to the Panama City, Fla.-based yard contracted to build the new class of Offshore Patrol Cutters. On September 28, the Coast Guard awarded Eastern Shipbuilding a contract to build the future USCGC Argus (WMSM-915), the first offshore patrol cutter (OPC). The yard was also set to build a second OPC, the future USCGC Chase (WMSM-916). Eastern Shipbuilding's contract is for nine OPCs, with options for two additional cutters. Ultimately, the Coast Guard plans to buy 25 OPCs. However, just as the yard was preparing to build Argus , Hurricane Michael struck the Florida Panhandle near Panama City on October 10. Workers from the shipyard and Coast Guard project managers evacuated and are just now returning to assess damage to the yard facilities, Brian Olexy, communications manager for the Coast Guard's Acquisitions Directorate, told USNI News. "Right now we haven't made any decisions yet on shifts in schedule," Olexy said…. Since the yard was just the beginning stages of building Argus , Olexy said the hull wasn't damaged. "No steel had been cut," he said. Eastern Shipbuilding is still in the process of assessing damage to the yard and trying to reach its workforce. Many employees evacuated the area and have not returned, or are in the area but lost their homes, Eastern Shipbuilding spokesman Justin Smith told USNI News. At first, about 200 workers returned to work, but by week's end about 500 were at the yard, Smith said. The company is providing meals, water, and ice for its workforce. "Although we were significantly impacted by this catastrophic weather event, we are making great strides each day thanks to the strength and resiliency of our employees," Joey D'Isernia, president of Eastern Shipbuilding, said in a statement. Planned NSC, OPC, and FRC Procurement Quantities Another issue for Congress concerns the Coast Guard's planned NSC, OPC, and FRC procurement quantities. The POR's planned force of 91 NSCs, OPCs, and FRCs is about equal in number to the Coast Guard's legacy force of 90 high-endurance cutters, medium-endurance cutters, and 110-foot patrol craft. NSCs, OPCs, and FRCs, moreover, are to be individually more capable than the older ships they are to replace. Even so, Coast Guard studies have concluded that the planned total of 91 NSCs, OPCs, and FRCs would provide 61% of the cutters that would be needed to fully perform the service's statutory missions in coming years, in part because Coast Guard mission demands are expected to be greater in coming years than they were in the past. For further discussion of this issue, about which CRS has testified and reported on since 2005, see Appendix A . Legislative Activity in 2019 Summary of Appropriations Action on FY2020 Acquisition Funding Request Table 2 summarizes appropriations action on the Coast Guard's request for FY2020 acquisition funding for the NSC, OPC, and FRC programs. Appendix A. Planned NSC, OPC, and FRC Procurement Quantities This appendix provides further discussion on the issue of the Coast Guard's planned NSC, OPC, and FRC procurement quantities. Overview The Coast Guard's program of record for NSCs, OPCs, and FRCs includes only about 61% as many cutters as the Coast Guard calculated in 2011 would be needed to fully perform its projected future missions. The Coast Guard's planned force levels for NSCs, OPCs, and FRCs have remained unchanged since 2004. In contrast, the Navy since 2004 has adjusted its ship force-level goals eight times in response to changing strategic and budgetary circumstances. Although the Coast Guard's strategic situation and resulting mission demands may not have changed as much as the Navy's have since 2004, the Coast Guard's budgetary circumstances may have changed since 2004. The 2004 program of record was heavily conditioned by Coast Guard expectations in 2004 about future funding levels in the PC&I account. Those expectations may now be different, as suggested by the willingness of Coast Guard officials in 2017 to begin regularly mentioning the need for an PC&I funding level of $2 billion per year (see Appendix B ). It can also be noted that continuing to, in effect, use the Coast Guard's 2004 expectations of future funding levels for the PC&I account as an implicit constraint on planned force levels for NSCs, OPCs, and FRCs can encourage an artificially narrow view of Congress's options regarding future Coast Guard force levels and associated funding levels, depriving Congress of agency in the exercise of its constitutional power to provide for the common defense and general welfare of the United States, and to set funding levels and determine the composition of federal spending. 2009 Coast Guard Fleet Mix Analysis The Coast Guard estimated in 2009 that with the POR's planned force of 91 NSCs, OPCs, and FRCs, the service would have capability or capacity gaps in 6 of its 11 statutory missions—search and rescue (SAR); defense readiness; counterdrug operations; ports, waterways, and coastal security (PWCS); protection of living marine resources (LMR); and alien migrant interdiction operations (AMIO). The Coast Guard judges that some of these gaps would be "high risk" or "very high risk." Public discussions of the POR frequently mention the substantial improvement that the POR force would represent over the legacy force. Only rarely, however, have these discussions explicitly acknowledged the extent to which the POR force would nevertheless be smaller in number than the force that would be required, by Coast Guard estimate, to fully perform the Coast Guard's statutory missions in coming years. Discussions that focus on the POR's improvement over the legacy force while omitting mention of the considerably larger number of cutters that would be required, by Coast Guard estimate, to fully perform the Coast Guard's statutory missions in coming years could encourage audiences to conclude, contrary to Coast Guard estimates, that the POR's planned force of 91 cutters would be capable of fully performing the Coast Guard's statutory missions in coming years. In a study completed in December 2009 called the Fleet Mix Analysis (FMA) Phase 1, the Coast Guard calculated the size of the force that in its view would be needed to fully perform the service's statutory missions in coming years. The study refers to this larger force as the objective fleet mix. Table A-1 compares planned numbers of NSCs, OPCs, and FRCs in the POR to those in the objective fleet mix. As can be seen in Table A-1 , the objective fleet mix includes 66 additional cutters, or about 73% more cutters than in the POR. Stated the other way around, the POR includes about 58% as many cutters as the 2009 FMA Phase I objective fleet mix. As intermediate steps between the POR force and the objective fleet mix, FMA Phase 1 calculated three additional forces, called FMA-1, FMA-2, and FMA-3. (The objective fleet mix was then relabeled FMA-4.) Table A-2 compares the POR to FMAs 1 through 4. FMA-1 was calculated to address the mission gaps that the Coast Guard judged to be "very high risk." FMA-2 was calculated to address both those gaps and additional gaps that the Coast Guard judged to be "high risk." FMA-3 was calculated to address all those gaps, plus gaps that the Coast Guard judged to be "medium risk." FMA-4—the objective fleet mix—was calculated to address all the foregoing gaps, plus the remaining gaps, which the Coast Guard judge to be "low risk" or "very low risk." Table A-3 shows the POR and FMAs 1 through 4 in terms of their mission performance gaps. Figure A-1 , taken from FMA Phase 1, depicts the overall mission capability/performance gap situation in graphic form. It appears to be conceptual rather than drawn to precise scale. The black line descending toward 0 by the year 2027 shows the declining capability and performance of the Coast Guard's legacy assets as they gradually age out of the force. The purple line branching up from the black line shows the added capability from ships and aircraft to be procured under the POR, including the 91 planned NSCs, OPCs, and FRCs. The level of capability to be provided when the POR force is fully in place is the green line, labeled "2005 Mission Needs Statement." As can be seen in the graph, this level of capability is substantially below a projection of Coast Guard mission demands made after the terrorist attacks of September 11, 2001 (the red line, labeled "Post-9/11 CG Mission Demands"), and even further below a Coast Guard projection of future mission demands (the top dashed line, labeled "Future Mission Demands"). The dashed blue lines show future capability levels that would result from reducing planned procurement quantities in the POR or executing the POR over a longer time period than originally planned. FMA Phase 1 was a fiscally unconstrained study, meaning that the larger force mixes shown in Table A-2 were calculated primarily on the basis of their capability for performing missions, rather than their potential acquisition or life-cycle operation and support (O&S) costs. Although the FMA Phase 1 was completed in December 2009, the figures shown in Table A-2 were generally not included in public discussions of the Coast Guard's future force structure needs until April 2011, when GAO presented them in testimony. GAO again presented them in a July 2011 report. The Coast Guard completed a follow-on study, called Fleet Mix Analysis (FMA) Phase 2, in May 2011. Among other things, FMA Phase 2 includes a revised and updated objective fleet mix called the refined objective mix. Table A-4 compares the POR to the objective fleet mix from FMA Phase 1 and the refined objective mix from FMA Phase 2. As can be seen in Table A-4 , compared to the objective fleet mix from FMA Phase 1, the refined objective mix from FMA Phase 2 includes 49 OPCs rather than 57. The refined objective mix includes 58 additional cutters, or about 64% more cutters than in the POR. Stated the other way around, the POR includes about 61% as many cutters as the refined objective mix. Compared to the POR, the larger force mixes shown in Table A-2 and Table A-4 would be more expensive to procure, operate, and support than the POR force. Using the average NSC, OPC, and FRC procurement cost figures presented earlier (see " Background "), procuring the 58 additional cutters in the Refined Objective Mix from FMA Phase 2 might cost an additional $10.7 billion, of which most (about $7.8 billion) would be for the 24 additional FRCs. (The actual cost would depend on numerous factors, such as annual procurement rates.) O&S costs for these 58 additional cutters over their life cycles (including crew costs and periodic ship maintenance costs) would require billions of additional dollars. The larger force mixes in the FMA Phase 1 and 2 studies, moreover, include not only increased numbers of cutters, but also increased numbers of Coast Guard aircraft. In the FMA Phase 1 study, for example, the objective fleet mix included 479 aircraft—93% more than the 248 aircraft in the POR mix. Stated the other way around, the POR includes about 52% as many aircraft as the objective fleet mix. A decision to procure larger numbers of cutters like those shown in Table A-2 and Table A-4 might thus also imply a decision to procure, operate, and support larger numbers of Coast Guard aircraft, which would require billions of additional dollars. The FMA Phase 1 study estimated the procurement cost of the objective fleet mix of 157 cutters and 479 aircraft at $61 billion to $67 billion in constant FY2009 dollars, or about 66% more than the procurement cost of $37 billion to $40 billion in constant FY2009 dollars estimated for the POR mix of 91 cutters and 248 aircraft. The study estimated the total ownership cost (i.e., procurement plus life-cycle O&S cost) of the objective fleet mix of cutters and aircraft at $201 billion to $208 billion in constant FY2009 dollars, or about 53% more than the total ownership cost of $132 billion to $136 billion in constant FY2009 dollars estimated for POR mix of cutters and aircraft. A December 7, 2015, press report states the following: The Coast Guard's No. 2 officer said the small size and advanced age of its fleet is limiting the service's ability to carry out crucial missions in the Arctic and drug transit zones or to meet rising calls for presence in the volatile South China Sea. "The lack of surface vessels every day just breaks my heart," VADM Charles Michel, the Coast Guard's vice commandant, said Dec. 7. Addressing a forum on American Sea Power sponsored by the U.S. Naval Institute at the Newseum, Michel detailed the problems the Coast Guard faces in trying to carry out its missions of national security, law enforcement and maritime safety because of a lack of resources. "That's why you hear me clamoring for recapitalization," he said. Michel noted that China's coast guard has a lot more ships than the U.S. Coast Guard has, including many that are larger than the biggest U.S. cutter, the 1,800-ton [sic:4,800-ton] National Security Cutter. China is using those white-painted vessels rather than "gray-hull navy" ships to enforce its claims to vast areas of the South China Sea, including reefs and shoals claimed by other nations, he said. That is a statement that the disputed areas are "so much our territory, we don't need the navy. That's an absolutely masterful use of the coast guard," he said. The superior numbers of Chinese coast guard vessels and its plans to build more is something, "we have to consider when looking at what we can do in the South China Sea," Michel said. Although they have received requests from the U.S. commanders in the region for U.S. Coast Guard cutters in the South China Sea, "the commandant had to say 'no'. There's not enough to go around," he said. Potential oversight questions for Congress include the following: Under the POR force mix, how large a performance gap, precisely, would there be in each of the missions shown in Table A-3 ? What impact would these performance gaps have on public safety, national security, and protection of living marine resources? How sensitive are these performance gaps to the way in which the Coast Guard translates its statutory missions into more precise statements of required mission performance? Given the performance gaps shown in Table A-3 , should planned numbers of Coast Guard cutters and aircraft be increased, or should the Coast Guard's statutory missions be reduced, or both? How much larger would the performance gaps in Table A-3 be if planned numbers of Coast Guard cutters and aircraft are reduced below the POR figures? Has the executive branch made sufficiently clear to Congress the difference between the number of ships and aircraft in the POR force and the number that would be needed to fully perform the Coast Guard's statutory missions in coming years? Why has public discussion of the POR focused mostly on the capability improvement it would produce over the legacy force and rarely on the performance gaps it would have in the missions shown in Table A-3 ? Appendix B. Funding Levels in PC&I Account This appendix provides background information on funding levels in the Coast Guard's Procurement, Construction, and Improvements (PC&I) account. Overview As shown in Table B-1 , the FY2013 budget submission programmed an average of about $1.5 billion per year in the PC&I account. As also shown in the table, the FY2014-FY2016 budget submissions reduced that figure to between $1 billion and $1.2 billion per year. The Coast Guard has testified that funding the PC&I account at a level of about $1 billion to $1.2 billion per year would make it difficult to fund various Coast Guard acquisition projects, including a new polar icebreaker and improvements to Coast Guard shore installations. Coast Guard plans call for procuring OPCs at an eventual rate of two per year. If each OPC costs roughly $400 million, procuring two OPCs per year in an PC&I account of about $1 billion to $1.2 billion per year, as programmed under the FY2014-FY2016 budget submissions, would leave about $200 million to $400 million per year for all other PC&I-funded programs. Since 2017, Coast Guard officials have been stating more regularly what they stated only infrequently in earlier years: that executing the Coast Guard's various acquisition programs fully and on a timely basis would require the PC&I account to be funded in coming years at a level of about $2 billion per year. Statements from Coast Guard officials on this issue in past years have sometimes put this figure as high as about $2.5 billion per year. Using Past PC&I Funding Levels as a Guide for Future PC&I Funding Levels In assessing future funding levels for executive branch agencies, a common practice is to assume or predict that the figure in coming years will likely be close to where it has been in previous years. While this method can be of analytical and planning value, for an agency like the Coast Guard, which goes through periods with less acquisition of major platforms and periods with more acquisition of major platforms, this approach might not always be the best approach, at least for the PC&I account. More important, in relation to maintaining Congress's status as a co-equal branch of government, including the preservation and use of congressional powers and prerogatives, an analysis that assumes or predicts that future funding levels will resemble past funding levels can encourage an artificially narrow view of congressional options regarding future funding levels, depriving Congress of agency in the exercise of its constitutional power to set funding levels and determine the composition of federal spending. Past Coast Guard Statements About Required PC&I Funding Level At an October 4, 2011, hearing on the Coast Guard's major acquisition programs before the Coast Guard and Maritime Transportation subcommittee of the House Transportation and Infrastructure Committee, the following exchange occurred: REPRESENATIVE FRANK LOBIONDO: Can you give us your take on what percentage of value must be invested each year to maintain current levels of effort and to allow the Coast Guard to fully carry out its missions? ADMIRAL ROBERT J. PAPP, COMMANDANT OF THE COAST GUARD: I think I can, Mr. Chairman. Actually, in discussions and looking at our budget—and I'll give you rough numbers here, what we do now is we have to live within the constraints that we've been averaging about $1.4 billion in acquisition money each year. If you look at our complete portfolio, the things that we'd like to do, when you look at the shore infrastructure that needs to be taken care of, when you look at renovating our smaller icebreakers and other ships and aircraft that we have, we've done some rough estimates that it would really take close to about $2.5 billion a year, if we were to do all the things that we would like to do to sustain our capital plant. So I'm just like any other head of any other agency here, as that the end of the day, we're given a top line and we have to make choices and tradeoffs and basically, my tradeoffs boil down to sustaining frontline operations balancing that, we're trying to recapitalize the Coast Guard and there's where the break is and where we have to define our spending. An April 18, 2012, blog entry stated the following: If the Coast Guard capital expenditure budget remains unchanged at less than $1.5 billion annually in the coming years, it will result in a service in possession of only 70 percent of the assets it possesses today, said Coast Guard Rear Adm. Mark Butt. Butt, who spoke April 17 [2012] at [a] panel [discussion] during the Navy League Sea Air Space conference in National Harbor, Md., echoed Coast Guard Commandant Robert Papp in stating that the service really needs around $2.5 billion annually for procurement. At a May 9, 2012, hearing on the Coast Guard's proposed FY2013 budget before the Homeland Security subcommittee of the Senate Appropriations Committee, Admiral Papp testified, "I've gone on record saying that I think the Coast Guard needs closer to $2 billion dollars a year [in acquisition funding] to recapitalize—[to] do proper recapitalization." At a May 14, 2013, hearing on the Coast Guard's proposed FY2014 budget before the Homeland Security Subcommittee of the Senate Appropriations Committee, Admiral Papp stated the following regarding the difference between having about $1.0 billion per year rather than about $1.5 billion per year in the PC&I account: Well, Madam Chairman, $500 million—a half a billion dollars—is real money for the Coast Guard. So, clearly, we had $1.5 billion in the [FY]13 budget. It doesn't get everything I would like, but it—it gave us a good start, and it sustained a number of projects that are very important to us. When we go down to the $1 billion level this year, it gets my highest priorities in there, but we have to either terminate or reduce to minimum order quantities for all the other projects that we have going. If we're going to stay with our program of record, things that have been documented that we need for our service, we're going to have to just stretch everything out to the right. And when we do that, you cannot order in economic order quantities. It defers the purchase. Ship builders, aircraft companies—they have to figure in their costs, and it inevitably raises the cost when you're ordering them in smaller quantities and pushing it off to the right. Plus, it almost creates a death spiral for the Coast Guard because we are forced to sustain older assets—older ships and older aircraft—which ultimately cost us more money, so it eats into our operating funds, as well, as we try to sustain these older things. So, we'll do the best we can within the budget. And the president and the secretary have addressed my highest priorities, and we'll just continue to go on the—on an annual basis seeing what we can wedge into the budget to keep the other projects going. At a March 12, 2014, hearing on the Coast Guard's proposed FY2015 budget before the Homeland Security subcommittee of the House Appropriations Committee, Admiral Papp stated the following: Well, that's what we've been struggling with, as we deal with the five-year plan, the capital investment plan, is showing how we are able to do that. And it will be a challenge, particularly if it sticks at around $1 billion [per year]. As I've said publicly, and actually, I said we could probably—I've stated publicly before that we could probably construct comfortably at about 1.5 billion [dollars] a year. But if we were to take care of all the Coast Guard's projects that are out there, including shore infrastructure that that fleet that takes care of the Yemen [sic: inland] waters is approaching 50 years of age, as well, but I have no replacement plan in sight for them because we simply can't afford it. Plus, we need at some point to build a polar icebreaker. Darn tough to do all that stuff when you're pushing down closer to 1 billion [dollars per year], instead of 2 billion [dollars per year]. As I said, we could fit most of that in at about the 1.5 billion [dollars per year] level, but the projections don't call for that. So we are scrubbing the numbers as best we can. At a March 24, 2015, hearing on the Coast Guard's proposed FY2016 budget before the Homeland Security subcommittee of the House Appropriations Committee, Admiral Paul Zukunft, Admiral Papp's successor as Commandant of the Coast Guard, stated the following: I look back to better years in our acquisition budget when we had a—an acquisition budget of—of $1.5 billion. That allows me to move these programs along at a much more rapid pace and, the quicker I can build these at full-rate production, the less cost it is in the long run as well. But there's an urgent need for me to be able to deliver these platforms in a timely and also in an affordable manner. But to at least have a reliable and a predictable acquisition budget would make our work in the Coast Guard much easier. But when we see variances of—of 30, 40% over a period of three or four years, and not knowing what the Budget Control Act may have in store for us going on, yes, we are treading water now but any further reductions, and now I am—I am beyond asking for help. We are taking on water. An April 13, 2017, press report states the following (emphasis added): Coast Guard Commandant Adm. Paul Zukunft on Wednesday [April 12] said that for the Coast Guard to sustain its recapitalization plans and operations the service needs a $2 billion annual acquisition budget that grows modestly overtime to keep pace with inflation. The Coast Guard needs a "predictable, reliable" acquisition budget "and within that we need 5 percent annual growth to our operations and maintenance (O&M) accounts," Zukunft told reporters at a Defense Writers Group breakfast. Inflation will clip 2 to 3 percent from that, but "at 5 percent or so it puts you on a moderate but positive glide slope so you can execute, so you can build the force," he said. In an interview published on June 1, 2017, Zukunft said the following (emphasis added): We cannot be more relevant than we are now. But what we need is predictable funding. We have been in over 16 continuing resolutions since 2010. I need stable and repeatable funding. An acquisition budget with a floor of $2 billion. Our operating expenses as I said, they've been funded below the Budget Control Act floor for the past five years. I need 5 percent annualized growth over the next five years and beyond to start growing some of this capability back. But more importantly, we [need] more predictable, more reliable funding so we can execute what we need to do to carry out the business of the world's best Coast Guard. Appendix C. Additional Information on Status and Execution of NSC, OPC, and FRC Programs from May 2018 GAO Report This appendix presents additional information on the status and execution of the NSC, OPC, and FRC programs from a May 2018 GAO report reviewing DHS acquisition programs. NSC Program Regarding the NSC program, the May 2018 GAO report states the following: DHS's Under Secretary for Management (USM) directed the USCG to complete follow-on operational test and evaluation (OT&E) by March 2019. According to USCG officials, the program's OTA began follow-on OT&E in October 2017, which will test unmet key performance parameters (KPP) and address deficiencies found during prior testing. The NSC completed initial operational testing in 2014, but did not fully demonstrate 7 of its 19 KPPs, including those related to unmanned aircraft and cutter-boat deployment in rough seas. According to USCG officials, operators have since demonstrated these KPPs during USCG operations. For example, USCG officials stated that they successfully demonstrated operations of a prototype unmanned aircraft on an NSC. However, the USCG will not evaluate the NSC's unmanned aircraft KPP until the unmanned aircraft undergoes initial OT&E, currently planned for June 2019. In addition, the NSC will be the first USCG asset to undergo cybersecurity testing. However, this test has been delayed over a year with the final cyber test event scheduled for August 2018 because of a change in NSC operational schedules, among other things. The DHS USM also directed the USCG to complete a study to determine the root cause of the NSC's propulsion system issues by December 2017; however, as of January 2018, the study was not yet complete. GAO previously reported on these issues—including high engine temperatures, cracked cylinder heads, and overheating generator bearings that were impacting missions—in January 2016.... The USCG initially planned to implement a crew rotational concept in which crews would rotate while NSCs were underway to achieve a goal of 230 days away from the cutter's homeport. In February 2018, USCG officials told GAO they abandoned the crew rotational concept because the concept did not provide the USCG with the expected return on investment. Instead, USCG officials said a new plan has been implemented that does not rotate crew and is anticipated to increase the days away from home port from the current capability of 185 days to 200 days. OPC Program Regarding the OPC program, the May 2018 GAO report states the following: DHS approved six key performance parameters (KPP) for the OPC related to the ship's operating range and duration, crew size, interoperability and maneuverability, and ability to support operations in moderate to rough seas. The first OPC has not yet been constructed, so the USCG has not yet demonstrated whether it can meet these KPPs. The USCG plans to use engineering reviews, and developmental and operational tests throughout the acquisition to measure the OPC's performance. USCG officials told GAO that the program completed an early operational assessment on the basic ship design in August 2017, which entailed a review of the current design plans. The program plans to refine the ship's design as needed based on preliminary test results. However, as of December 2017, USCG officials had not received the results of this assessment. The USCG plans to conduct initial operational test and evaluation (OT&E) on the first OPC in fiscal year 2023. However, the test results from initial OT&E will not be available to inform key decisions. For example, the results will not be available to inform the decision to build 2 OPCs per year—which USCG officials said is scheduled to begin in fiscal year 2021. Without test results to inform these key decisions, the USCG must make substantial commitments prior to knowing how well the ship will meet its requirements.... The USCG is in the process of completing the design of the OPC before starting construction, which is in-line with GAO shipbuilding best practices. In addition, USCG officials stated that the program is using state-of-the-market technology that has been proven on other ships as opposed to state-of-the-art technology, which lowers the risk of the program. FRC Program Regarding the FRC program, the May 2018 GAO report states the following: In February 2017, DHS's Director, Office of Test and Evaluation (DOT&E) assessed the results from the program's July 2016 follow-on operational test and evaluation (OT&E) and determined that • the program met its six key performance parameters, and • the FRC was operationally effective and suitable. During follow-on OT&E, the OTA found that several deficiencies from the program's initial OT&E had been corrected. For example, the OTA closed a severe deficiency related to the engines based on modifications to the FRC's main diesel engines. However, five major deficiencies remain. According to USCG officials, the remaining deficiencies are related to ergonomics (e.g., improving the working environment for operators) and issues with stowage space. USCG officials stated that they plan to resolve the remaining deficiencies by fiscal year 2020. DOT&E noted that these deficiencies do not prevent mission completion or present a danger to personnel, but recommended that they be resolved as soon as possible. USCG officials indicated that they plan to resolve the remaining deficiencies through engineering or other changes.... The USCG continues to work with the contractor—Bollinger Shipyards, LLC—to address issues covered by the warranty and acceptance clauses for each ship. For example, 18 engines—9 operational engines and 9 spare engines—have been replaced under the program's warranty. According to USCG documentation, 65 percent of the current issues with the engines have been resolved through retrofits; however, additional problems with the engines have been identified since our April 2017 review. For example, issues with water pump shafts are currently being examined through a root cause analysis and will be redesigned and are scheduled to undergo retrofits starting in December 2018. We previously found that the FRC's warranty resulted in improved cost and quality by requiring the shipbuilder to pay for the repair of defects. As of September 2017, USCG officials said the replacements and retrofits completed under the program's warranty allowed the USCG to avoid an estimated $104 million in potential unplanned costs—of which $63 million is related to the engines. For a discussion of some considerations relating to warranties in shipbuilding and other acquisition programs, see Appendix D . Appendix D. Some Considerations Relating to Warranties in Shipbuilding and Other Acquisition Programs This appendix presents some considerations relating to warranties in shipbuilding and other defense acquisition. In discussions of Navy and Coast Guard shipbuilding, one question that sometimes arises is whether including a warranty in a shipbuilding contract is preferable to not including one. Including a warranty in a shipbuilding contract (or a contract for building some other kind of military end item), while potentially valuable, might not always be preferable to not including one—it depends on the circumstances of the acquisition, and it is not necessarily a valid criticism of an acquisition program to state that it is using a contract that does not include a warranty (or a weaker form of a warranty rather than a stronger one). Including a warranty generally shifts to the contractor the risk of having to pay for fixing problems with earlier work. Although that in itself could be deemed desirable from the government's standpoint, a contractor negotiating a contract that will have a warranty will incorporate that risk into its price, and depending on how much the contractor might charge for doing that, it is possible that the government could wind up paying more in total for acquiring the item (including fixing problems with earlier work on that item) than it would have under a contract without a warranty. When a warranty is not included in the contract and the government pays later on to fix problems with earlier work, those payments can be very visible, which can invite critical comments from observers. But that does not mean that including a warranty in the contract somehow frees the government from paying to fix problems with earlier work. In a contract that includes a warranty, the government will indeed pay something to fix problems with earlier work—but it will make the payment in the less-visible (but still very real) form of the up-front charge for including the warranty, and that charge might be more than what it would have cost the government, under a contract without a warranty, to pay later on for fixing those problems. From a cost standpoint, including a warranty in the contract might or might not be preferable, depending on the risk that there will be problems with earlier work that need fixing, the potential cost of fixing such problems, and the cost of including the warranty in the contract. The point is that the goal of avoiding highly visible payments for fixing problems with earlier work and the goal of minimizing the cost to the government of fixing problems with earlier work are separate and different goals, and that pursuing the first goal can sometimes work against achieving the second goal. The Department of Defense's guide on the use of warranties states the following: Federal Acquisition Regulation (FAR) 46.7 states that "the use of warranties is not mandatory." However, if the benefits to be derived from the warranty are commensurate with the cost of the warranty, the CO [contracting officer] should consider placing it in the contract. In determining whether a warranty is appropriate for a specific acquisition, FAR Subpart 46.703 requires the CO to consider the nature and use of the supplies and services, the cost, the administration and enforcement, trade practices, and reduced requirements. The rationale for using a warranty should be documented in the contract file.... In determining the value of a warranty, a CBA [cost-benefit analysis] is used to measure the life cycle costs of the system with and without the warranty. A CBA is required to determine if the warranty will be cost beneficial. CBA is an economic analysis, which basically compares the Life Cycle Costs (LCC) of the system with and without the warranty to determine if warranty coverage will improve the LCCs. In general, five key factors will drive the results of the CBA: cost of the warranty + cost of warranty administration + compatibility with total program efforts + cost of overlap with Contractor support + intangible savings. Effective warranties integrate reliability, maintainability, supportability, availability, and life-cycle costs. Decision factors that must be evaluated include the state of the weapon system technology, the size of the warranted population, the likelihood that field performance requirements can be achieved, and the warranty period of performance.

The Coast Guard's program of record (POR) calls for procuring 8 National Security Cutters (NSCs), 25 Offshore Patrol Cutters (OPCs), and 58 Fast Response Cutters (FRCs) as replacements for 90 aging Coast Guard high-endurance cutters, medium-endurance cutters, and patrol craft. The Coast Guard's proposed FY2020 budget requests a total of $657 million in procurement funding for the NSC, OPC, and FRC programs. NSCs are the Coast Guard's largest and most capable general-purpose cutters; they are intended to replace the Coast Guard's 12 aged Hamilton-class high-endurance cutters. NSCs have an estimated average procurement cost of about $670 million per ship. Although the Coast Guard's POR calls for procuring a total of 8 NSCs to replace the 12 Hamilton-class cutters, Congress through FY2019 has funded 11 NSCs, including the 10th and 11th in FY2018. Six NSCs have been commissioned into service. The seventh was delivered to the Coast Guard on September 19, 2018, and the eighth was delivered on April 30, 2019. The ninth through 11th are under construction; the ninth is scheduled for delivery in 2021. The Coast Guard's proposed FY2020 budget requests $60 million in procurement funding for the NSC program; this request does not include funding for a 12th NSC. OPCs are to be smaller, less expensive, and in some respects less capable than NSCs; they are intended to replace the Coast Guard's 29 aged medium-endurance cutters. Coast Guard officials describe the OPC program as the service's top acquisition priority. OPCs have an estimated average procurement cost of about $421 million per ship. On September 15, 2016, the Coast Guard awarded a contract with options for building up to nine OPCs to Eastern Shipbuilding Group of Panama City, FL. The first OPC was funded in FY2018 and is to be delivered in 2021. The second OPC and long leadtime materials (LLTM) for the third were funded in FY2019. The Coast Guard's proposed FY2020 budget requests $457 million in procurement funding for the third OPC, LLTM for the fourth and fifth, and other program costs. FRCs are considerably smaller and less expensive than OPCs; they are intended to replace the Coast Guard's 49 aging Island-class patrol boats. FRCs have an estimated average procurement cost of about $58 million per boat. A total of 56 have been funded through FY2019, including six in FY2019. Four of the 56 are to be used by the Coast Guard in the Persian Gulf and are not counted against the Coast Guard's 58-ship POR for the program, which relates to domestic operations. Excluding these four OPCs, a total of 52 FRCs for domestic operations have been funded through FY2019. The 32nd FRC was commissioned into service on May 1, 2019. The Coast Guard's proposed FY2020 budget requests $140 million in acquisition funding for the procurement of two more FRCs for domestic operations. The NSC, OPC, and FRC programs pose several issues for Congress, including the following: whether to provide funding in FY2020 for the procurement of a 12th NSC; whether to fund the procurement in FY2020 of two FRCs, as requested by the Coast Guard, or some higher number, such as four or six; whether to use annual or multiyear contracting for procuring OPCs; the annual procurement rate for the OPC program; the impact of Hurricane Michael on Eastern Shipbuilding of Panama City, FL, the shipyard that is to build the first nine OPCs; and the planned procurement quantities for NSCs, OPCs, and FRCs.

GAO_GAO-20-18

Background Older Adult Population Growth The U.S. older adult population is growing and is projected to steadily increase in the coming decades. By 2060, the U.S. Census Bureau projects that adults 65 or older will make up nearly one-quarter of the total U.S. population. In addition to the overall growth in this population, the number of adults 85 or older is expected to nearly triple, from 6.4 million in 2016 to 19 million in 2060 (see fig. 1). Federal Nutrition Assistance Programs Serving Older Adults Several federal nutrition assistance programs serve older adults, which are overseen by HHS’s Administration for Community Living (ACL) and USDA’s Food and Nutrition Service (FNS). The characteristics of older adults served by these programs vary, as do the types of assistance provided, the numbers of participants, and the amounts of federal expenditures (see table 1). Program Administration The nutrition assistance programs serving older adults are overseen by ACL and FNS’s national and regional offices and are generally administered by state and local entities. The ACL and FNS national offices allocate funding and develop program regulations and guidance, and their respective regional offices provide support, such as technical assistance and training, to state agencies. State agencies implement the programs directly or through local entities. In the four programs that provide meals and monthly food packages to participants, state agencies work with regional and local agencies, such as government entities or private nonprofit organizations, to provide nutrition assistance to participants (see fig. 2). Specifically, in FNS’s two programs, state agencies work directly with local providers, while in ACL’s two programs, states work with regional level area agencies on aging, which generally contract with local providers. Area agencies on aging are public or private nonprofit entities that are responsible for planning and delivering services to older adults within their geographic service area. Federally-Supported Nutrition Guidelines The Dietary Guidelines for Americans and the Dietary Reference Intakes (DRIs) are the two federally supported scientific bodies of work that provide broad information and guidance on the nutritional needs of healthy populations to help individuals maintain health and prevent nutrition-related chronic diseases. The dietary guidelines are developed by HHS and USDA and summarized in a federal policy document that focuses on providing practical nutritional and dietary information and guidance for Americans ages 2 and older. Overall, the 2015-2020 Dietary Guidelines recommend the consumption of a variety of vegetables, fruits, grains (at least half of which are whole grains), and protein, as well as fat-free or low-fat dairy and oils—sources of essential fatty acids and vitamin E. They also recommend foods and beverages that limit saturated and trans fats, as well as added sugars and sodium. Developed by the National Academies of Sciences, Engineering, and Medicine, the DRIs are a set of values used to plan and assess diets and nutrient intakes in both the United States and Canada, and the DRIs also provide scientific support for the development of the dietary guidelines. Specifically, the DRIs provide nutrient intake recommendations at levels considered safe for consumption of a wide range of nutrients, including vitamins, such as vitamins A and C; minerals, such as sodium and iron; and macronutrients, such as fiber and fat. Evidence Shows Nutrition Is Associated with Older Adults’ Health Outcomes, but Federal Nutrition Guidelines Do Not Address Their Varying Needs The Majority of Older Adults Have Chronic Conditions and Evidence Shows Older Adults’ Nutrition Is Associated with Their Health Outcomes The majority of older adults in the U.S. have chronic conditions, and evidence shows that nutrition is associated with the development of such conditions. Older adults are the fastest growing segment of the population, and they also have the greatest prevalence of chronic conditions. For example, according to the most recent data available from the Centers for Disease Control and Prevention (CDC), 62 percent of older adults 65 and older had more than one chronic condition in 2016, such as diabetes or heart disease, compared to 18 percent of adults ages 18 to 64. Although the risk of developing chronic conditions increases with age, research has shown that poor nutrition is a contributor to negative health outcomes, including many chronic conditions. For example, research shows that over- and under-consumption of certain nutrients, in addition to physical inactivity, is associated with the development of chronic conditions, including certain cancers, obesity, heart disease, and diabetes. The CDC reported that, in 2016, nutrition- related chronic conditions, including heart disease and stroke, were among the leading causes of death for older adults 65 and older in the United States, with heart disease accounting for 25 percent of deaths among this population. At the same time, research shows that nutrients and diet can prevent, delay, or assist in managing many chronic conditions, and individuals with certain chronic conditions may have different nutritional needs compared to healthy individuals. For example, according to research reviewed during development of the dietary guidelines and DRIs: diets low in sodium that also replace some carbohydrates with protein or unsaturated fats lower blood pressure and cholesterol levels, both reducing the risk of developing heart disease and helping to manage it; consumption of certain types of dietary fats, such as omega-3 fatty acids found in fish and flaxseed, for example, may help prevent or manage heart disease; increased consumption of fiber reduces total blood cholesterol, and high cholesterol is both a chronic condition as well as an increased risk for developing other chronic conditions, such as heart disease and stroke; and decreased consumption of foods high in added sugars, saturated fats, and sodium helps reduce the risk of diabetes, stroke, or heart attack. Barriers to Older Adults’ Meeting Nutritional Needs May Negatively Affect Their Health Outcomes Research has shown that certain age-related changes may impair older adults’ ability to meet their nutritional needs, potentially resulting in negative health outcomes. According to a study conducted by the Academy of Nutrition and Dietetics, physiological changes that occur with age, such as decreased metabolism and reductions in muscle mass and nutrient absorption, may make it difficult for older adults to meet their nutritional needs. Research reviewed to develop the dietary guidelines also indicates that older adults experience a decline in calorie or energy needs as they age, due in part to decreased physical activity. As a result of reduced energy needs, older adults exhibit less hunger and also experience changes in taste sensation and sense of smell, all of which may lead to decreased food consumption, according to the Academy of Nutrition and Dietetics study. Inadequate consumption of certain nutrients, such as potassium, may lead to increased risk of negative health outcomes, including the development of chronic conditions, as noted earlier. Age-related physical or mental impairments also may impact older adults’ ability to meet their nutritional needs, potentially resulting in negative health outcomes. The Older Americans Act defines disability to include a physical or mental impairment, or combination of the two, that results in substantial functional limitations to certain major life activities, including self-care and mobility, among other things. An HHS official we spoke with noted that some older adults’ inability to perform daily activities— which can include eating, walking, or leaving the home to obtain groceries or meals, because of a physical or mental impairment—can contribute to inadequate nutrition. According to the CDC, age-related declines in cognitive functioning, such as the ability to reason and remember, may affect some older adults’ ability to leave their homes and shop for food, hindering their ability to meet their nutritional needs. Further, HHS reported that older adults with age-related physical impairments, such as impaired mobility and vision, may have difficulty opening, reading, and using food packaging, limiting their ability to prepare food. According to an Academy of Nutrition and Dietetics study, older adults with a physical impairment, such as an inability to chew or swallow food, may have reduced ability to consume nutrients, which, as previously noted, may increase their risk of negative health outcomes. Older adults may also require the use of medication, which may impact their ability to absorb or consume nutrients and meet their nutritional needs. For example, according to the National Institute on Aging, common side effects of certain medications can include reduced appetite and dry mouth, which may make it difficult to chew and swallow. In addition, some medications require older adults to limit their consumption of certain foods, such as citrus fruit, as consumption of these foods may change the effectiveness of the medications or cause other negative health outcomes. However, such restrictions may impact older adults’ ability to obtain the nutrients commonly found in those foods. Further, some older adults experience food insecurity, and therefore have limited access to adequate food and nutrients, which research has shown may lead to negative health outcomes. According to research reviewed to develop the dietary guidelines, food insecurity is a leading nutrition- related public health issue that compromises nutrient intake, potentially resulting in an increased risk of developing a chronic condition, as well as difficulty managing chronic conditions. USDA reported that 8 percent of U.S. households with an older adult and 9 percent of U.S. households in which an older adult lived alone experienced food insecurity in 2017—the most recent year for which data are available. According to HHS, food insecure older adults are more likely to experience negative health outcomes than their food secure counterparts. For example, research has shown that older adults who are food insecure consume lower amounts of essential nutrients and are more likely to experience negative health outcomes, like diabetes or physical or mental impairments. Federal Nutrition Guidelines Do Not Address the Varying Nutritional Needs of Older Adults The federal nutrition guidelines—the dietary guidelines and Dietary Reference Intakes (DRIs)—provide broad nutrition guidance for healthy populations. However, the guidelines do not address the nutritional needs of older adults, including the majority of older adults in the United States who have multiple chronic conditions. Specifically, the guidelines focus on the foods and nutrients healthy individuals need to maintain health and prevent nutrition-related chronic conditions, which limit their applicability to older adults who already have chronic conditions. According to the scientific report for the 2015-2020 Dietary Guidelines, the guidelines are expected to evolve to address public health concerns and the nutritional needs of specific populations. Further, a report from a DRI working group indicates that the growth of the older adult population and the prevalence of chronic conditions in this group highlight the importance of understanding how nutrition can help to address chronic conditions. Although DRI researchers recently took steps to examine research on the relationship between nutrition and chronic conditions, they noted in a March 2019 report that current research on this issue is somewhat limited. At the same time, the federal nutrition guidelines do not address the varying nutritional needs of older adults of different ages and instead focus on guidelines for broad age groups. Specifically, the dietary guidelines provide information by gender on the nutrient needs of all adults 51 or older, and the DRIs provide this information by gender for older adults 51 through 70 and 71 or older. However, research has shown that these broad age categories do not account for how needs change with age among older adults, particularly for those 71 or older. For instance, according to the Academy of Nutrition and Dietetics study, the nutrient needs of older adults can be wide-ranging given the various changes that may occur with aging, such as those associated with reduced energy needs. Further, according to a summary report on the DRIs, physiological functioning, such as nutrient absorption, varies greatly after age 70. HHS officials similarly noted that nutritional needs change with each stage in life, and the needs of older adults who are in their 60s and those who are in their 90s or older may be substantially different. Additionally, researchers note that information on the varying nutritional needs of the different age groups of older adults is limited. For instance, the advisory committee that developed the 2015-2020 Dietary Guidelines noted that more data are needed on older adults’ diets, particularly for those 71 or older, and the degree to which age-related changes affect older adults’ ability to establish and maintain proper nutrition. Similarly, researchers at the Jean Mayer USDA Human Nutrition Research Center on Aging—one of the largest research centers studying nutrition and aging in the United States—told us that research on different age groups has been hindered in part by limitations in national nutrition and health data on older adults, and adults 85 or older, in particular, despite the projected growth of this age group. HHS officials said they intend to include a focus on nutritional guidance for older adults in the 2025-2030 Dietary Guidelines update, but they have not yet documented their plans to do so. Broadly, HHS and USDA officials told us they intend to address the nutritional needs of individuals across the entire lifespan in future updates to the dietary guidelines. USDA is leading the 2020-2025 Dietary Guidelines update, which will include guidance for those individuals in the earliest stages of life. HHS officials said that when they lead the 2025-2030 Dietary Guidelines update, they intend to include a focus on nutritional guidance for older adults. However, HHS has not yet documented this intention, such as through a formal plan. As noted, older adults’ nutritional needs can vary with age and many face certain challenges that additional nutrition guidance could help address, such as the management of chronic conditions or age-related changes, yet guidance currently falls short in part because of limited research evaluating older adults’ nutritional needs. In its Strategic Plan for fiscal years 2018-2022, HHS notes that one of the department’s objectives is to prevent, treat, and control communicable diseases and chronic conditions. As previously noted, the dietary guidelines are also expected to evolve to address public health concerns and the nutritional needs of specific populations. A plan for incorporating a focus on older adults in a future dietary guidelines update, such as one that addresses their various needs based on available research on this population and identifies existing information gaps, could help ensure federal nutrition guidelines better address the nutritional needs of this population. Several Nutrition Assistance Programs Serving Older Adults Include Nutrition- Related Requirements, and Federal Oversight of Requirements in Some Programs Is Limited Four of the Six Federal Nutrition Assistance Programs Serving Older Adults Include Nutrition Requirements The four federal nutrition assistance programs that we reviewed and that provide meals and food directly to older adults have federal nutrition requirements, while two other programs we reviewed that provide older adults with benefits to purchase food do not. Specifically, HHS’s congregate and home-delivered meal programs and USDA’s Child and Adult Care Food Program (CACFP) have nutrition requirements for older adults’ meals, and the Commodity Supplemental Food Program (CSFP) has nutrition requirements for the monthly food package provided to older adults. Two other federal programs—USDA’s Supplemental Nutrition Assistance Program (SNAP) and Senior Farmers’ Market Nutrition Program—provide older adults with benefits to purchase food, and neither program has specific nutritional requirements that must be met when purchasing food. The four programs with nutrition requirements used the federal nutrition guidelines—the Dietary Guidelines for Americans—as the basis for their nutrition requirements. These guidelines are also the basis for nutrition requirements in other federal nutrition assistance programs, such as those that serve children. As discussed earlier, the current guidelines provide broad guidance on nutrition for healthy populations and therefore serve a role in health promotion for all individuals. Several Programs Also Require the Provision of Services to Help Older Adults Meet Nutritional Needs Nutrition Education Several of the nutrition assistance programs that have nutrition requirements for meals or food served to older adults also require other services to help ensure older adults’ nutritional needs are met. These services include nutrition education, screenings and assessments, and the use of nutrition professionals. Three of the four selected nutrition assistance programs serving older adults that have nutrition requirements also require nutrition education to support efforts to meet older adults’ nutritional needs. These programs are HHS’s congregate and home-delivered meal programs and USDA’s CSFP, which provides monthly food packages. See figure 5 for examples of nutrition education materials from selected states. To help promote health and delay adverse health conditions among older adults, area agencies on aging, either directly or through their local providers, are required to provide nutrition education to congregate and home-delivered meal participants. According to HHS regional officials we spoke with, there are no requirements for the frequency or type of nutrition education that must be provided, though as officials in one region noted, programs are encouraged to provide education that is science- based. According to the nationwide evaluation of the congregate and home-delivered meal programs, almost half of state agencies surveyed in 2014 required area agencies on aging, either directly or through their local providers, to provide nutrition education at least quarterly, and about one-quarter of state agencies require it to be provided semi-annually or annually. Officials from two of the four state agencies told us local providers educate participants in a variety of ways, including by directly sharing nutrition-related information about specific menu items or meals offered to participants or by partnering with other entities, such as universities, to help educate older adults on nutritional well-being. State agencies overseeing CSFP food packages must also establish a nutrition education plan and ensure that local providers provide nutrition education to program participants. For example, providers must include information about the nutritional value and use of the foods provided in the food package and should account for specific ethnic and cultural characteristics of program participants. USDA regional officials and state agency officials overseeing CSFP in three of the four states told us that providers generally use USDA’s household foods fact sheets—which includes food product descriptions, general food storage information, recipes, and nutritional information—to provide nutrition education to CSFP participants. State officials in our selected states also noted other methods CSFP providers used to support nutrition education. For example, officials in one of the states told us one of their distribution sites provides nutrition education materials in 17 languages to accommodate the different cultural backgrounds of the population it serves. Officials in another state we visited told us some of their provider sites partner with universities, inviting staff from the university’s nutrition program to the provider site to share and discuss nutrition information with participants. Screening and Assessments Both of HHS’s congregate and home-delivered meal programs require states to ensure area agencies on aging or local providers conduct nutrition screenings and assessments of participants to help identify health risks. According to HHS data for fiscal year 2016, the most recent year for which data are available, just over one-fifth (347,002) of the 1.6 million congregate meal participants served and more than one-half (496,729) of the 868,382 home-delivered meal participants served were deemed at high nutrition risk. HHS officials stated that there is no federal policy or requirement on how assessments are conducted or their frequency, and states have the flexibility to determine their own process for assessing the nutritional needs of participants. However, HHS provides a tool that states may use for these assessments. See sidebar for the Federal Nutrition Screening tool used to determine a person’s nutrition risk. According to the nationwide evaluation of the congregate and home-delivered meal programs, over half of area agencies on aging and local providers of congregate and home-delivered meal programs had a formal process for assessing nutritional needs. Further, HHS regional officials we spoke with suggested that these assessments generally occur annually. Across the four selected states we visited, the majority of area agencies on aging conducted nutrition screenings and assessments, with the frequency varying from every 6 months to every few years. The Older Americans Act requires states to prioritize certain groups with high social and economic needs, such as those who are low-income, minorities, or isolated, and two area agencies on aging told us they use nutrition risk screenings and assessments to address malnutrition and identify those individuals who fall in these categories. Nutrition Professionals HHS’s congregate and home-delivered meal programs require the use of nutrition professionals, such as registered dieticians, to help local providers meet the nutritional needs of older adults—primarily through menu reviews to verify that each menu is following federal nutrition requirements, according to HHS officials. According to the nationwide evaluation of the congregate and home-delivered meal programs, at least one-half of the state agencies, area agencies on aging, and local providers used the services of a nutrition professional to help meet the nutritional needs of older adults. In the four selected states, three state agencies had a nutrition professional on staff or contracted with a nutrition professional who worked with area agencies on aging to review menus, and in the other state, a nutrition professional was on staff or contracted for by area agencies on aging or local provider sites. In addition to menu reviews, nutrition professionals in the four selected states were also involved in activities such as training meal providers or providing nutrition education and counseling to participants. Federal Oversight of Meal Programs Provides Limited Information on the Extent to Which Programs Are Adhering to Nutritional Requirements and Addressing Challenges As part of HHS’s oversight of the congregate and home-delivered meal programs, regional officials meet with state staff and review state plans and other program information, but these efforts do not require states to provide documentation that meals served to participants comply with the programs’ nutrition requirements. State agencies are responsible for monitoring area agencies on aging’ implementation of these programs and ensuring that meals are consistent with the programs’ nutritional requirements. HHS regional offices, in turn, conduct oversight of the nutrition programs through its reviews of states. HHS’s guidance directs regional staff to collect information from states on the use of nutrition professionals in these programs. However, HHS’s guidance does not direct regional staff to systematically review or collect any other information from states, such as approved menus, to confirm that meals served to participants are consistent with the programs’ nutrition requirements. A recent national evaluation of meals provided through the congregate and home-delivered meal programs, however, indicates that state oversight of meals’ consistency with program nutrition requirements may have limitations. According to the 2017 evaluation, while program meals generally contributed positively to participants’ diets, the meals were higher in sodium and saturated fat than the recommended limits. For example, the diets of the majority of congregate and home-delivered meal participants included adequate amounts of a range of vitamins and minerals, with the exception of magnesium and calcium. However, a majority of participants had intakes of sodium and saturated fat from these meals that exceeded the dietary guidelines’ recommended limits. Specifically, 94 percent of congregate meal participants and 69 percent of home-delivered meal participants had sodium intakes from program meals that exceeded the dietary guidelines’ recommended limit. Likewise, 89 percent of congregate meal participants and 72 percent of home-delivered meal participants had saturated fat intakes from program meals that exceeded the recommended limit, despite the role state agencies play in monitoring programs to ensure meals meet federal nutrition requirements. According to the evaluation, overconsumption of sodium and saturated fat may pose a public health concern. Information obtained from the selected states we visited also suggests that state oversight of congregate and home-delivered meals’ consistency with program nutritional requirements may have limitations. Specifically, some selected states did not utilize a nutrition professional at the state level to help ensure meals served through the programs met federal nutrition requirements. For example, in one state, the state-level nutrition professional position was vacant and, officials from an area agency on aging we spoke with confirmed that state-level monitoring of menus for compliance with nutrition requirements had not occurred due to the vacancy. Area agency on aging officials added that the vacancy has also meant that state staff are not available to train or provide guidance to area agencies on the programs’ nutrition requirements. In the other state, officials from an area agency on aging told us the state agency has not focused on oversight of providers’ menus. HHS is responsible for overseeing its federal nutrition assistance programs to ensure compliance with the programs’ nutrition requirements. More complete information on state efforts to assess meal consistency with federal nutrition requirements could help HHS assure that meals served to program participants are meeting those requirements. In USDA’s CACFP, which provides meals to older adults at adult day care centers, USDA regional offices review states’ monitoring of local providers for consistency with federal meal pattern requirements. States are required to review each entity involved in the CACFP at least once every 3 years. During these reviews, state staff must assess provider compliance with federal requirements, which includes a review of a sample of the provider’s menus to ensure they comply with federal meal pattern requirements. Through federal management evaluations, USDA regional staff review states’ monitoring of the program, including their reviews of menus to ensure compliance with meal pattern requirements, and conduct onsite reviews at both the state agency and local provider level. Regional staff told us they review all states at least once every 3 years. However, USDA regional officials told us they lack information on how the program is working at adult day care centers, in part because its onsite reviews of adult day care providers are generally limited, unlike on the child care side of the program. According to USDA officials, the majority of state agencies oversee both child care and adult day care CACFP providers, and USDA’s criteria for selecting providers for onsite reviews focus on those providers receiving the highest reimbursement amounts. According to regional officials, because CACFP serves a significantly greater number of meals to children than to adults, providers receiving the highest reimbursement amounts are those serving meals in child care sites in the majority of states. Thus, federal onsite reviews of providers serving meals to older adults in adult day care centers generally have been limited. USDA’s regional officials told us that because they have not done onsite reviews at most adult day care centers recently, they lack information on how the program is working in those centers. USDA officials in four of the seven regional offices told us they receive few questions or requests for technical assistance from state agencies or providers operating the program in adult day care centers. However, our discussions with providers in the four selected states suggest that they face challenges operating the program in these centers and addressing the varying needs of participants they serve, such as those with physical and mental impairments, and may benefit from additional information or assistance. USDA is statutorily required to review state agency and provider compliance with regulations governing program administration and operation of certain nutrition assistance programs, including CACFP. Further, USDA guidance notes that its management evaluations are critical for monitoring state agency program compliance and improving program operations by providing a basis for assessing the administration of the CACFP and developing solutions to challenges in program operations. Without taking action to ensure on-site reviews of adult day care centers participating in CACFP are conducted more consistently, USDA may be missing an opportunity to identify and help address challenges adult day care centers face in operating the program, such as challenges meeting varied needs of participants. Such efforts could help them better assess the extent to which centers are meeting the nutritional needs of the older adults they serve and to better target technical assistance. For USDA’s CSFP, which provides monthly food packages to older adults, USDA regional office oversight includes reviews of state agencies’ monitoring of local providers and visits to local providers, covering all states at least once every 3-5 years. Regional staff indicated that they review monthly participation data, food inventory reports, and state plans as part of their oversight of the program. As part of their visits with local providers, regional officials told us they open and review food packages at local sites to ensure packages include the required food components and assess the types of nutrition education provided to participants, such as recipes or cooking classes. Providers Face Challenges, Such as Increased Demand for Nutrition Programs and Meal Accommodations, and Some Lack Information to Address Them Providers Reported Challenges Meeting Increased Demand for Nutrition Programs, with Some Leveraging Additional Resources to Meet Needs The growth in the older adult population has led to an increased demand for nutrition programs to serve them, and some providers told us they faced challenges meeting the nutritional needs of this population. From 2009 through 2018, the population of adults 60 or older grew by 31 percent. Federal funding for certain nutrition assistance programs serving older adults has not increased at the same rate as the population. Specifically, during that same time period, federal funding for HHS’s congregate and home delivered meal programs grew by 13 percent. HHS officials told us that with the increased demand for these programs and relatively flat federal funding, some providers have been unable to maintain the same level and quality of service that they have historically provided. According to state officials and providers in three of the four selected states we visited, the increased demand for older adult nutrition programs has resulted in waiting lists, in particular for the home-delivered meal program. For example, state officials in one selected state we visited told us they have large waiting lists in their state for the home-delivered meal programs due to a higher demand for services. They indicated that, in the absence of other changes, they will only be able to serve new people through attrition of current program participants. One provider in the same state said they have a waiting list of more than 12,000 older adults for their home-delivered meal program. Another provider told us they are currently serving about 10 percent of the older adult population in their area, although the need for these services is greater, and they have continually had a waiting list for their home-delivered meal program. Some providers have leveraged additional funding sources to decrease waiting lists and expand the reach of their congregate and home- delivered meal programs. Specifically, in two of the four states we visited, some providers said they have received additional funding to support nutrition and other services for older adults through a local property tax— called a millage tax. In one of these states, a local provider told us that the local millage tax provided $9.8 million for older adult services in 2018. Officials noted that these funds allowed providers to add new meal routes and decrease waiting lists for home-delivered meals, as well expand the capacity of senior centers to serve more older adults through nutrition and other programs. In three of the four selected states, some providers reported partnering with various entities, including grocery stores, local farmers, and others to obtain food at low or no cost or serve more older adults, which helped them to meet the increased demand for the congregate and home- delivered meal programs. For example, in one state, the area agency on aging that directly provides meals joined a larger consortium of organizations to purchase food at a lower cost from a food vendor. In another state we visited, a provider we spoke with reported that the majority of its food for older adults’ meals came from food donations provided by local grocery stores and food banks and through a program in which local farmers dedicate some of their produce for donation. This provider indicated that food donations saved them $140,000 in food costs in 2018 (see fig.6). Providers Face Challenges Meeting Needs for Certain Meal Accommodations and Some Lack Information to Help Address These Needs. Providers we spoke with in the four selected states reported challenges meeting older adults’ needs for certain meal accommodations, and both providers and state officials that administer the congregate and home- delivered meal programs as well as the CACFP meal program across the four states reported a need for additional information from the federal agencies overseeing these programs. As previously noted, the majority of older adults in the United States now have more than one chronic condition and older adults may have physical or mental impairments—all factors that may necessitate certain accommodations to ensure meals meet their nutritional needs. Although some providers we spoke with have taken steps to mitigate challenges meeting these needs, some reported that they continue to face challenges, such as the lack of skilled chefs and other resources, to make such accommodations. Congregate and Home- Delivered Meal Programs Providers of HHS’s congregate and home-delivered meal programs in three of the four states said they faced challenges making meal accommodations to meet the dietary needs of older adult participants with chronic health conditions. As previously noted, 62 percent of older adults 65 and older had more than one chronic health condition in 2016—the most recent year for which data are available. Eight of the 14 congregate and home-delivered meal providers across the selected states we visited said they do not tailor meals to meet participants’ special dietary needs— for example, due in part to limited resources and capacity. For example, four providers told us it is cost prohibitive to tailor meals. At one site we visited that does tailor meals, local officials told us that their vendor charges more for tailored meals because of the additional work involved to customize meals to meet the needs of participants with specific health conditions. Another provider said that some chefs lack the skills needed to prepare such meals. For example, the provider said that although some older adults need mechanically soft or pureed meals because of oral health issues, staff may lack the skills to produce those meals. Federal restrictions on reimbursing liquid meals may make providing such meals cost-prohibitive, according to officials in selected states. For example, state and local officials and a provider in two selected states said that program participants who are unable to chew, swallow, or digest solid foods due to various health conditions, may need such meals, yet these meals do not qualify for federal meal reimbursement. According to HHS officials, while a liquid meal does not qualify for meal replacement, states may use federal funds dedicated to providing nutrition education, counseling, and other aging services to purchase these meals. Some of these program providers in the selected states used additional funding sources to help them make meal accommodations for program participants with special dietary needs, and HHS also funds awards that can be used for this purpose. For example, an area agency in one selected state we visited received a grant from a local foundation to provide some of their home-delivered meal participants with special dietary meals, including for those with renal conditions and diabetes for up to 3 months. Similarly, another provider used a grant to provide liquid meals to home-delivered meal participants who needed them. Since 2017, HHS has also awarded grants to support innovative projects that enhance the quality, effectiveness, and outcomes of the congregate and home-delivered meal programs, and some of the projects have focused on providing meal accommodations for certain program participants. For example, a grantee in one state used these grant funds to develop and deliver modified meals appropriate for home-delivered meal participants with reduced dental function. Another state grantee created new medically-tailored meals for program participants transitioning from hospital to home. According to HHS officials, the department has seen positive preliminary results from the innovation grants, but does not currently have a centralized location that compiles information for congregate and home- delivered meals providers on promising approaches for making meal accommodations for participants with special dietary needs. HHS officials said they have shared some information on the projects through webinars and conferences and provided links to webinar materials on the National Resource Center on Nutrition and Aging website—funded by HHS. Further, HHS officials noted that they posted additional relevant materials, such as a toolkit focused on lowering sodium in meals, on the Center’s website. However, these materials are not compiled in one location on the Center’s website, which may hinder meal providers’ ability to locate all of the relevant information HHS has compiled. State officials and providers across the four selected states said that federal guidance on accommodating the special dietary needs of older adult program participants is limited and additional support would be helpful. HHS is responsible for collecting and disseminating information on older adults. Providing information on promising practices and available opportunities may help support providers’ efforts to accommodate the special dietary needs of some older adults participating in these programs. Child and Adult Care Food Program (CACFP) State and local entities administering USDA’s CACFP in adult day care centers in the four selected states reported that they face challenges providing meal accommodations to meet the nutritional needs of program participants. Officials in three selected states said they believe the federally-required meal patterns do not fully address older adults’ nutritional needs, including those with special dietary needs. For example, milk is a federally-required component of breakfasts and lunches served through the program, though officials from three selected states said that milk can be problematic for older adults because many are lactose-intolerant or do not like drinking milk. Further, officials in one state said that the meal pattern includes a significant amount of carbohydrates, which is inconsistent with the needs of older adults who have diabetes. Although CACFP requires adult day care centers to serve meals consistent with federal meal pattern requirements or a participant’s plan of care, which may include medically-prescribed meal accommodations, state officials reported some older adults face barriers to obtaining medical documentation of meal accommodation needs. Specifically, officials from two selected states said that some participants may not have access to medical providers, and officials from one of those states explained that a visit to a medical provider is sometimes cost- prohibitive for those with limited incomes. Officials in two of the four selected states said adult day care meal providers have used available federal options that allow older adults to tailor their own meals to meet their nutritional needs, though officials also noted that these options have limitations. For example: State officials in one selected state said they encourage adult day care centers to implement the federal “offer versus serve” option. This option allows adult participants, including older adults, to decline, for example, up to two of the five meal components required with a lunch—milk, fruits or vegetables, grains, and meat or meat alternate. According to USDA guidance, this option may reduce waste and give adults more choices. However, officials in this state noted that making choices is sometimes difficult and time-consuming for program participants with cognitive impairments, such as Alzheimer’s disease or dementia. State officials in another state said that the federal family-style meal service option, which allows older adults to serve themselves from communal platters of food with assistance from supervising adults, if needed, also provides older adults with the ability to tailor meals to meet their needs. However, state officials in this state noted this meal service approach also creates challenges with feeding certain older adults appropriately. For example, this approach makes it harder to meet the needs of those with particular dietary or functional requirements, such as those who have specific nutritional needs due to chronic conditions or those with swallowing or chewing issues. State officials and adult day care providers across all four selected states said that federal guidance for providing meals to older adults in adult day care centers is limited, and providers in two of the states said they lack information on ways to address some of the challenges associated with providing meals that meet the nutritional needs of older adults in these centers. For example, providers noted that information on promising practices for serving the differing needs of older adults in these centers, including those with special dietary needs and those with functional limitations, would assist their efforts to meet participants’ nutritional needs. State officials or providers in all four selected states said that FNS’s efforts to provide guidance and trainings are more focused on the child care component of the CACFP than the adult day care component. USDA officials confirmed their efforts to provide guidance to meal providers have been primarily focused on the child care side of the program in light of the larger number of participants served. Although USDA provides some guidance and information to address the adult component of the CACFP, some CACFP entities serving older adults may not be aware of these resources, and information on promising practices or other resources to help providers meet the varying needs of older adults is more limited. USDA officials said CACFP guidance and trainings address the implementation of adult meal pattern requirements and existing flexibilities with these requirements, such as allowable substitutions for milk. USDA also produced a handbook specifically for adult day care centers in 2014 to help assist providers in these centers. However, USDA officials said that awareness of existing guidance and trainings available may be lacking, in part, because turnover for CACFP providers is high and new providers may not be aware of existing resources. Some providers also said that more information on how to address the special dietary needs and functional limitations of some participants would be helpful, as USDA’s existing guidance and trainings focus on standard adult meal pattern requirements. For example, while the 2014 handbook includes information on meal patterns and different serving methods to provide meals, it does not include information specific to meeting the differing needs of older adults in these centers. In October 2019, USDA officials told us that they are in the process of updating this handbook to reflect new policies, guidance, and promising practices for addressing the needs of older adults. USDA officials also stated that they are in the process of reviewing a promising practice to address meal accommodations for older adults with varying needs. USDA is responsible for providing training and technical assistance to states in order to assist state agencies with program management and facilitate effective operation of the program. Without awareness of existing resources and additional guidance and information to help adult day care providers address the challenges they face meeting the nutritional needs of the older adults they serve, providers may continue to be limited in their ability to do so. Commodity Supplemental Food Program (CSFP) USDA, state, and local officials administering the CSFP said that the federal requirements for foods provided in each monthly food package limit the extent to which providers can tailor or alter the foods provided to accommodate individual participants’ nutritional needs; though some approaches and recent changes help address this challenge. For example, two food package providers we spoke with said they use other methods of food delivery along with the food package such as a pantry or grocery store-style model, which allows participants to come to a site and choose from a variety of foods that meet the requirements (see fig. 7). USDA also recently issued updated federal requirements for the type and quantity of foods provided in the food package, which department officials said provide more variety to be more useful to older adults. As previously noted, some regional USDA officials told us that early feedback from states on the changes has been positive, though states have until November 2019 to implement the new requirements. For example, USDA officials in one regional office said states provided positive feedback on the introduction of new food items, such as lentils. Providers Also Reported Other Challenges That Hinder Efforts to Meet Older Adults’ Nutritional Needs, Though Some Have Taken Actions to Help Address Them Providers reported ongoing program administration challenges, such as staffing constraints, which to some extent challenge their efforts to meet the nutritional needs of older adults. For example, state and local officials and providers of the congregate and home-delivered meal programs across three of the four selected states said they face challenges finding and retaining a sufficient number of staff for program operations, which could include preparing and serving meals, and delivering meals. Four of the 14 providers of these programs reported that they struggle to offer competitive wages and benefits, which hinders their ability to hire and retain staff. To help overcome staffing constraints, some providers partnered with various entities. For example, in all four selected states, providers of the congregate and home-delivered meal programs established partnerships with entities such as colleges and local businesses to solicit volunteers to help with program operations. In one state, a provider partnered with a local college’s nursing program and students volunteered to assist with assessments for home-delivered meal participants. In another state, staff from a local police department volunteer and deliver meals to home- delivered meal participants in one area. One meal provider said that the efforts of volunteers, who donate their time and cover expenses for gas and vehicle insurance to help provide home-delivered meals to participants, are worth $100,000 in annual support to their program. This provider noted that they would be unable to operate the program without volunteers. See figure 8 for pictures of volunteers helping to prepare food in selected states. Providers of the CSFP food packages and congregate and home- delivered meal programs in three selected states we visited also reported challenges obtaining transportation to bring older adults to meal and food distribution sites and deliver meals and food packages to older adults, though some have found ways to mitigate these challenges. For example, providers in three selected states said a lack of transportation options prevents some older adults from visiting congregate meal sites as well as food package distribution sites, as public transportation is not always available and many older adult participants do not drive. According to local officials in one state, transportation is also a challenge for the home- delivered meal program, particularly in rural areas, because the distance between participants’ homes affects the cost of delivering meals. Similarly, officials at one local agency on aging said providers in its area would like to serve more people, but are unable to add additional routes because of transportation costs. To help mitigate transportation challenges and manage associated costs, some providers in the selected states have adjusted meal services and found alternative ways to transport clients to meal service sites. For example, to help control transportation costs, three providers in two selected states changed from delivering one hot meal daily to delivering multiple frozen meals once a week to home-delivered meal participants. In addition, one provider partnered with a local meal delivery service that used FedEx to deliver 10 home-delivered meals every 2 weeks to program participants. To help alleviate transportation challenges that older adults face getting to meal sites, three providers in two states partnered with private companies to provide participants with rides to and from meal sites for a minimal fee. Another provider used grant funds they received from their state to purchase vans they then used to provide older adults with transportation to and from the meal sites. Some providers also reported challenges accommodating the varied dietary preferences of different groups of older adults, as preferences sometimes vary by age and cultural or ethnic background, and being responsive to these preferences can increase the likelihood that meals will help older adults meet their nutritional needs. For example, HHS officials, as well as local providers in three out of the four selected states said the dietary preferences of adults in their 60s sometimes vary greatly from the preferences of adults in their 90s. Local officials in two states said that providers of congregate and home-delivered meal programs in their states noted that “older old” adults may prefer meals that include meat and potatoes, while “younger old” adults may prefer lighter meals, such as those consisting of soups and salads. In addition, providers in three selected states we visited told us they serve many older adults from diverse cultural or ethnic backgrounds, or with dietary preferences, such as a vegetarian diet, or who do not eat certain foods because of their religious beliefs. To meet the varied dietary preferences of the older adults they serve, and increase the likelihood that meals will help participants meet their nutritional needs, some providers reported taking various approaches. For example, one congregate meal site we visited offered a lunch entree choice of either meat and potatoes or a sandwich wrap with vegetables. Another congregate meal site offered a hot lunch, plus a soup and salad bar, in a restaurant-like setting. Providers also tried to incorporate certain foods on their menus that reflect the cultural or ethnic preferences of participants. For example, the adult day care provider and the congregate and home-delivered meal providers we visited in one selected state in the South all noted that their menus aim to include certain foods associated with their regional culture, such as red beans and rice. Conclusions By 2060, older adults are expected to make up nearly one-quarter of the total U.S. population. HHS and USDA play important roles in promoting the health of this growing population both through administration and oversight of federal nutrition assistance programs that serve older adults and efforts to update federal nutrition guidelines, which serves as the basis for nutrition requirements in these programs. While federal nutrition guidelines provides broad guidance on nutrition for healthy populations, they do not address the varying nutritional needs of older adults, such as those who have common chronic conditions or face age-related changes. The 2025-2030 Dietary Guidelines update is expected to include a focus on nutritional guidance for older adults, but no formal plan to include this focus has been developed. A plan to incorporate the varied needs of older adults into the dietary guidelines could assist older adults with making their own dietary decisions and help providers of nutrition assistance programs better meet older adults’ nutritional needs. Further, HHS and USDA administration and oversight of the nutrition assistance programs is not fully addressing some of the challenges states and local providers indicated hinder their efforts to meet older adults’ nutritional needs. For example, providers we spoke with faced challenges meeting older adults’ needs for certain meal accommodations, and information from HHS and USDA regarding promising approaches to meeting those needs is limited or not sufficiently disseminated. Further, both HHS and USDA’s efforts to oversee older adult meal programs have limitations that affect information available at the federal level needed to ensure programs are meeting older adults’ nutritional needs. Recommendations for Executive Action We are making the following five recommendations. The Administrator of ACL should work with other relevant HHS officials to document the department’s plan to focus on the specific nutritional needs of older adults in the 2025-2030 update of the Dietary Guidelines for Americans, which would include, in part, plans to identify existing information gaps on older adults’ specific nutritional needs. (Recommendation 1) The Administrator of ACL should direct regional offices to take steps to ensure states are monitoring providers to ensure meal consistency with federal nutrition requirements for meals served in the congregate and home-delivered meal programs. (Recommendation 2) The Administrator of FNS should take steps to improve its oversight of CACFP meals provided in adult day care centers. For example, FNS could amend its approach for determining federal onsite reviews of CACFP meal providers to more consistently include adult day care centers. (Recommendation 3) The Administrator of ACL should centralize information on promising approaches for making meal accommodations to meet the nutritional needs of older adult participants in the congregate and home-delivered meal programs, for example in one location on its National Resource Center on Nutrition and Aging website, to assist providers’ efforts. (Recommendation 4) The Administrator of FNS should take steps to better disseminate existing information that could help state and local entities involved in providing CACFP meals meet the varying nutritional needs of older adult participants, as well as continue to identify additional promising practices or other information on meal accommodations to share with CACFP entities. (Recommendation 5) Agency Comments and Our Evaluation We provided a draft of this report to HHS and USDA for review and comment. In its written comments, HHS agreed with our three recommendations to ACL (Recommendations 1, 2, and 4). In response to our first recommendation, HHS stated that ACL plans to work with the Office of Disease Prevention and Health Promotion and other relevant HHS officials and agencies to document HHS’s plans to emphasize the specific and varying nutritional needs of older adults in the 2025-2030 update. HHS also stated that ACL plans to acquire the services of a registered dietician with specialized expertise in older adults’ nutritional needs. In response to our second recommendation, HHS stated that ACL’s program and evaluation offices will collaborate on the development of plans to ensure state compliance with federal requirements. In response to our recommendation that ACL centralize information on promising practices, HHS stated that ACL will award a contract in fiscal year 2020 for a new National Resource Center on Nutrition and Aging to, among other things, centralize information on promising approaches so nutrition services providers can access it easily. HHS’s comments are reproduced in appendix II. In oral comments, USDA officials, including the Directors of the FNS Child Nutrition Program Monitoring and Operational Support Division and the Child Nutrition Program Nutrition Education, Training, and Technical Assistance Division generally agreed with our two recommendations to FNS (Recommendations 3 and 5). In response to our recommendation to improve CACFP oversight, FNS officials agreed with the intent of improving oversight of CACFP meals provided in adult care centers. These officials also noted that activities and changes in this area must be consistent with statutory and regulatory requirements, balanced with current priorities given the size of the program, and mindful of resources available to perform additional oversight. While we recognize that the CACFP serves fewer adults than children and that FNS oversight resources are limited, we believe that FNS is in a position to identify the best way to improve its oversight of CACFP meals provided in adult day care centers while taking into consideration the availability of its resources. In response to our recommendation to share additional information with state and local CACFP entities, FNS officials stated that there is existing guidance and information on the adult component of the CACFP, which it communicates through multiple channels. These officials said that some states and localities may be unaware of these resources, in part, because of high turnover among staff who administer these programs. FNS officials acknowledged that they could do more to increase awareness of existing resources, as well as continue to identify and share new practices to help entities providing CACFP meals in adult day care centers address challenges associated with providing meals that meet nutritional needs of older adults. USDA also 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 to the Secretaries of HHS and USDA and interested congressional committees. The report will also be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or larink@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. Appendix I: Objectives, Scope, and Methodology Our report examines (1) the relationship of older adults’ nutrition to health outcomes and the extent to which federal nutrition guidelines address older adults’ nutritional needs; (2) the extent to which federal nutrition assistance programs serving older adults have nutrition-related requirements and how these requirements are overseen; and (3) challenges program providers face in meeting the nutritional needs of older adults. In addition to the methods discussed below, to address all three research objectives we reviewed relevant federal laws, regulations and guidance. Federal Data To provide context for all three research objectives, we examined federal projections of growth in the older adult population covering the time period of 2016 through 2060. We relied on the U.S. Census Bureau’s projections of the U.S. population by various demographic traits including age, sex, race, Hispanic origin, and nativity. We assessed the reliability of these data by reviewing technical documentation describing the methodology, assumptions, and inputs used to produce the 2017 National Population Projections, upon which the 2020-2060 estimates are based. We determined these data to be sufficiently reliable for the purposes of our report. To provide context on the federal nutrition assistance programs serving older adults, we examined federal data on expenditures and participation in these programs for the most recent fiscal year available. For the congregate and home-delivered meal programs, we relied on State Program Report data from fiscal year 2017, the most recent data available at the time of our review, from the U.S. Department of Health and Human Services’ (HHS) AGing Integrated Database. These data are submitted on an annual basis by states to HHS’s Administration for Community Living (ACL). For program expenditure and participation data for the Child and Adult Care Food Program, Commodity Supplemental Food Program, Senior Farmers’ Market Nutrition Program, and Supplemental Nutrition Assistance Program (SNAP), we relied on fiscal year 2018 data from the U.S. Department of Agriculture’s (USDA) National Data Bank and submitted through USDA’s Food and Nutrition Service (FNS) grantee reports. We also relied on fiscal year 2017 data from USDA’s Characteristics of SNAP Households report on the number of older adult participants in SNAP, the most recent year for which these data were available. To assess the reliability of these data, we interviewed FNS officials and reviewed relevant technical documentation. We determined that these data were sufficiently reliable for the purposes of our report. Literature Search To address our first objective on what is known about the relationship between older adults’ nutrition and health outcomes, we conducted a literature search to identify relevant peer-reviewed studies on the relationship between nutritional needs and health outcomes of older adults covering the time period of 2013 through 2018. We searched research databases, such as ProQuest, Scopus, and Ebsco (AgeLine, EconLit, and CINAHL), using search terms such as nutrition and aging and dietary guidelines for seniors. We reviewed the results of the search to identify publications that (1) included a literature review and synthesis of studies on the connection between nutrition and health outcomes for older adults, including the factors that may affect older adults’ nutritional needs, such as age-related changes and (2) emphasized the general diet-health relationship among broad populations of older adults. Because these broader studies were most relevant to our objective, we excluded studies that (1) focused on the relationship between a specific food or nutrient and a single health outcome (e.g., salt and cardiovascular disease) or (2) studied a narrow group of older adults (e.g., residents of a single U.S. state or region). We conducted detailed reviews of these studies to assess the soundness of the reported methods and the credibility and reliability of the conclusions drawn by the authors, and deemed them to be sufficiently credible, reliable, and methodologically sound for the purposes of our report. Site Visits To help inform all of our research objectives and gather information about nutrition assistance programs that provide meals and food packages to older adults at the local level, we conducted visits to 25 local meal and food distribution sites in four states: Arizona (5 sites), Louisiana (10 sites), Michigan (6 sites), and Vermont (4 sites) between December 2018 and March 2019. We interviewed officials from a variety of entities involved in administering these programs in each of the states, including 20 state and area agencies on aging and 20 local providers; observed meal services and food distribution; and held conversations with older adult program participants. We selected states and local sites within those states based on a high percentage of adults 60 or older, and to ensure variation across the sites in geographic location, urban and rural location, percentage of older adults in poverty, and program provider and site type. We visited a wide variety of site locations including, but not limited to, senior centers, community centers, adult day care centers, and senior housing. Because we relied on a nongeneralizable sample of sites and states, the views of the entities we interviewed do not represent the views of all providers of federal nutrition assistance programs providing meals and food packages to older adults or participants in those programs. Prior to each selected state visit, we gathered information from state and area agencies on aging responsible for administering these programs using semi-structured interview questions. We collected information on state and area agency on aging roles in administering nutrition assistance programs for older adults, federal nutrition requirements in these programs, oversight and monitoring of programs, partnerships to help meet the nutritional needs of older adults, outreach efforts, assistance from federal agencies, and challenges in administering the programs and meeting the nutritional needs of the older adult populations served. At each site, we gathered information from local providers and participants using semi-structured interview questions. We collected information on program provider operations; characteristics of the population served; efforts to meet the nutritional needs of the population served, other nutrition-related services; challenges with meeting the nutritional needs of the population and efforts to address them; outreach efforts; and assistance received from regional, state, and federal agencies. We also collected perspectives on food received and program impacts on health outcomes from those participating at sites. In addition, at each site we observed food and meal delivery and the approximate number of participants and staff operating the site. Interviews and Reviews of Relevant Documents To inform all three research objectives, we interviewed officials from HHS’s Administration for Community Living and USDA’s Food and Nutrition Service in their national office and all of their regional offices. We also interviewed a broad range of national groups, including advocacy, research, and service provider organizations involved in nutrition assistance programs serving older adults. These included AARP, Feeding America, Food Research and Action Center, Jean Mayer USDA Human Nutrition Research Center on Aging, Mathematica Policy Research, Meals on Wheels America, National Academies, National Association of Area Agencies on Aging, National Association of Nutrition and Aging Services Programs, National Association of States United for Aging and Disabilities, National Commodity Supplemental Food Program Association, and National Council on Aging. To inform our first objective on the extent to which federal nutrition guidelines address older adults’ nutritional needs, we reviewed the federal guidance reports that detail the nutrition requirements for Americans, including those reports supporting the 2015-2020 Dietary Guidelines for Americans and the body of work on the Dietary Reference Intakes. To obtain information specific to our second objective on how nutrition assistance programs serving older adults are overseen, we reviewed relevant federal program documents on monitoring and oversight of these programs. In addition, we reviewed relevant studies conducted on behalf of HHS that evaluated the impact of its nutrition assistance programs on older adults’ nutrition. These studies evaluated program participants’ diet quality and nutrient intake, as well as program administration, among other things. We assessed the reliability of results in these evaluations by interviewing officials responsible for conducting these evaluations. Appendix II: Comments from the Department of Health and Human Services Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact above, Rachel Frisk and Theresa Lo (Assistant Directors), Claudine Pauselli (Analyst-in-Charge), Jessica Ard, and Vernette G. Shaw made key contributions to this report. Also contributing to this report were Priyanka Sethi Bansal, Tim Bushfield, Daniel Concepcion, Kathleen van Gelder, Sarah Gilliland, Isabella Guyott, Serena Lo, Stacy Ouellette, Amber Sinclair, Joy Solmonson, Almeta Spencer, Curtia Taylor, Adam Wendel, and Sirin Yaemsiri.

The U.S. population is aging and, by 2030, the U.S. Census Bureau projects that one in five Americans will be 65 or older. Recognizing that adequate nutrition is critical to health, physical ability, and quality of life, the federal government funds various programs to provide nutrition assistance to older adults through meals, food packages, or assistance to purchase food. This report examines (1) the relationship of older adults' nutrition to health outcomes and the extent to which federal nutrition guidelines address older adults' nutritional needs, (2) nutrition requirements in federal nutrition assistance programs serving older adults and how these requirements are overseen, and (3) challenges program providers face in meeting older adults' nutritional needs. GAO reviewed relevant federal laws, regulations, and guidance and conducted a comprehensive literature search; visited a nongeneralizable group of four states—Arizona, Louisiana, Michigan, and Vermont—and 25 meal and food distribution sites, selected for a high percentage of adults 60 or older, and variations in urban and rural locations, and poverty level; and interviewed officials from HHS, USDA, states, national organizations, and local providers. Research shows that nutrition can affect the health outcomes of older adults. Federal nutrition guidelines provide broad guidance for healthy populations, but do not focus on the varying nutritional needs of older adults. Department of Health and Human Services (HHS) data show that the majority of older adults have chronic conditions, such as diabetes or heart disease. Research shows that such individuals may have different nutritional needs. As older adults age, they may also face barriers, such as a reduced appetite, impairing their ability to meet their nutritional needs. HHS plans to focus on older adults in a future update to the guidelines, but has not documented a plan for doing so. Documenting such a plan could help ensure guidelines better address the needs of the population. Of the six federal nutrition assistance programs serving older adults, four have requirements for food that states and localities provide directly to participants, and federal agencies oversee states' monitoring of these requirements. In HHS's and U.S. Department of Agriculture's (USDA) meal programs, states must ensure meals meet requirements. Yet, HHS does not gather information from states, such as approved menus, to confirm this, and localities in two of the four selected states said state monitoring of menus was not occurring. Further, USDA regional officials told GAO they lack information on how meal programs operate at adult day care centers as they primarily focus on other sites for their on-site reviews. Additional monitoring could help HHS and USDA ensure meal programs meet nutritional requirements and help providers meet older adults' varying needs. In the states GAO selected, meal and food providers of the four nutrition programs with nutrition requirements reported various challenges, such as an increased demand for services. Providers in three of the four states reported having waiting lists for services. Providers of HHS and USDA meal programs in all four states also reported challenges tailoring meals to meet certain dietary needs, such as for diabetic or pureed meals. HHS and USDA have provided some information to help address these needs. However, providers and state officials across the four states reported that more information would be useful and could help them better address the varying nutritional needs of older adults.

GAO_GAO-19-300

Background The Constitution gives Congress the power to coin money, and under that authority, Congress has specified the coins that can be produced and the metal composition of circulating coins, including the penny, nickel, dime, quarter, and half-dollar. Congress has also passed legislation prohibiting the use of appropriated funds to redesign the $1 note. Within the Department of the Treasury (Treasury), BEP produces notes and the Mint produces coins. To ensure that notes and coins are available in sufficient quantities to meet public demand, the Federal Reserve orders new notes from BEP and new coins from the Mint. The Federal Reserve pays BEP for the cost of producing the notes; the Mint pays for the cost of producing coins and the Federal Reserve pays the Mint for the face value of the coins. The Federal Reserve distributes the notes and coins to approximately 8,400 depository institutions—banks, savings and loans, and credit unions—in the United States through cash offices operated by its 12 regional Reserve Banks. The Reserve Banks also are responsible for ensuring the quality and integrity of notes in circulation by assessing the condition of each note and destroying any that are unfit. When a depository institution deposits currency with a Reserve Bank, each currency note is verified on high-speed processing equipment using electronic authentication and fitness sensors. During the “piece- verification” process, the deposited currency is counted, suspect counterfeit notes are identified and segregated, and unfit notes are destroyed. The fit currency is packaged and used to fill future orders for currency from depository institutions. The destroyed notes are replaced with new notes from BEP as there is public demand for cash. The federal government spent about $1.3 billion to produce, process, and circulate notes and coins in 2017. These costs are offset by the financial benefit the government realizes when it issues notes or coins because currency usually costs less to produce than its face value. This benefit, which is known as seigniorage, is the difference between the face value of currency and its cost of production; this difference provides a financial benefit to the government when the government issues currency. In calendar year 2017, the Federal Reserve reported transferring about $81 billion to the Treasury, and the Mint reported transferring about $269 million in fiscal year 2017. The seigniorage the Federal Reserve and the Mint pay into the Treasury reduces the need for the government to borrow money, and as a result, the government pays less interest over time. Other countries have taken steps to reduce currency costs by replacing notes with coins of the same value and eliminating the smallest value coin. For example, Canada introduced a $1 coin in 1987 and a $2 coin in 1996 that replaced corresponding-valued notes, and the United Kingdom replaced its £1 note with a £1 coin in 1983. These countries expected a cost reduction because, while coins are generally more expensive to produce than notes, the coins can last substantially longer in circulation. For example, in both countries, the $1 and £1 notes, respectively, lasted 18 months or less while coins, according to experts, can be expected to last more than 30 years. As a result, these countries’ governments expected to save money because over 30 years, the number of coins they would produce was far less than the number of notes they otherwise would have made. These countries may have realized further financial benefits by replacing notes with coins because the public may hold more cash if a note is replaced with a coin and, as a result, the government would achieve a greater benefit from seigniorage. As we reported in 2011, because of differences in how people use coins and notes, the public may hold more than one coin for each note being replaced. Since people often store coins at home and store notes in their wallets, coins, as a result, circulate less frequently than notes and therefore more coins are needed to meet public demand. Thus, for a given denomination of currency, a larger number of coins would need to be maintained in circulation to meet the public’s demand for cash than would be needed if that denomination were provided in notes. For example, we previously reported that when Canada replaced its $1 note and the United Kingdom replaced its £1 note with a coin, both countries anticipated they would need to produce 8 coins to replace 5 notes, or a 1.6-to-1 replacement ratio. In previous work, we reported a positive annual net benefit to the government of replacing the $1 note with a $1 coin. In 2011, we reported a 30-year net benefit of $5.5 billion. Based on these results and the experiences of other countries, we have previously recommended that Congress consider and pass proposals to replace the $1 note with a $1 coin and, to ensure success of the coin, also provide for the elimination of the $1 note. While the production of the $1 coin has been authorized in law, elimination of the $1 note has not, and the U.S. has continued producing it. The U.S. has not eliminated any coins or altered any coin’s metal composition since 1982. Some countries have also eliminated their low- denomination coins to reduce currency costs. In 2013 Canada eliminated its one-cent coin because the cost to make it was more than it was worth and the coin’s usefulness had declined due to inflation. Over time, the costs of making these coins has increased due, in large part, to increases in the costs of metals used in coins—copper, zinc, and nickel. Since fiscal year 2006, both the penny and nickel have cost more to produce than their face value, according to our analysis of Mint data. (See fig. 1.) For example, in 2017, the Mint spent approximately 1.8 cents to produce each penny and approximately 6.6 cents to produce each nickel. Because the Mint sells coins to the Federal Reserve at face value, both coins cost more to produce than the Mint receives for them. As a result, in 2017, the Mint incurred net losses of about $69 million to produce the penny and about $21 million to produce the nickel. The dime and the quarter, however, cost less to produce than their face value. The combined cost to produce all widely circulating coins (the penny, the nickel, the dime, and the quarter) is less than their combined face value, so the government continues to realize positive seigniorage overall from producing circulating coins. The Coin Modernization, Oversight, and Continuity Act of 2010 authorized the Secretary of the Treasury to conduct research on alternative materials that could be used in coins. In response, the Mint conducted research on alternative metals, identified metal alloys that offered the potential for cost savings, and reported its results to Congress in 2012, 2014, and 2017. Replacing the $1 Note with a Coin Would Likely Result in a Net Loss, and Selected Stakeholders Identified Little Benefit from Replacement Replacing the $1 Note with a $1 Coin Would Likely Result in a Net Loss According to our analysis, the government would likely incur a net loss over 30 years if it replaced the $1 note with a $1 coin. We conducted a number of simulations that used different sets of assumptions to estimate the net benefit to the government of replacing the $1 note with a $1 coin. In almost every simulation, the net benefit to the government from switching to a $1 coin was negative, or an overall net loss (see app. I). For each set of assumptions, we simulated the status quo scenario in which notes are not replaced by coins, as well as two replacement scenarios. Under “gradual replacement,” the Federal Reserve would replace $1 notes with $1 coins as the notes became unfit for circulation. Under “active replacement,” notes would be replaced by coins more quickly because the Federal Reserve would destroy unfit notes as well as some fit notes each year and replace them with $1 coins. In both replacement scenarios, we assumed that the public would increase its holdings of cash when coins are used instead of notes and that the replacement ratio would be 1.5 coins for each note. We found that the present value of the net loss incurred by the government over 30 years would be about $2.6 billion with gradual replacement and about $611 million with active replacement (see fig. 2). Each simulation we conducted accounts for both costs and benefits to the government. The costs include production and processing costs for $1 coins and $1 notes, as appropriate. The coin replacement scenarios each include one-time startup costs that would be incurred upfront, in addition to recurring increased costs of producing higher-denomination notes when the $1 note would no longer made. In each simulation, we calculated benefits to the government as interest savings on debt that would be avoided because of seigniorage, or the difference between the face value of the currency that would be produced and the cost of producing it. These simulations represent the first time we have found that replacing the $1 note with the $1 coin would result in a net loss to the government rather than a net benefit. The simulations are based on current data and projections from CBO and the Federal Reserve, among others, that have changed over time. For example, the increased lifespan of the $1 note relative to that of the $1 coin and the decreased cost to the Federal Reserve for processing currency are key factors in these estimates and substantially reduced the relative costs of the status quo scenario. For our 2011 report, we assumed a median lifespan of 3.3 years for the $1 note based on Federal Reserve data. Since then, the $1 note lifespan has increased, and our current simulations assume a median lifespan of 7.9 years based on the most recent data from the Federal Reserve. Due to this substantially longer note lifespan, fewer $1 notes need to be produced over a 30-year period, which reduces the cost of producing them and diminishes the relative advantage of the long coin life. In our 2011 simulations, a $1 coin was assumed to last about 10 times as long as a $1 note (34 years to 3.3 years); in our current simulations, the lifespan of the coin remains the same but is now only about 4.3 times as long as that of the note (34 years to 7.9 years). Meanwhile, the relative cost of producing coins and notes has remained about the same. According to the Federal Reserve, the increased lifespan of the $1 note is largely attributable to a series of improvements in Federal Reserve currency processing procedures and equipment that has reduced the number of notes destroyed each year. For example, prior to April 2011, depository institutions were required to deposit currency in stacks of like- notes with the portrait side of the note facing up. After discovering it was destroying many notes that were otherwise fit for circulation because they were “misfaced,” the Federal Reserve undertook an effort to increase the percentage of notes that were properly faced by manually checking and correcting notes’ orientation. Subsequently, during 2010 and 2011, the Reserve Banks installed new sensors on their high-speed processing equipment, which enabled the Reserve Banks to authenticate notes regardless of facing. In addition to increased note life, the costs that we anticipate the Federal Reserve would incur for processing notes has decreased since our 2011 analysis because it is processing fewer $1 notes. Although the cost per note for processing has remained the same—$0.003 per note, based on Federal Reserve data—the number of notes processed in 2017 was about 1.6 billion less per year than at the time of our 2011 analysis. According to Federal Reserve officials, the public may be handling and using $1 notes less and holding on to them longer. This could cause notes to circulate less frequently, reducing the number of notes processed. Our simulations show that the losses to the government from replacing the $1 note with a $1 coin would not be incurred evenly over the 30-year period. Much of the cost of producing coins to replace notes would be borne by the government in the earlier years of our simulations, while the benefits to the government would accrue gradually and become relatively more important in later years. For example, in the gradual replacement scenario, more than half of the net loss to the government occurs in the first 10 years of the 30-year period. The large net losses in the early years largely reflect the upfront costs of replacing $1 notes in circulation with $1 coins and meeting increased demand for currency. In our simulations, the interest savings then accrue over a relatively long period of time due to the 34-year median lifespan of the coin. Our simulations reflect uncertainty in the underlying projections and assumptions. In general, however, projections that are closer in time are more certain. For example, an estimate over a 10-year period would be more certain than an estimate over a 30-year period. Consequently, within our results, the estimated net loss in the first 10 years is more certain than the estimated net loss over the 30-year period. Most Stakeholders We Interviewed Said Switching to a $1 Coin Would Result in Added Costs without Providing a Benefit Representatives from 7 of the 10 stakeholder industries we met with would be negatively affected by a switch to a $1 coin because they stated they would incur additional costs as a result of such a change. For example, representatives from the armored carrier industry told us that they anticipate increased costs because of the additional weight of transporting $1 coins compared to $1 notes as well as the need to modify or procure additional coin-processing equipment. Representatives of the gaming industry, which includes casinos and companies who make electronic games found in casinos, said a switch to the $1 coin would be costly because the industry has generally moved away from the use of coins in favor of notes and casinos would incur additional costs for transporting and storing coins. Of the 7 stakeholder industries that said they would incur additional costs, 3 provided us with estimates of these costs. All 3, which represent industries with machines that would require modification to accept $1 coins, approximated these costs by multiplying an estimated number of units affected by an estimated per-unit cost of changing the machines. For example, a representative of the gaming industry estimated that about 98 percent of the approximately 1,000,000 electronic gaming machines in the U.S. and Canada were manufactured with no provision for accepting coins. According to this representative, the costs to convert machines to accept $1 coins could range from $130 to $175 per unit because the level of modification needed would vary. Some machines would require, for example, a newly designed faceplate, a coin acceptance mechanism, and a box for collecting coins. Most representatives from stakeholder industries said there would be no benefit to them from a switch to a $1 coin, but 3 of the 10 representatives acknowledged some benefits of doing so. Two representatives said that coins are generally less likely to jam or be rejected by the payment mechanisms than notes. The other representative—from the bulk vending industry, which sells products such as gum balls and small toys through coin-operated equipment—said a $1 coin would help the industry increase sales and offer higher-quality products than it offers now for 25 or 50 cents. According to this representative, virtually all these machines accept quarters but some require two or three quarters for a purchase. A $1 coin would increase the likelihood that consumers would have the necessary change to use these machines thus increasing their sales, according to this representative. Representatives from the remaining 3 stakeholder industries reported that switching to a $1 coin would have little or no impact on their operations. For example, a representative of operators of toll roads and bridges said that all major toll operators have adopted some form of cashless, electronic collection system. The use of cash, including coins, for toll payment has declined to 18 percent of all toll revenue in 2015, down from 29 percent in 2010, and most existing coin collection machinery currently accepts $1 coins. Similarly, a representative from the parking industry noted a trend toward increased use of cashless transactions along with a decrease in the number of coin-operated parking meters. A switch to a $1 coin would have minimal effect on the industry because virtually all parking meters take quarters. The remaining representative said additional information, such as whether a new $1 coin would be issued and whether it would have the same properties as currently circulating $1 coins, would be needed to determine whether it would incur costs from a switch to a $1 coin. A representative of an organization that advocates replacing the $1 note with a $1 coin said that switching to the $1 coin could make it easier for people with visual impairments to identify the denomination. We have previously reported that different denominations of US currency are identical in size, making it difficult for the blind or visually impaired to distinguish among them. Moreover, according to the representative, eliminating the $1 note would reduce the number of note denominations, and the $1 coin may be easier to recognize by its physical difference from other coins. Although anyone who uses currency could be affected by a switch to a $1 coin, the extent of public support for making such a change is unclear, particularly when doing so would not provide a benefit to the government. Our most recent work on public perceptions of $1 coins in 2002 found few survey respondents were using $1 coins and 64 percent opposed replacing the $1 bill with a $1 coin. A majority of survey respondents favored replacing the $1 note with a $1 coin when told that doing so could save about half a billion dollars per year—our then-current estimated net benefit to the government; we did not seek to gauge public perceptions about the same action if it were to cause a loss. Similarly, the organization advocating in support of $1 coins has reported increased public interest in a change from the $1 note when substantial cost savings are factored in. However, according to Federal Reserve officials, the public continues to express its preference for the $1 note because both the $1 coin and $1 note are available and the public overwhelmingly uses $1 notes. Moreover, Reserve Banks currently hold more than 1-billion $1 coins because there is little demand for them from the public, further demonstrating public preference for the $1 note, according to these officials. The Mint Estimates Suspending Penny Production and Changing the Nickel May Result in Savings, but Some Stakeholders Expressed Concerns about Suspending the Penny The Mint Estimates That Suspending the Penny Would Save Over $250 Million and That Changing Metal Content of the Nickel Would Save from $21 Million to $85 Million over 10 Years The Mint estimates that it would save about $27 million annually, or about $252 million in present value over 10 years if Congress directed it to suspend the production of the penny (see table 1). However, the Mint’s estimated savings are based on its penny production data from a single fiscal year—2017. Specifically, since the Mint lost $27.3 million from making 8.4-billion pennies that year, this amount would also represent the savings to the Mint through cost avoidance if it had not produced any pennies. Because the number of pennies produced and the base metal costs vary from year to year, future changes to production volumes and costs could alter the estimated savings. The present value of the estimated savings could also be affected by the choice of discount rate. The Mint has suspended production of some coins in the past due to a lack of demand for those coins. Specifically, the Mint suspended production of the half-dollar coins for circulation in fiscal year 2006 and the Presidential $1 coins for circulation in 2011. The Mint suspended production of these coins because demand for them was low. In contrast, demand for the penny remains strong, as the Mint produced about 8.4 billion pennies in fiscal year 2017 in response to orders from the Federal Reserve. Penny inventories at Federal Reserve Banks can meet demand for about 1 month, according to Federal Reserve officials. According to Mint officials, the Mint has not taken a position on proposed legislation introduced in the 115th Congress that would suspend production of the penny for 10 years, among other things. However, the Mint has developed a preliminary plan to implement a penny suspension if required to do so by law. According to this plan, suspending penny production would take place over a 2.5-year timeframe: the first year would be devoted to planning and preparing for penny suspension, and the next 1.5 years would be devoted to ending the Mint’s contracts with its suppliers, addressing the disposition of affected Mint personnel, and deciding what to do with excess production equipment and physical space. The Mint would also conduct outreach and communication to the public, Congress, and Mint employees during this time. The Mint is also taking steps to reduce the financial loss from producing the penny. According to Mint officials, they and the Federal Reserve are working with industry stakeholders specifically to identify alternative practices that would reduce dependency on the manufacture of additional pennies. For example, the Federal Reserve and Mint met with stakeholders to discuss these practices in January 2019. According to Mint officials, the Mint would not need to produce as many pennies if the pennies currently in circulation were more actively circulated. Mint officials stated that billions of pennies are held by banks, armored carriers, or the public. According to Mint officials, if pennies were to circulate more quickly, the demand for new pennies would be reduced, and production of new pennies could decrease and would reduce the financial losses from penny production. The Mint also estimates it would save between $2.2 million and $9.1 million annually, or between $21 million and $85 million in net present value over 10 years, by changing the metal composition of the nickel (see table 2). The Mint’s estimated savings are based on fiscal year 2017 production of 1.3-billion nickels at a cost of $86 million. The nickel currently consists of about 75 percent copper and 25 percent nickel. Based on research, the Mint reported it would achieve cost savings by changing the metal composition to about 80 percent copper and 20 percent nickel (80/20) or by changing the metal composition to a copper, nickel, manganese, and zinc combination (C99750T-M). Because the number of nickels produced and their cost varies from year to year, future changes to production volumes and costs could alter the estimated savings. Both changes in the composition of the nickel are seamless changes because nickels made of these alloys would have the same weight and electromagnetic signature as the current nickel, according to the Mint. As a result, these nickels would function the same for the public and in vending machines. However, according to Mint data, even if the Mint changes to one of these alternative metal compositions, the unit cost of producing the nickel would likely remain greater than the face value of the coin. In fiscal year 2017, the Mint spent approximately 6.6 cents to produce each nickel, which would have been reduced to about 6.4 cents if the Mint had produced the 80/20 nickel and 5.9 cents for the C99750T-M nickel. Based on authorities granted in the Coin Modernization, Oversight, and Continuity Act of 2010, the Mint has conducted research and identified potential alternative metal compositions for the dime and quarter. This research shows that the same alloys that could reduce the cost of producing the nickel could be used to reduce the costs of producing the dime and quarter. Specifically, this research indicated potential savings of $74 million over 10 years by using the C99750T-M alloy in the dime and quarter, although additional testing of the alloy is required. Changing the metal composition of circulating coins could help the Mint achieve more effective and efficient operations by reducing production costs, resulting in savings to the government and the taxpayer. The Secretary of the Treasury and Mint officials do not have the authority to alter the metal content of coins—except the penny—as metal content is determined in statute. The Mint has sought authority from Congress to change the metal composition of the nickel, dime, and quarter, if those changes meet certain requirements. Specifically, in its fiscal year 2019 budget proposal, the Mint proposed a legislative change to its authorities that would enable the Secretary of the Treasury to alter the metal composition of coins, if those changes did not affect the weight or electromagnetic signature of the coins. This proposed change is consistent with the Treasury’s 2018–2022 strategic plan, which includes a goal to introduce efficiencies to lower the unit costs of coins produced by the Mint. Legislation supporting this proposal has not been introduced. Without the authority to change the metal composition of coins, the Mint cannot fully realize operational efficiencies, even though it has identified methods to reduce the cost of coins without altering their characteristics. Some Selected Stakeholders Expressed Concerns about Penny Suspension but None Expressed Concerns about Changes to the Nickel Government officials we spoke with raised concerns about the potential effects of a penny suspension, such as regional penny shortages or other unintended consequences. Specifically, Federal Reserve officials noted that suspending production could create a shortage of pennies if demand is greater than the supply of pennies. These officials explained that even if there are enough pennies to meet overall demand, the distribution of pennies across the country may be uneven and not matched to the location of greater demand. In this case, the Federal Reserve could incur additional costs to transport pennies to balance supply and demand across the country. Federal Reserve officials also said a suspension could potentially be successful if there was a reduction in penny demand and steps taken to mitigate potential disruptions to the penny supply. Mint officials expressed concern about potential unintended consequences of a penny suspension and effects on Mint operations. Specifically, according to Mint officials, suspending penny production may cause an increase in the number of coins returned to circulation because the public may react to a suspension by using its pennies in addition to the other coins in its coin jars. The resulting influx of coins into circulation may be sufficient to satisfy some or all of the demand for new coins for a period of time and cause the Mint to decrease or suspend production of coins. Mint officials said that costs the Mint would incur due to a disruption of coin production operations and loss of income from seigniorage could be as high as $3 billion over 7 to 10 years. These officials also raised concerns about the ability to securely store larger-than-usual quantities of all coins because the existing infrastructure, particularly vault storage, may be insufficient. Mint officials noted that, while other countries have stopped producing coins, suspending penny production may have a similar impact as not producing the penny. When Canada stopped producing its penny, it began to actively take the coins out of circulation, and the public knew the penny would eventually no longer be used. While the proposal to suspend penny production does not remove the penny from circulation or use in commerce, Federal Reserve and Mint officials told us that the results of suspending penny production are uncertain, partly because a suspension has not been tried before. Representatives from 9 of the 10 stakeholder industries said they do not anticipate incurring costs if the penny were suspended; most said they were not concerned about this action because the coins are either not used or minimally used in their industry. Three selected stakeholders said they would be affected by a penny suspension—associations representing armored carriers, banks, and retailers—as well as the company that manufactures the penny blanks for the Mint. They expressed uncertainty about how the suspension would be carried out and effects it might cause, such as penny shortages, and provided the following views and information: Armored Carriers – A penny suspension may not have a significant effect on operations since a suspension would not necessarily reduce the number of coins processed or transported, according to armored carrier representatives we spoke to. However, if penny shortages occurred, the carriers may have to move pennies from one geographic region to another to satisfy variations in demand from their customers, incurring additional transportation costs. Alternatively, suspension of the penny may cause the public to turn in pennies, along with coins of other denominations, which could exceed the secure storage capacity of carriers and coin terminals. Bankers – According to an association representing banks, bankers are unclear if the government would issue any guidance about rounding cash transactions to avoid inconsistent approaches. Because banks have received questions from customers about changes to currency in the past, the association emphasized the need for public education before suspending the penny. Retailers – Retailers have not determined the impact of suspending the penny on their industry, according to a retailer association. However, many retailers sell items priced below $1 as an important part of their business and merchandising strategy, according to these representatives, so it is important for retail businesses to be able to continue to make change down to the penny at the end of cash transactions. Vendor – a representative of the company that supplies the Mint with penny coin blanks told us that a penny suspension would force a decision whether to sell or deactivate the penny blank production equipment during the 10-year suspension. If sold, the vendor may then not have the equipment if the government decided to produce the penny again. None of the representatives from stakeholder industries raised concerns about changes to the nickel as long as the changes to the nickel are seamless. Conclusions Producing money for use in commerce is an important function of the U.S. government. The Federal Reserve, along with the Treasury’s BEP and the Mint, work together to ensure that there is an adequate supply of U.S. coins and notes for use around the world. In addition to ensuring an adequate supply of these coins and notes, it is also important to ensure that the government is producing these items efficiently. Because our current estimate shows the federal government would likely incur a net loss from replacing the $1 note with a $1 coin, we are no longer recommending that Congress consider replacing the $1 note with the $1 coin. The Treasury cannot alter the metal content of coins unless Congress provides that authority to the Treasury. If Congress were to grant the Treasury the authority to change the metal composition of coins, as the Mint has proposed, then it could use the results of its research to lower the costs of coin production while producing coins that look, feel, and function the same as current coins. Further, the Mint could decrease its production costs without affecting the characteristics of the coins. Without this authority, the Mint cannot provide the best value to the taxpayer and produce coins in the most efficient and cost-effective manner possible. Matter for Congressional Consideration Congress should consider amending the law to provide the Secretary of the Treasury with the authority to alter the metal composition of circulating coins if the new metal compositions reduce the cost of coin production and do not affect the size, weight, appearance, or electromagnetic signature of the coins. (Matter for Consideration 1) Agency Comments We provided a draft of this report to Treasury, including the Mint and BEP, and the Federal Reserve for their review and comment. In comments, reprinted in appendix III, the Mint agreed with our matter for congressional consideration and clarified its position on the potential cost impact of a penny suspension. The Mint’s comments stated that if the penny were suspended, consumers may return large amounts of all coins, not just pennies, which would decrease the need for future coin production. Without demand for coin production, the Mint estimated costs from idle production capacity and loss of seigniorage from coins to be up to $3 billion over 7 to 10 years. The Mint also commented that the effect of suspending penny production could be the same as the effect of stopping penny production. We revised our report to reflect the Mint’s perspective. The Department of the Treasury concurred with comments provided by the Mint. BEP did not have any comments. The Federal Reserve provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of the Treasury, the Director of the U.S. Mint, the Director of the Bureau of Engraving and Printing, the Chair of the Board of Governors of the Federal Reserve System, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or vonaha@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: GAO’s Economic Simulations and Alternative Analyses This appendix describes the economic simulations discussed in this report, including the assumptions we used and their sources, as well as the alternative simulations we conducted. Economic Simulations To estimate the net effect on the government of replacing the $1 note with a $1 coin, we simulated the benefits and costs to the government of issuing currency—including both notes and coins—under different scenarios and assumptions over a 30-year period. For each set of assumptions we considered, we simulated three scenarios—the status quo scenario, in which the $1 note would continue to be produced, and two replacement scenarios, in which the $1 coin would replace the $1 note. In the gradual replacement scenario, $1 notes are replaced as they become unfit for circulation, while under the active replacement scenario, $1 notes are replaced more quickly. We then compared the net benefit to the government in each replacement scenario to the net benefit under the status quo. As part of our analysis, we also ran alternative simulations with different sets of assumptions, to examine how the assumptions underlying our analysis would affect the estimated net benefit to the government. The various assumptions include the extent to which the public would increase its holdings of cash when coins are used instead of notes, the expected rate of growth in the demand for currency over 30 years, the costs of producing and processing both coins and notes, and the life span of both forms of currency (see table 3). In our replacement scenarios, we assumed that the replacement would be implemented starting in 2018, and during that year the U.S. Mint (Mint) would invest in new equipment to establish its production capability for $1 coins. We also assumed that production of the paper note would stop as soon as $1 coins were introduced. A key assumption in our analysis is the extent to which the public may hold more cash when notes are replaced by coins. Because of differences in how people use notes and coins, the public may need more than one coin for each note than would otherwise have been demanded. For example, people may take coins out of their pockets and store them at the end of each day, rather than retain them in their wallets as they do notes. These factors cause coins to circulate more slowly than notes, and more $1 coins would need to be maintained in circulation to meet the public’s demand for $1 notes. Consistent with simulations in our previous reports, we assumed in our economic simulations that the public would hold more $1 coins, requiring that more than one coin would be needed to replace each note. Therefore our replacement scenarios use a replacement ratio of 1.5 – that is 1.5 $1 coins for each $1 note to be replaced. For our alternate simulations we allow the replacement ratio to vary, to include a case in which no additional currency is demanded when coins are used (i.e., the replacement ratio is 1.0). As part of this sensitivity analysis, we found that a key driver of the estimated net benefit is the extent to which the public would hold more cash when $1 coins are used instead of notes. Alternate Simulations We altered some assumptions to simulate how the change would affect our estimate of the net benefit or loss to the government. See table 4. We present our analysis to show the effect of changes under both gradual and active replacement, and we show the results both with and without gains from seigniorage. To assess the effect of the public’s holding more or less cash as a result of needing fewer or greater numbers of coins to replace each note in circulation, we conducted separate simulations in which we: decreased the replacement ratio from our current estimate of 1.5 coins per note to 1 coin per note, and increased the replacement ratio from our current estimate of 1.5 coins per note to 2 coins per note. To assess the effect of the Board of Governors of the Federal Reserve System (Federal Reserve) not releasing into circulation the $1 coins it currently holds, we: assumed that the approximately 1.2-billion $1 coins held by the Federal Reserve would not enter circulation and would continue to be held by the Federal Reserve. To assess the effect of changing production costs for notes and coins, we conducted separate simulations in which we: increased the costs of producing notes from our current estimate of 3 cents to 4.9 cents without changing the costs of producing coins; increased the costs of producing coins from our current estimate of 14.6 cents to 17.5 cents without changing the costs of producing notes; and increased the costs of producing both notes and coins from our current estimates of 3 cents to 4.9 cents for notes and 14.6 cents to 17.5 cents for coins. To assess the effect of decreased demand for currency if people switched to electronic means of payment, we conducted separate simulations in which we assumed: demand for currency grows at a slower rate—75 percent of the growth in demand in the replacement scenarios—after fiscal year 2028, and demand for currency grows at a slower rate—50 percent of the growth in demand in the replacement scenarios—after fiscal year 2028. Appendix II: Objectives, Scope, and Methodology This report: (1) determines the estimated net benefit to the government, if any, of replacing the $1 note with a $1 coin and selected stakeholders’ views on this change, and (2) examines what is known about potential cost savings to the government from suspending production of the penny and changing the metal composition of the nickel coin as well as selected stakeholders’ views on these changes. To estimate the net benefit or loss to the government of replacing the $1 note with a $1 coin, we conducted economic simulations under different scenarios and assumptions over a 30-year period. We simulated a “status quo” scenario and two “replacement” scenarios. In the status quo scenario, notes remain the dominant form of $1 currency. In each replacement scenario, notes are replaced by $1 coins under various assumptions. We then compared each replacement scenario to the status quo scenario with respect to net benefits to the government. As part of our analysis, we also ran alternative simulations with different sets of assumptions, to examine how the assumptions underlying our analysis affect the estimated net benefit to the government. The various assumptions underlying our simulations include the extent to which the public holds more cash when coins are used instead of notes, the cost to produce $1 notes and $1 coins, and the lifespan of notes and coins, among others. Our analyses are projected over 30 years because that period roughly coincides with the life expectancy of the $1 coin. We interviewed relevant officials from the Board of Governors of the Federal Reserve System (Federal Reserve), the Bureau of Engraving and Printing (BEP), and the U.S. Mint (Mint). We also obtained data for our assumptions from these agencies and economic projection data from the Congressional Budget Office. More detailed information on the structure, assumptions, and inputs of our economic simulations are found in appendix I. To determine how the Federal Reserve estimates the life-span of the $1 note (a key input to our economic simulations), we reviewed work papers and analyses from prior work. We interviewed knowledgeable Federal Reserve officials about the methodology for calculating a note’s life-span and reviewed data on a note’s estimated life from calendar years 2005 through 2017. We also observed note-processing operations and equipment at the Federal Reserve’s Cash Technology Office (located in the Federal Reserve Bank of Richmond), reviewed Federal Reserve’s and Treasury Department’s cash-processing policy and procedure manuals, and interviewed knowledgeable officials about technological innovations in Federal Reserve note processing since 1998. We took steps to assess the reliability of data used, such as interviewing knowledgeable agency officials, and determined that the data were sufficiently reliable for the purposes of this report. To determine selected stakeholder views on changes to currency, we identified 91 entities that could potentially be affected by reviewing prior GAO, Mint, and Federal Reserve reports and the results of a literature search. We eliminated some of these entities from further consideration because we could not identify a way to contact them or they did not respond to our efforts to contact them. We sought entities with the broadest representation so we generally eliminated individual companies, with the exception of those that are primary suppliers of raw material for the production of notes or coins. Of the remaining 36 entities, we selected and interviewed 10 organizations representing potentially affected industries, primarily based on the entities’ role with respect to currency and the currency change likely to affect it most. We also selected and interviewed a private company involved in the production of materials used in coins and two organizations that advocate for a switch to a $1 coin and for continued use of the penny, respectively. We categorized each entity’s role with respect to currency as a maker (involved in, or represents those involved in, supply of materials for production of coins or notes); a mover (involved in, or represents those involved in, transporting, processing, or facilitating use of coins or notes); or a user (involved in, or represents those involved in, transactions where coins or notes are exchanged). We also categorized each entity as being most affected by, or most interested in, changes to the $1, nickel, or penny. We used information we collected or had used in prior work about these stakeholders and also used professional judgement and logic to determine in which role category they belonged. In some cases, we assigned an entity to more than one category. In addition to categorizing stakeholders, when making our selection, we also considered the extent an entity’s area of representation overlapped with another to avoid duplication. If a selected entity did not respond to our request for an interview, we sought to replace that entity with a similar one, if available. Since our selection is comprised of a non-representative sample, the results are not generalizable to all stakeholders. The stakeholders we selected are: American Bankers Association, aba.com Americans for Common Cents, pennies.org Association of Gaming Equipment Manufacturers, agem.org Coin Laundry Association, coinlaundry.org Dollar Coin Alliance, dollarcoinalliance.org International Bridge, Tunnel and Turnpike Association, ibtta.org International Parking & Mobility Institute, formerly the International Parking Institute, parking-mobility.org Jarden Zinc Products, jardenzinc.com National Armored Car Association, nationalarmoredcar.org National Automatic Merchandising Association, namanow.org National Bulk Vendors Association, nbva.org Retail Industry Leaders Association, rila.org We also reviewed information on public perceptions and opinions about the use of a $1 coin from prior GAO work and publicly available information from an organization that advocates for a transition to a $1 coin. To examine what is known about potential cost savings to the government from suspending production of the penny coin and from changing the metal composition of the nickel coin, we analyzed penny and nickel production cost data from the Mint for fiscal years 2003 through 2017 to include a range of the number of coins produced and cost changes from metal price fluctuations and reviewed Mint studies on potential alternative metals and on coin production cost savings that could result from changing coin metal composition for these coins. We reviewed and analyzed the Mint’s preliminary plan if Congress were to authorize suspending production of the penny. We took steps to assess the reliability of the Mint data we used, such as reviewing relevant documentation, and determined that the data were sufficiently reliable for the purposes of this report. We also interviewed Mint and Federal Reserve officials, and the same set of selected stakeholders noted above. To understand the rationale and steps Canada implemented for eliminating the Canadian penny, we reviewed documents from the Canadian Senate, Department of Finance, and the Royal Canadian Mint. To understand the results of the elimination of the Canadian penny, we interviewed an official from the Royal Canadian Mint. We also conducted a literature search of relevant English language articles published from 2011 to May 2018 to provide information on the rationale and potential benefit to governments of making changes to coins and notes, along with information about the experiences of other English-speaking countries that have made such changes. We conducted this performance audit from December 2017 to March 2019 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. Appendix III: U.S. Mint Comments Appendix IV: GAO Contacts and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, John W. Shumann (Assistant Director); Travis Thomson (Analyst-in-Charge); Amy Abramowitz; Lindsay Bach; Dave Hooper; Delwyn Jones; Malika Rice; Oliver Richard; Ardith Spence; and Elizabeth Wood made key contributions to this report.

The U.S. spent about $1.3 billion in 2017 to produce, process, and circulate coins and paper notes for use in the economy. Since 2006, both the penny and nickel have cost more to make than their face value. Other countries have replaced notes with coins of the same value to reduce costs. Since 1990, GAO had estimated replacing the $1 note with a $1 coin would provide a benefit to the federal government. GAO was asked to examine the potential cost savings to the government from making changes to currency. This report (1) estimates the net benefit to the government, if any, of replacing the $1 note with a $1 coin and selected stakeholders' views on this change; and (2) examines what is known about potential cost savings from suspending penny production and changing the metal composition of the nickel, and selected stakeholders' views on these changes. GAO conducted economic simulations of continued use of $1 notes and replacing notes with $1 coins, examined cost data from the U.S. Mint, and interviewed officials from the Federal Reserve, U.S. Mint and Bureau of Engraving and Printing as well as 10 selected stakeholders representing industries that could potentially be affected by currency changes. GAO's analysis found that replacing the $1 note with a $1 coin would likely result in a net loss to the government over 30 years. GAO found the government would incur a loss of about $611 million if notes were actively replaced and about $2.6 billion if $1 notes were replaced gradually (see figure). These simulations represent the first time GAO has found that replacing the $1 note with a $1 coin would result in a net loss to the government rather than a net benefit. GAO's estimates are based on current data and economic projections, which have changed over time. For example, the lifespan of the $1 note has more than doubled since a 2011 GAO analysis, from 3.3 years to 7.9 years, largely due to changes in note processing technology. Stakeholders generally identified few benefits from replacing $1 notes with $1 coins. Seven of 10 stakeholders GAO met with said that replacing the $1 note with a $1 coin would result in additional costs. For example, armored carriers told GAO that their transportation costs would increase because coins weigh more than notes. The U.S. Mint estimates that it could save approximately $250 million over 10 years by suspending penny production and between $2 million and $9 million per year by changing the metal composition of the nickel. It also estimates that it could save about $74 million over 10 years by changing the metal composition of the dime and quarter. However, Federal Reserve officials and some stakeholders expressed concern about temporarily suspending the penny due to the potential for external effects, such as penny shortages. Stakeholders were unconcerned about changes to the nickel as long as the changes would not affect how the coin functioned, for example, in vending machines. Since Congress specifies in law which coins are made and their metal composition, the Mint has proposed legislation to enable the Secretary of the Treasury to change the metal content of coins as long as the weight or machine acceptance of the coins is unaffected. Without such authority, the Mint might not be producing coins as cost-effectively as possible.

CRS_R45952

Introduction Offshore aquaculture is generally defined as the rearing of marine organisms in ocean waters beyond significant coastal influence, primarily in the federal waters of the exclusive economic zone (EEZ). Currently, marine aquaculture facilities are located in nearshore state waters, but no commercial facilities operate in U.S. federal waters. Some aquaculture advocates contend that developing such offshore aquaculture facilities could increase U.S. seafood production and provide economic opportunities for coastal communities; opponents counter that doing so could harm the environment and have negative impacts on other coastal activities, such as fishing. Offshore aquaculture development will likely depend on several interrelated legal and institutional requisites, such as establishing a regulatory framework, minimizing environmental harm, and developing the capacity to manage and support the industry. Regulatory uncertainty has been identified as one of the main barriers to developing offshore aquaculture in federal waters of the United States. According to the U.S. Commission on Ocean Policy, "aquaculture operations in offshore waters lack a clear regulatory regime, and questions about exclusive access have created an environment of uncertainty that is detrimental to investment in the industry." Some observers have concluded that "offshore aquaculture will not fully develop unless governments create a supportive political climate and resulting regulatory conditions." A framework also may be needed to assure environmentalists, fishermen, and other stakeholders that coastal and fisheries managers would have the authority to address potential threats to the environment and other impacts. According to most observers, congressional action may be necessary to develop a comprehensive regulatory framework for offshore aquaculture. Comprehensive legislation has been introduced a number of times since the 109 th Congress, but none of the bills have been enacted. Controversy has stemmed from different perspectives of aquaculturalists, environmentalists, fishermen, and others. Some environmental organizations and fishermen have asserted that poorly regulated aquaculture development has degraded the environment and harmed wild fish populations and ecosystems. Some segments of the commercial fishing industry are opposed to marine aquaculture because of potential development on fishing grounds, environmental effects on fish populations, and competition of cultured products with wild products in domestic markets. Offshore aquaculture advocates counter that a combination of farming experiences, technological advances, proper siting, and industry regulation has decreased environmental impacts and improved the efficiency of marine aquaculture. It appears that renewed efforts have emerged in the 116 th Congress to meet current challenges by attempting to improve regulatory efficiency, minimize environmental degradation, and avoid impacts on existing ocean uses. Additional related factors, such as technical advances, economic feasibility, and the level of government support, also are likely to affect future growth of the U.S. aquaculture industry. Although a regulatory framework appears to be necessary for establishing offshore aquaculture in federal waters, it may not be sufficient for significant development of the industry. Sometimes overlooked are the services that may be needed to establish a new industry, such as program administration, research, and other services (e.g., disaster assistance, insurance). Technical uncertainties related to harsher offshore environmental conditions and higher costs of operating farther from shore may slow extensive offshore development, especially in the immediate future. This report examines issues and challenges related to the development of offshore aquaculture in federal waters. It introduces the topic with background information that covers aquaculture production and methods, federal agencies involved in aquaculture, and potential congressional interest in the topic. It then focuses on three of the main challenges faced by the industry, including the current regulatory framework, environmental concerns, and economic viability. The report concludes with issues related to regulatory and institutional development that have been identified by researchers and stakeholders, potential issues for Congress, and a summary of legislation that has been introduced in recent Congresses. Background Seafood Production Global aquaculture production is nearly equal to the volume of seafood produced for human consumption by wild fisheries. From 1997 to 2016, world seafood production from wild sources (capture fisheries) leveled off at a range of 89 million metric tons (mmt) to 96 mmt. According to the United Nations Food and Agriculture Organization, further growth of global wild fisheries production is unlikely, because approximately 93% of marine stocks are now either fished unsustainably or fished at maximum sustainable levels. During the same period, world aquaculture production increased from 28.3 mmt to 80.0 mmt; it now makes up 47% of global fish production. It is likely that aquaculture production will continue to expand with advances in aquaculture technologies and the need to satisfy the demand of the world's growing population. Figure 1 illustrates the growth in global aquaculture production and relatively constant wild fisheries production. Nearly all of global marine aquaculture production is from inshore areas, such as estuaries and coastal areas, not from offshore areas. Wild fisheries in the United States are limited by the productive capacity of U.S. waters. Most U.S. stocks are now fished at their maximum sustainable levels. However, unlike worldwide trends, U.S. aquaculture production has generally stagnated and makes up a relatively small portion of total U.S. seafood production. In 2016, the United States ranked fifth in global seafood production at 5.36 mmt; 0.44 mmt (8.2%) of this total was produced by aquaculture. Figure 2 illustrates the relatively constant domestic production of aquaculture and wild fisheries. Most U.S. aquaculture production consists of freshwater species, such as catfish, trout, and crawfish. Growth in U.S. seafood consumption has depended on imports, which provide approximately 80% to 90% of the seafood consumed in the United States. Approximately 50% of seafood imports, such as shrimp from Southeast Asia and salmon from Norway or Chile, are produced by aquaculture in ponds and nearshore areas. According to some observers, U.S. reliance on seafood imports will continue to increase without changes to current policies and regulatory obstacles that currently impede expansion of aquaculture. Aquaculture Overview Aquaculture is broadly defined as the propagation and rearing of aquatic species in controlled or selected environments. Aquaculture is difficult to characterize because of the diverse nature of facilities, methods, technologies, and species that are cultured. Organisms are cultured in freshwater environments, land-based closed systems, coastal and estuarine areas, and offshore areas. Often, hatcheries are used to spawn fish and shellfish to produce eggs that are hatched and grown to specific stages; these organisms are then transferred to facilities where they are grown to marketable size. Aquaculture operations range from systems where there is only minimal control over the organism's environment to intensive operations where there is complete control at each stage of the organism's life history. For example, an intensive system would include freshwater species such as catfish that are often raised in shallow earthen ponds; production relies on control of inputs. Water, feed, and disease treatment are controlled to maximize growth while minimizing costs. Farming of finfish, such as salmon, also requires stocking at high densities and relies on extensive feeding. Commercial salmon aquaculture facilities often employ net pens ( Figure 3 ), which are moored to the bottom and located in protected inshore marine areas, such as bays and fjords. Bivalves such as oysters and clams are grown in estuaries and inshore areas, feeding on a diet of plankton and detritus that they filter from seawater. Bivalve aquaculture may employ varying degrees of control. In some cases, they are suspended on lines, in wire cages, and on rafts. Oyster larvae are grown in hatcheries and transferred to these structures as oyster spat or seed and grown to market size. Some oyster production is less intensive and depends on enhancement of the benthic (ocean bottom) environment by placing oyster shells on the bottom to facilitate attachment of wild oyster larvae. In Alaska, hatcheries are used to enhance the production of salmon fry, which are released to the wild to feed and grow until they are caught by fishermen as adults. These programs are run as nonprofit cooperatives overseen by Alaska fishermen. Most states and the U.S. Fish and Wildlife Service run public stocking programs, which often address a variety of objectives such as enhancing recreational fisheries and restoring depleted populations. Each strategy requires different inputs and interacts with the environment to differing degrees. Nevertheless, a common factor is to control some aspect(s) of the organism's life to enhance survival and growth. Over the last decade, catfish aquaculture has accounted for most food fish production by volume and revenue in the United States ( Table 1 ). However, catfish production has declined by nearly 44% over this period due to a variety of factors, including competition from Asian imports. For freshwater species, only crawfish production (78.0%) and revenue (66.2%) increased significantly. During the same period, production of salmon and oysters increased in both volume and revenue. Cultured oysters exhibited the largest increases in production (66.0%) and revenue (86.5%), which is likely related to greater demand for high quality raw oysters. However, except for cultured oysters, production of most domestic marine seafood products is from wild marine fisheries. Offshore Aquaculture As stated above, offshore aquaculture is the rearing of marine organisms in ocean waters beyond significant coastal influence, primarily in the federal waters of the EEZ. Aquaculturalists, the Department of Commerce, several task force and commission reports, and some academics have identified offshore aquaculture as a potential alternative to some land-based and nearshore aquaculture. Supporters of aquaculture have asserted that development of the industry, especially in offshore areas, has significant potential to increase U.S. seafood production and provide economic opportunities for coastal communities. The potential of offshore aquaculture in the United States is likely to differ by species, region, and technology. Despite plans for several offshore operations, no commercial offshore aquaculture facilities are currently operating in the U.S. EEZ. Some marine aquaculture facilities are located in nearshore state waters, however. In the future, inshore marine production is likely to be constrained by the availability of suitable sites, poor water quality, high coastal land values, and competition with other ocean uses. Potential aquaculture development in offshore areas has received increasing attention because of these limitations. The cost of working offshore may be greater than the costs of working in inshore and land-based areas, in part because offshore aquaculture in the EEZ would be subject to relatively high-energy offshore environments caused by high and variable winds and storms. However, research and technical advances have demonstrated that operating in these environments is feasible. Expansion of offshore aquaculture into clean, well-flushed waters appears to have nearly unlimited potential, although major technological and operational challenges remain. For example, further development will require structures and materials that will contain stocks under harsh oceanic conditions and keep costs low enough to remain profitable. It is likely that offshore aquaculture, at least initially, would employ species with established markets and production systems that are similar to those used in inshore areas. Examples of marine species that are candidates for offshore areas may include Atlantic salmon ( Salmo salar ), white sea bass ( Atractoscion nobils ), cobia ( Rachycentron canadum ), and blue mussel ( Mytilus edulis ). Currently, salmon net pen facilities operate in protected inshore waters of Maine and Washington. Several other net pen aquaculture facilities have operated in exposed state waters of Hawaii and Puerto Rico that have characteristics similar to those of offshore areas. Over the last two decades, permits have been issued to conduct research and limited commercial aquaculture in the EEZ. Recently, three mussel farms received permits from the U.S. Army Corps of Engineers (USACE) to operate in offshore waters. Several other ventures have been proposed; including proposals to operate commercial facilities in several regions. Researchers are developing systems to adapt facilities used in inshore areas to the unique needs of offshore aquaculture. Offshore systems (e.g., submersible cages, net pens, longline arrays) may be free-floating, secured to a structure, moored to the ocean bottom, or towed by a vessel. Systems have been developed to overcome problems associated with harsh open ocean conditions, including submersible cage designs that do not deform under strong currents and waves, and single-point moorings. Cage-mounted autonomous feeding systems have been developed that can operate both at the surface and submerged. Other components under development include mechanized and remote systems that can be controlled from land-based facilities; for example, universities and private-sector research interests are developing automated buoys that can monitor the condition of stock and feed fish on a regular basis for weeks at a time. Federal Government Involvement in Aquaculture Federal aquaculture, regulation, research, and support are conducted by a number of federal agencies. Their roles vary widely depending on the agency's statutory responsibilities, which may be related directly or indirectly to aquaculture. Congress enacted the National Aquaculture Act of 1980 to encourage development of the aquaculture industry and coordinate federal activities. The act established the Subcommittee on Aquaculture (SCA) to provide opportunities to exchange information and enhance cooperation among federal agencies. SCA's main functions include the following: reviewing national needs for aquaculture research, technology transfer, and technology assistance programs; supporting coordination and communication among federal agencies engaged in the science, engineering, and technology of aquaculture; collecting and disseminating information on aquaculture; encouraging joint programs among federal agencies in areas of mutual interest relating to aquaculture; and recommending specific actions on issues, problems, plans, and programs in aquaculture. SCA operates under the Committee on Environment of the National Science and Technology Council in the Executive Office of the President. SCA is chaired by the Secretary of Agriculture, in consultation with the Secretaries of Commerce and the Interior. In addition to the three main departments, SCA includes nine additional departments and agencies with an interest in aquaculture. SCA meets quarterly and has provided information on topics such as fish disease, aquaculture regulation, and other areas of interest. Most federal aquaculture activities and programs that are specific to aquaculture are carried out by the Department of the Interior (DOI), Department of Commerce (DOC), and the Department of Agriculture (USDA). Other federal agencies have roles that are indirectly related to aquaculture, such as regulatory programs that apply to a variety of aquatic or marine activities, including aquaculture. Examples include USACE for activities in navigable waters, the Environmental Protection Agency (EPA) for protection of environmental quality, and the Food and Drug Administration for regulation of drugs used to treat fish diseases. U.S. Department of Agriculture USDA plays a lead role in support of freshwater aquaculture for species such as catfish that are raised on private property in fishponds. USDA is authorized to conduct cooperative research and extension: it funds five aquaculture regional research centers. Work at aquaculture centers complements other USDA research and education programs undertaken at state land-grant universities. The USDA National Agricultural Statistics Service periodically conducts the national aquaculture census and collects and publishes other related statistical information. The Animal and Plant Inspection Service provides animal health certifications for exports of live species and products; assistance for producers experiencing losses from predators; and veterinary biologics for preventing and treating animal diseases, including those affecting aquatic species. The Farm Service Agency administers farm lending programs, including ownership, operating, and emergency disaster loans. Under certain circumstances, aquaculture operations may be eligible for disaster assistance under the Noninsured Crop Disaster Assistance Program and the Emergency Assistance for Livestock, Honeybees, and Farm-Raised Fish Program. It appears that some of USDA's programs and experiences that focus on land-based agriculture, such as finance, research, disaster assistance, marketing, and extension, may be adapted and applied to marine aquaculture development. Department of the Interior DOI's U.S. Fish and Wildlife Service (FWS) focuses on support of public efforts, such as stocking programs, that benefit recreational fishing of freshwater and anadromous species. FWS operates the National Fish Hatchery System, which consists of more than 60 facilities used to enhance fish stocks, restore fish populations, and mitigate fish losses. The system includes fish production and distribution facilities, fish health centers, fish passage facilities, and technology centers. FWS research programs indirectly benefit the private sector through research and applications that control fish disease and regulation of potentially invasive species. FWS and NMFS are responsible for regulating potential interactions between aquaculture activities and endangered species and marine mammals under the Endangered Species Act (ESA) and the Marine Mammal Protection Act (MMPA). Department of Commerce The NMFS Office of Aquaculture in DOC focuses on regulatory, technical, and scientific services related to marine aquaculture. NOAA headquarters provides general direction for the program and coordinates with other NOAA offices, federal agencies, and the general public. The program includes five regional aquaculture coordinators, who coordinate regulatory and permitting activities, serve as liaisons with the state and local government and stockholders, and assist with grant management. Aquaculture in federal waters is regulated as a regional fishery under the Magnuson Stevens Fishery Conservation and Management Act (MSA). NOAA's efforts to regulate offshore aquaculture are discussed in the following section concerning federal agency regulatory responsibilities (see Current Regulatory Framework). In October 2015, NOAA released its five-year strategic plan (2016-2020) for marine aquaculture. NOAA's vision is a "robust U.S. marine aquaculture sector that creates jobs, provides sustainable seafood, and supports a healthy ocean." The plan provides a blueprint of NOAA's involvement in marine aquaculture, including program impact, goals and strategies, deliverables, and crosscutting strategies. To increase aquaculture production, the program's four main goals are to develop coordinated, consistent, and efficient regulatory processes for the marine aquaculture sector; encourage environmentally responsible marine aquaculture using the best available science; develop technologies and provide extension services for the aquaculture sector; and improve public understanding of marine aquaculture. The plan also includes four crosscutting strategies to achieve these goals and objectives: strengthen government, academic, industry, and other partnerships; improve communications within NOAA; build agency infrastructure within NOAA; and develop sound and consistent management within NOAA. Various NOAA programs may support aquaculture both directly and indirectly. The National Sea Grant Marine Aquaculture Grant Program is the only U.S. government grant program that funds marine aquaculture exclusively. These grants focus on industry challenges, such as improving aquaculture feeds, enhancing seafood safety and quality, refining culture methods, and diversifying aquaculture species. Other NOAA offices or programs that may contribute to or become involved in aquaculture development include inspections provided by the NOAA Seafood Inspection Program, research conducted at NOA A regional fisheries science centers, and awards funded by the Saltonstall-Kennedy Grant Program. Offshore Aquaculture Challenges A broad array of challenges is associated with offshore aquaculture development and expansion. These challenges pertain to evolving production technology, uncertain economic costs and benefits, and potential environmental and social impacts. Generalizations about how to address these challenges are difficult to make because of the variety of candidate species, different technologies, and potential scales of operation. Major categories of concerns related to offshore aquaculture development include (1) the legal and regulatory environment; (2) potential environmental harm; (3) economic, trade, and stakeholder concerns related to development of a new industry; and (4) business and institutional support. Current Regulatory Framework45 One of the main issues associated with marine offshore aquaculture is the concept of ownership and individuals' rights to use the marine environment for economic gain (in contrast to, for example, the catfish industry, where fishponds are constructed and operated on private land). Some envision development and management as a partnership, where the government's role is one of both enabler and steward. This partnership could provide for property rights and regulatory clarity, certainty, and stability. For example, the government already provides specific rights to businesses that extract or use resources of the continental shelf, such as oil and gas and wind energy development. Aquaculture regulation depends primarily on the geographic location and characteristics of aquaculture facilities. In state waters, in accordance with the federal Submerged Lands Act of 1953, coastal states exercise jurisdiction over an area extending 3 nautical miles (nm) from their officially recognized coast (or baseline ). States also have jurisdiction over internal waters, areas inside the baseline in bays and estuaries, such as the Chesapeake Bay or Puget Sound. States may impose restrictions or requirements as they see fit, subject to any applicable federal laws. If located in federal waters, in waters from 3 nm to 200 nm from the baseline, aquaculture facilities are regulated primarily by federal agencies under a number of federal statutes and regulatory requirements ( Figure 4 ). Some federal laws apply to marine aquaculture and waters of the United States generally and include facilities located in both state and federal marine waters. Currently, no single federal agency is authorized to approve or permit offshore aquaculture facilities in federal waters, generally the EEZ. USACE, NMFS (NOAA Fisheries), and EPA are separately authorized to regulate certain activities that are required to establish and operate aquaculture facilities. Federal agencies that issue permits are required to consult with other regulatory agencies concerning the potential effects of each application. The permitting process also involves consultation and other requirements that are incorporated into the review of these applications. The following sections summarize the required federal permits, consultation, and review requirements. Federal Permits to Conduct Aquaculture in the Federal Waters Section 10 Permits Section 10 of the Rivers and Harbors Act of 1899 (hereinafter referred to as Section 10) prohibits the unauthorized obstruction or alteration of any navigable water of the United States. Authorization by the Secretary of the Army, through USACE, must be provided before construction is initiated. Construction may include any structure or work in or affecting the course, condition, or capacity of navigable waters, excavation or fill, including aquaculture facilities, in or over any navigable waters of the United States within 3 nm from shore. Because aquaculture facilities may be located in and may affect navigable waters, the developer of the facility may be required to obtain authorization from USACE under Section 10. USACE's role is to regulate the use of the navigable water (not to regulate aquaculture per se). The Outer Continental Shelf Lands Act extends USACE authority over all artificial islands and all installations and other devices permanently or temporarily attached to the seabed, which may be erected for the purpose of exploring for, developing, or producing resources. Therefore, a Section 10 permit is also required prior to construction or placement of installations—such as aquaculture facilities—in federal waters from the seaward limit of state waters to the seaward limit of the outer continental shelf. The decision to issue a permit is based on the effects on navigation and the proposed activity's probable impacts on the public interest. The public interest is assessed by comparing the benefits that may be expected to accrue from the proposed activity and the reasonably foreseeable harm that reflects the national concern for the protection and use of important resources. Offshore aquaculture permits would be required for structures such as cages, net pens, or lines that are anchored or attached to the sea floor. Section 10 permit requirements for aquaculture development beyond 3 nm may differ from those within 3 nm, because installations or other devices that are not temporarily or permanently attached to the seabed do not appear to be included. Examples of facilities beyond 3 nm that may not require Section 10 permits include bottom shellfish culture or unmoored floating aquaculture facilities if they do not impede navigation. National Pollutant Discharge Elimination System Permit EPA protects water quality by regulating the discharges of pollutants into U.S. waters under the Clean Water Act (CWA). Under the CWA, a National Pollutant Discharge Elimination System (NPDES) permit is required to discharge pollutants from point sources into federal ocean waters. A point source is defined as "any discernable, confined and discrete conveyance, including but not limited to any pipe, ditch, channel, tunnel, conduit, well, discrete fissure, container, rolling stock, concentrated animal feeding operation, or vessel or other floating craft, from which pollutants are or may be discharged." Aquaculture facilities may discharge materials such as fecal matter; excess feed; antifoulants; and therapeutic agents, such as antibiotics. EPA currently regulates aquaculture facilities as a point source if the activity qualifies as a Concentrated Aquatic Animal Production (CAAP) facility; CAAPs are defined according to discharge frequency and production level or as designated by EPA on a case-by-case basis if they are significant contributors of pollution. Commercial scale aquaculture operations in federal waters would be likely to trigger the CAAPs threshold and require a NPDES permit. Fishing (Aquaculture) Permit NMFS is the only federal agency that claims explicit management authority over offshore aquaculture. Currently, NMFS manages federal fisheries under authority of the MSA. The MSA regulates fishing in the EEZ through development and implementation of federal fishery management plans (FMPs). The MSA "does not expressly address whether aquaculture falls within the purview of the act." The MSA defines a fishery as "one or more stocks of fish ... and any fishing for such stocks" and fishing as the "catching, taking, or harvesting of fish." The Magnuson-Stevens Act does not expressly address whether aquaculture falls within the purview of the Act. However, the Magnuson-Stevens Act's assertion of exclusive fishery management authority over all fish within the EEZ, its direction to fishery management councils to prepare fishery management plans for any "fishery" needing conservation and management, together with the statutory definitions of "fishery" and "fishing," provide a sound basis for interpreting the Act as providing authority to regulate aquaculture in the EEZ. Under the MSA's authority, several regional fishery management councils and NMFS have exercised regulatory oversight over offshore aquaculture. In some cases, NMFS authorized offshore aquaculture in federal waters for research and experimental purposes under an exempted fishing permit. These permits are of limited duration and not intended to apply to development of permanent commercial operations. The Gulf of Mexico Fishery Management Council (GMFMC) has been particularly active on aquaculture issues. In 2009, an aquaculture FMP was approved by the GMFMC; NMFS issued its final rule to implement that FMP in 2016. The aquaculture plan establishes a regional permitting process for regulating aquaculture in the Gulf of Mexico EEZ. The regulations authorize permits for up to 20 facilities that are limited to combined total production of 64 million pounds annually of species that are native to the Gulf of Mexico. Applicants are required to acquire other federal permits before NMFS can issue a Gulf aquaculture permit. NMFS also has developed a memorandum of understanding to coordinate federal agency actions and outline the permitting responsibilities of each agency in the Gulf. However, a recent legal decision has cast doubt on NMFS's authority to regulate aquaculture under the MSA. In Gulf Fisherman ' s Association v . National Marine Fisheries Service , the U.S. District Court for the Eastern District of Louisiana held that NMFS exceeded its authority under the MSA when it adopted a regulatory scheme for aquaculture operations in the Gulf of Mexico. The court found that the MSA's grant of authority to regulate "fishing" and "harvesting" did not include aquaculture, noting that "[h]ad Congress intended to give [NMFS] the authority to create an entirely new regulatory permitting scheme for aquaculture operations, it would have said more than 'harvesting.' The MSA is a conservation statute, aimed at the conservation and management of natural resources. Fish farmed in aquaculture are neither 'found' off the coasts of the United States nor are they 'natural resources.'" Some are concerned that regional management of offshore aquaculture under the MSA may add another additional administrative requirements, especially if several regional fishery management councils develop their own, possibly contradictory, open ocean aquaculture management policies. Currently, commercial aquaculture is less likely to occur in federal waters under the jurisdiction of other regional fishery management councils because they have not prepared aquaculture FMPs or generic aquaculture amendments to the appropriate FMPs for species that could be cultured. In addition, it is unclear what regulatory authority NMFS and the regional councils might have over species, such as mussels, that are not managed under a federal FMP. Federal Consultation and Review Requirements Consultation and review requirements are often triggered by federal permitting programs. Some crosscutting environmental requirements are entirely procedural, because they require that the federal agency implement certain procedures to ensure the agency identifies and analyzes potential impacts the proposal would have on certain resources before deciding whether to issue the permit. Other environmental requirements may prohibit the agency from permitting the action, as proposed, unless the level of adverse impacts can be minimized or mitigated. Coastal Zone Management Act Under Section 306 of the Coastal Zone Management Act (CZMA), states may develop and implement a coastal management program (CMP) pursuant to federal guidance. State CMPs "describe the uses subject to the management program, the authorities and enforceable policies of the management program, the boundaries of the state's coastal zone, the organization of the management program, and related state coastal management concerns." Arguably the main feature of the CZMA is federal consistency. Federal agency activities that have reasonably foreseeable effects on a state's coastal zone resources and uses should be consistent with the enforceable policies of the state's coastal management plan. Section 307 of the CZMA requires any applicant for a required Federal license or permit to conduct an activity, in or outside of the coastal zone, affecting any land or water use or natural resource of the coastal zone of that state" to "provide in the application to the licensing or permitting agency a certification that the proposed activity complies with the enforceable policies of the state's approved program and that such activity will be conducted in a manner consistent with the program. Enforceable policies are legally binding state policies, such as constitutional provisions, laws, regulations, land use plans, or judicial or administrative decisions. Federal licensing and permitting (such as aquaculture permit requirements) is one of four general categories of federal activities that may be reviewed for consistency. The state lists federal licenses and permits that affect coastal uses and resources in its federally approved CMP. For listed activities, the applicant submits related data and information and a consistency certification that the proposed activity will be conducted in a manner consistent with the state's approved management program. For a listed activity outside the coastal zone (such as in federal waters), the state also must describe the geographic location or area in its CMP. If a license, permit, or geographic location in federal waters is not listed in the state's CMP, the activity is treated as unlisted. To review an unlisted activity, the state notifies the applicant, federal agency, and NOAA Office of Coastal Management (OCM) that it intends to review the activity. OCM decides whether to approve the request, generally based on whether the activity will have reasonably foreseeable effects on the state's coastal zone. If approved, the consistency review proceeds as in the case of a listed activity. The state may object to the applicant's consistency certification and stop the federal agency from authorizing the activity or issue a conditional concurrence to the applicant. The permit is issued for the activity if (1) the state concurs with the consistency determination; (2) the state fails to act, resulting in a presumption of consistency; or (3) the Secretary of Commerce overrules the state on appeal and concludes that the activity is consistent with CZMA objectives or is otherwise necessary for national security. In the vast majority of federal actions, states concur with the applicant's self-certification, often resolving any disputes collaboratively. National Environmental Policy Act The National Environmental Policy Act (NEPA) requires federal agencies to consider the potential environmental consequences of proposed federal actions but does not compel agencies to choose a particular course of action. If an agency anticipates that an action would significantly affect the quality of the human environment, the agency must document its consideration of those impacts in an environmental impact statement (EIS). If the impacts are uncertain, an agency may prepare an environmental assessment (EA) to determine whether a finding of no significant impact could be made or whether an EIS is necessary. NEPA creates procedural requirements but does not mandate specific outcomes. Endangered Species Act and Marine Mammal Protection Act NMFS and FWS have responsibilities under the ESA and the MMPA to review project proposals that may affect marine mammals or threatened and endangered species. If issuance of a federal permit may adversely affect a species listed under the ESA, consultation may be required under Section 7 of the ESA. Through consultation with either FWS or NMFS, federal agencies must ensure that their actions are not likely to jeopardize the continued existence of any endangered or threatened species or adversely modify critical habitat. If the appropriate Secretary judges that the proposed activity jeopardizes the listed species or adversely modifies critical habitat, then the Secretary must suggest reasonable and prudent alternatives that would avoid harm to the species. If reasonable and prudent measures are adopted, the federal action is allowed to go forward. The MMPA prohibits the harassment, hunting, capturing, killing (or taking ) of marine mammals without a permit from the Secretary of the Interior or the Secretary of Commerce. If marine mammals are likely to interact with aquaculture facilities and this interaction is likely to result in the taking of marine mammals, a marine mammal exemption would be required. To be eligible for an exemption, the aquaculture facility would need to obtain a Marine Mammal Authorization Program certificate from NMFS. MSA Essential Fish Habitat The MSA also requires the federal permitting agency (e.g., USACE) for any aquaculture facility to consult with NMFS if the activity has the potential to harm essential fish habitat (EFH). EFH is designated for all marine species for which there is an FMP and may include habitat in both state and federal waters. National Marine Sanctuary Act NOAA manages national marine sanctuaries established under the National Marine Sanctuary Act (NMSA). Federal agencies are required to consult with the Secretary of Commerce when federal actions within or outside a national marine sanctuary, including activities that are authorized by licenses, leases, and permits, are likely to harm sanctuary resources. If the Secretary finds that the activity is likely to injure a sanctuary resource, the Secretary recommends reasonable and prudent measures that the federal agency can take to avoid harm to the sanctuary resource. If the measures are not followed and sanctuary resources are destroyed or injured, the NMSA requires the federal agency that issued the permit to restore or replace the damaged resources. National Historic Preservation Act The National Historic Preservation Act (NHPA) is another procedural statute. Under Section 106 of NHPA, federal agencies must determine whether actions they may permit or license will have adverse effects on properties listed or eligible for listing in the National Register of Historic Places. Such sites could include shipwrecks, prehistoric sites, or other cultural resources. Federal agencies must determine whether such resources may be affected in consultation with state and/or tribal historic preservation officers. . Fish and Wildlife Coordination Act The Fish and Wildlife Coordination Act requires federal agencies to consult with FWS, NMFS, and state wildlife agencies when activities that are authorized, permitted, or funded by the federal government affect, control, or modify waters of any stream or bodies of water. Consultation generally is incorporated into the process of complying with other federal permit requirements, such as the NEPA and CWA. Other Authorizations and Approvals The Coast Guard has authority to control private aids to navigation in U.S. waters. Regulations require structures such as aquaculture facilities be marked with lights and signals for protection of maritime navigation. To establish a private aid to navigation, the applicant would need formal authorization from the appropriate U.S. Coast Guard district. The Bureau of Safety and Environmental Enforcement (BSEE) has regulatory responsibility for the offshore energy industry on the outer continental shelf. BSEE would review aquaculture applications and provide comments regarding potential conflicts, interactions, or effects on mineral exploration, development, and production operations. The Bureau of Ocean Energy Management (BOEM) manages development of the outer continental shelf energy and mineral resources. BOEM would require a right-of-use easement for any offshore aquaculture operations that uses or tethers to an existing oil and gas facility. Environmental Concerns One of the main features of many previous aquaculture bills has been consideration of environmental protection and monitoring of offshore aquaculture facilities. Critics of offshore aquaculture have expressed concern with potential environmental degradation and conflicts with existing uses of marine areas. They cite historic problems in inshore areas—such as escapes of cultured organisms, the introduction of disease and invasive species, pollution in areas adjacent to net pens, and habitat loss—which have created a negative perception of aquaculture. Aquaculture supporters assert that those who oppose marine aquaculture lack an understanding of aquaculture's benefits and risks and that "these perceptions persist despite significant scientific literature that contradicts the extent or existence of risk to the values that these groups want to protect." Supporters contend that, in many parts of the world, a combination of farming experiences, technological advances, proper siting, and industry regulation has decreased environmental impacts and improved efficiency of marine aquaculture. Some researchers suggest that by moving operations offshore and selecting appropriate sites, the remaining impacts can be further reduced. Others add that offshore waters would be less prone to environmental impacts than inshore waters because fish wastes and other pollutants would dissipate more rapidly in the deeper and better-flushed offshore areas. A present lack of knowledge—owing to limited experience and few studies focusing specifically on offshore aquaculture—limits understanding of potential harm to the environment from offshore aquaculture. Most information has been collected from inshore areas, where salmon net pens and other types of aquaculture farms have been established. Some characteristics of inshore operations are similar to those that would be established offshore (e.g., both are open to the surrounding environment); however, other characteristics of offshore operations, such as offshore currents, wind and waves, water quality, and depth, are likely to differ from inshore areas. Generally, the outcomes associated with offshore aquaculture development depend on characteristics of aquaculture sites and how technology is employed and managed. Over the years, researchers have identified several issues related to marine aquaculture and the use of net pens in inshore areas. These issues include water pollution from uneaten feed and waste products (including drugs, chemicals, and other inputs); habitat degradation, such as alteration of benthic habitat from settling wastes; sustainability of fish used in aquaculture feeds; use of antibiotics and other animal drugs; introduction of invasive species; escape of cultured organisms; and the spread of waterborne disease from cultured to wild fish. During the last two decades, technical advances and farming practices have reduced these impacts in nearshore areas. Existing laws and regulations also have established performance standards and addressed many of the potential adverse environmental effects of net pen aquaculture. Fish Waste Fish feed is the main source of waste from aquaculture and contributes to most environmental impacts associated with aquaculture. The discharge of wastes, such as unused feed, and metabolic fish wastes, such as nitrogen (ammonia and urea), has been an ongoing concern because of potential effects on water quality and degradation of the seafloor environment under net pens. Treatment of effluent is not feasible because wastes are discharged directly into the ocean through net enclosures. Impacts on the environment depend on a variety of factors, such as feed quality, digestion and metabolism, feeding rate, biomass of fish, and species. Site characteristics such as cage design, depth, currents, existing water quality or nutrient levels, and benthic features also influence nutrient dispersion and impacts. Impacts on water quality in the water column adjacent to net pens are often related to a combination of increases in nitrogen, phosphorus, lipids, and turbidity and depletion of oxygen. Eutrophication may occur when net pens are placed at high densities and flushing of semi-enclosed water bodies is poor. According to studies, aquaculture's contribution to nitrogen in areas adjacent to net pens ranged broadly from none to significant levels depending on a variety of factors, including environmental characteristics and species. In some cases, it appears that nutrients are flushed away from the immediate cage area to the surrounding water body. Management practices such as choosing sites with adequate current and depth are likely to improve circulation and dissipation of waste products. Solid feed and fish waste descend through the water column and may accumulate on the bottom below and around aquaculture facilities. In some cases, wastes accumulate at rates greater than the assimilative capacity of the environment, and the increase of respiration from microbial decomposition decreases oxygen levels (hypoxia) and changes sediment chemistry. This may cause hypoxia in sediments and the water overlying the bottom, which may in turn affect the abundance and diversity of marine organisms in the area. Reviews have identified changes to sediment chemistry as one of the primary impacts of marine aquaculture in the United States. Over the last several decades, harmful environmental impacts have been reduced because of advances in technology, improved facility siting, better feed management, and stricter regulatory requirements. Feed formulations have been modified to improve digestibility without losses in growth. When feed is more fully digested, the amount of waste (nutrient) outputs per unit of fish produced is reduced and fewer solid wastes and nutrients are released to the environment. Modifying feeding practices also has reduced the loss of uneaten food. Some facilities now use underwater devices to monitor feeding to avoid overfeeding and waste. Environmental monitoring also informs farmers and regulators of the need to leave a site fallow or to adjust feeding. Some researchers and aquaculturalists have proposed the use of multi-tropic aquaculture by adding other organisms such as invertebrates and seaweeds to the aquaculture system. The system would mimic natural tropic relationships, where wastes from cultured organisms are food for other organisms, such as shellfish, and supply nutrients for seaweed. These additions could lessen environmental impacts from nutrients and increase the efficiency of feed utilization. Proponents suggest that offshore aquaculture may produce fewer and less severe environmental impacts than those caused in nearshore areas. They hold that open ocean waters are normally nutrient deficient, and nutrients released from offshore aquaculture operations would likely dissipate. Critics question whether experiences with experimental facilities are relevant to future commercial operations, which may need to operate at larger scales to be profitable. Generally, environmental impacts are likely to vary depending on management and culture techniques, location, size and scale, and species. Fish Diseases Fish diseases are caused by bacteria, viruses, and parasites that commonly occur in wild populations. Aquaculture production is vulnerable to mortality associated with fish diseases, and serious losses have occurred. Disease outbreaks cost the global aquaculture industry an estimated $6 billion per year. Starting in 2007, the Chilean aquaculture industry suffered the worst disease outbreak ever observed in salmon aquaculture. The outbreak of infectious salmon anemia virus cost the industry 350,000-400,000 mt of production and $2 billion. Net pens are open to the marine environment, so pathogens may pass freely as water moves through net pen enclosures. Cultured organisms are often more susceptible to diseases because fish are kept at higher densities, which increases the rate of contact among fish and may induce stress. Research suggests that fish pathogens may be transferred from farmed to wild fish and that non-native pathogens may be introduced when fish are moved from different areas. Some fish farmers counter that more disease problems originate in wild populations, where reservoirs of disease naturally exist and are subsequently transferred to cultured organisms. For example, some researchers have identified sea lice as a serious problem for Atlantic salmon farming because of lost production and the costs of disease management. Studies demonstrate that high host densities in net pens promote transmission and growth of the parasite. It has been hypothesized that sea lice may be spread from salmon in net pens to wild counterparts that are passing in adjacent waters. Some assert that sea lice have harmed wild salmon populations migrating near infested salmon farms. Studies have shown that transmission is initiated from wild to cultured fish, and then the lice are transmitted back to wild salmon hosts. The extent of the impact on wild salmon is a matter of debate, because many different factors affect salmon population abundance. However, a recent study concluded that "Atlantic salmon populations are already under pressure from reductions in marine survival and the addition of significant lice-related mortality during the coastal stage of smolt out-migration could be critical." Sea lice control and prevention strategies have included the use of approved therapeutants (aquaculture drugs) and fallowing of sites between production cycles. Drugs and Other Chemicals Various drugs have been used to treat and prevent the occurrence of disease, including disinfectants, such as hydrogen peroxide and malachite green; antibiotics, such as sulfonamides and tetracyclines; and anthelmintic agents, such as pyrethroid insecticides and avermectins. Antibiotics are used to control bacterial diseases and are sometimes introduced to cultured fish in their feed. Drugs also are used to aid in spawning, to treat infections, to remove parasites, and to sedate fish for transport or handling. Viral diseases are managed by monitoring and focusing on management practices, such as lowering stress, selecting organisms with greater resistance, and providing feed with proper nutrients. However, in some cases it is necessary to depopulate farms to stop the spread of the disease. The Food and Drug Administration (FDA) is responsible for approving drugs used in aquaculture. The drug must be shown to be safe and effective for a specific use in a specific species. Only drugs approved by the FDA Center for Veterinary Medicine may be administered to aquatic animals. Drug withdrawal periods and testing are required to prevent the sale of fish that contain drug residues. The USDA Animal and Plant Health Inspection Service is responsible for controlling the spread of infectious diseases and requires an import permit and health certificate for certain fish species. Many states also have animal health regulations to prevent disease introductions and manage disease outbreaks. Aquaculture drugs such as antibiotics that are used to treat marine finfish may be transferred to open water environments when unconsumed feed or fish wastes pass through net pen enclosures. Extensive use of these agents may result in the development and spread of bacteria that are resistant to antibiotics. The use of many of these drugs reportedly is declining, as vaccines eliminate the need to treat bacterial diseases with antibiotics and other drugs. Examples include salmon farming in Norway, where antibiotic use has decreased by 95%, and in Maine, where antibiotics are now rarely used. Proponents of offshore aquaculture suggest that, because of the more pristine and better oxygenated water conditions offshore as compared to many inshore areas, the occurrence of fish diseases could be lower for offshore aquaculture. Escapes, Genetic Concerns, and Invasive Species The escape of organisms from aquaculture facilities, especially non-native species, is another environmental concern related to aquaculture. This issue might arise if genetically selected or non-native fish escape and persist in the wild. Historically, non-native species have been used in aquaculture, sometimes resulting in long-term environmental harm. For example, Asian carp such as silver, bighead, and grass carp were introduced to the United States from Asia to improve water quality of freshwater aquaculture ponds and waste treatment ponds. These species are now found in most of the Mississippi drainage area, and they have affected the basin's aquatic ecology and harmed species such as freshwater mussels and native fish. Genetic diversity could be affected if hatchery-raised fish spawn with wild conspecifics (wild fish of the same species). Interbreeding could result in the loss of fitness in the population due in part to the loss of genetic diversity. Genetic risks would depend on the number of escapes relative to the number of wild fish, the genetic differences between wild and escaped fish, and the ability of escaped fish to successfully spawn in the wild. There are also concerns that non-native fish could become established in the wild and compete with wild fish for food, habitat, mates, and other resources. Experiences with farmed Atlantic salmon may provide some insight regarding escape of farmed fish both within and outside their native ranges. Atlantic salmon have escaped from farms in the Pacific Northwest (outside their native range) and have been recaptured in Alaskan commercial fisheries. In 2017, over 100,000 Atlantic salmon escaped from facilities owned by Cook Aquaculture off Cypress Island, WA. Many of the escaped fish were recovered, and fishery managers assumed the remaining fish were unable to make the transition to a natural diet. In British Columbia, escaped Atlantic salmon have spawned and produced wild-spawned juvenile Atlantic salmon, but it is uncertain whether they have established self-reproducing breeding populations. Within the range of Atlantic salmon, farmed salmon have been found on spawning grounds during the period when wild Atlantic salmon spawning occurs. Domestication of farmed salmon has changed their genetic composition and reduced genetic variation. These changes have occurred because limited numbers of brood fish are used for spawning farmed fish and farmers select for specific traits. Much present-day farm production of Atlantic salmon is based on five Norwegian strains. Farmed and wild hybrids and backcrossing of hybrids in subsequent generations may change genetic variability and the frequency and type of alleles present in wild populations. The extent and nature of these changes to genetic variability may affect survival (fitness) of these populations. Changes in the genetic profiles of wild populations have been found in several rivers in Norway and Ireland, where interbreeding of wild and farmed fish is common. Large-scale experiments in Norway and Ireland show highly reduced survival and lifetime success rates of farmed and hybrid salmon compared to wild salmon. Some researchers have concluded that further measures are needed to reduce the escape of salmon from aquaculture farms and their spawning with wild populations. Researchers and managers have made several recommendations to decrease the risk of invasive species introductions and the loss of genetic diversity. There appears to be common agreement, as in the case of the Gulf of Mexico FMP, that only native species should be farmed. To decrease genetic risks associated with escapes, farmers might be required to use wild broodstock with a genetic makeup that is similar to local wild populations. However, by using this approach, farmers may forgo benefits of selective breeding. Another approach might involve the use of sterile fish created through techniques such as hybridization, chemical sterilization, polyploidy, and others. However, these methods are not always 100% effective and the approach may increase costs of production. Interactions with Other Species Interactions between aquaculture operations and marine wildlife may occur when predators in search of food are attracted to aquaculture facilities or if aquaculture sites overlap with the ranges or migration of marine species. These interactions are common in Chile, British Columbia, and Norway, where marine mammals and birds often are attracted to salmon farms. Most interactions are seasonal and involve sea lions, seals, and otters, as well as seabirds such as sea gulls and cormorants. Predation can result in loss of fish, damage to equipment, and stress to fish. Deterrence measures seek to address these concerns; for example, predator nets may be placed outside the main net to stop marine mammals directly accessing the net pen. Some farms also install bird nets over net pens to protect fish from bird predation. When nonlethal measures fail, sea mammals are sometime culled. Offshore facilities could affect some endangered species as they migrate or alter essential habitat for feeding, breeding, and nursing. Information on incidental entanglement and mortality is limited, because of the small number of facilities working in offshore areas. NOAA recently investigated longline aquaculture gear that might be used for mussel culture and found that interactions are rare. However, researchers questioned whether the small number of interactions indicates that this type of aquaculture is benign or is due to the failure to detect and report interactions. Minimizing impacts on protected species may require monitoring and research into natural interactions between predators and prey. Management strategies might involve preventive measures, such as spatial planning and aquaculture gear modifications. Wild fish also are sometimes attracted to net pens to consume feed that has fallen through net pen enclosures. The attraction of wild fish may provide a benefit, because their consumption of feed may lessen environmental impacts such as the release of nutrients or deposits of feed near net pens. At the same time, it could have negative impacts, such as the transfer of diseases from farmed to wild fish or from wild to farmed fish. Impacts related to changes in wild fish physiology from the ingestion of feed and changes in the distribution of wild fish are unknown. Aquaculture Feeds and Related Issues Fish feed is a critical input, because it must provide all of the essential nutrients and energy needed to meet the cultured organism's physiological requirements. The supply and use of aquaculture feed are directly related to the economic viability of aquaculture operations, fish growth and health, environmental quality, ecological concerns, and human nutritional benefits from aquaculture products. Fish meal and oil are used to produce feed for carnivorous species such as salmon, because these ingredients provide nutritional requirements that are similar to those found in the wild. Aquaculture feeds must have a composition that maintains growth and fish health while balancing the costs of feed components against the value of outputs associated with fish growth. Researchers note that future aquaculture production is likely to be constrained if feeds are limited to sources of fish meal and oil, which require wild fish production and fish processing wastes. Research efforts have focused on the use of fish meal and oil substitutes that are derived from terrestrial plants. Plant meal and oils now supply the bulk of feed ingredients, but they are not a perfect substitute and, in many cases, fish meal and oil are still an important component of most fish feeds. Feed Production and Use Nutritional requirements and feed composition vary according to species, the life stage of the organism (e.g., larvae, fry, fingerlings, adults), and management objectives. Fish feeds are formulated to provide a mixture of ingredients, such as proteins, lipids, carbohydrates, vitamins, and minerals, which provide the greatest growth at the lowest cost. Historically, fish meal and oil have been principal ingredients of many aquaculture feeds, because these ingredients have been a cost-effective means of providing the nutritional requirements of many cultured species. Fish meal and oil are obtained from reduction fisheries that target small pelagic species such as anchovies, capelin, herring, and menhaden and from fish processing wastes of wild and aquaculture products. Reduction fisheries target species that are generally less valuable than those used for human consumption. The fish are heated and pressed to obtain fish oil and milled and dried to produce fish meal. Since 2006, the annual world supply of fish meal has ranged from 4.49 mmt to 5.86 mmt and the supply of fish oil has ranged from 0.86 mmt to 1.08 mmt. In 2016, the United States produced 253,600 metric tons (mt) of fish meal and 80,500 mt of fish oil, approximately 5% and 8% of global production, respectively. Reduction fisheries supply approximately 70% of fish meal and fish oil, with the remainder obtained from fish processing wastes. In the last 20 years, global production of fish meal and oil has declined in part because of increasing use of fish from reduction fisheries for direct human consumption and tighter quotas and controls on unregulated fishing. The global decrease in total fish meal production has occurred despite increasing production of meal and oil from fish processing wastes. Conversion of Aquaculture Feed to Fish Flesh Researchers have found that fish meal (protein) and fish oil (lipids) are important ingredients for fish growth. Most feeds are formulated to increase efficiency by using high-energy lipid to allow for greater conversion of dietary protein into fish muscle. In addition to fish protein and oil, fish feeds may include plant proteins, terrestrial animal protein, carbohydrates, moisture, ash, vitamins, and minerals. In comparison to other animals, fish are relatively efficient in converting fish feed to flesh. For example, feed conversion ratios for Atlantic salmon are approximately 1.15 (approximately 1.15 kilograms [kg] of dry feed are used to produce 1.0 kg of salmon flesh [wet]). In 2013, salmon fish feed used on Norwegian farms consisted of approximately 18% fish meal and 11% fish oil. The amount of marine fish protein and oil needed to produce a unit measure of seafood such as salmon has been decreasing with the use of plant-based substitutes. The "fish in fish out" ratio is the amount of wild fish needed to produce the fish meal and fish oil required to produce one kilogram of farmed fish. The ratio of "fish in to fish out" varies according to the nutritional requirements of different species, with higher ratios for carnivorous fish such as eels (1.75) that are fed higher fish protein and fish oil diets and lower ratios for omnivorous fish such as tilapia (0.18). When aggregated across species, worldwide aquaculture is a net producer of fish protein, with estimates ranging from 0.22 kg to 0.5 kg of wild marine fish used to produce a kilogram of farmed seafood. Substitutes for Fish Meal and Oil Over the last two decades, research on fish dietary requirements has contributed to progress in developing substitutes for fish meal and oil from terrestrial plant ingredients and other potential sources, such as marine algae. This has led to reductions in the use of fish meal and oil as ingredients in fish food. Terrestrial plant meal and oils now supply the bulk of feed ingredients for most fish species. The focus of research has been on plant protein and oil sources such as soy, canola, sunflower, cottonseed, and others. For example, the Norwegian salmon industry has reduced the content of fish meal and oil in fish feed from over 60% to less than 25% by using plant proteins and oils. In spite of decreasing global production of fish oil and meal, use of plant-based substitutes has allowed production of feeds for all aquaculture to expand at 6% to 8% per year. Increasing demand and a limited supply of fish meal and oil have caused prices to triple for these ingredients in recent years. These price increases are likely to continue, because production is generally limited to supplies from wild sources. The cost of aquaculture feeds accounts for approximately 50% of net pen aquaculture operating costs. Limited wild supplies and rising feed costs have encouraged researchers and aquaculturalists to improve feeding techniques to reduce waste, modify feed formulations, use alternatives such as waste from fish-processing plants, and investigate new sources. Substitution has become more attractive, as the prices of fish meal and oil have risen faster than the prices of plant proteins and oils. Fish can be cultured with substitutes for fish meal and oil, but the commercial use of substitutes depend on whether the lower costs of the substitute can offset losses associated with lower growth rates, less disease resistance, and inferior nutritional value of aquaculture products. Although significant progress has been made in using plant protein and oil substitutes for fish feeds, there are still limitations to their use. In the near future, some fish meal and oil will still be needed in feed formulations. Plant meals are deficient in certain essential amino acids and contain fiber, carbohydrates, and certain antinutritional factors, which can adversely affect absorption, digestion, and growth. Nutritional quality of plant proteins can be improved through chemical and mechanical processing, which can reduce certain antinutrients and concentrate protein. Plant oils are an excellent source of energy, but they do not contain omega-3 fatty acids (eicosapentaenoic acid [EPA] and docosahexaenoic acid [DHA]). These fish oils have been found to improve immune responses and fish health generally. Fish species have differing tolerances to diets without certain fatty acids, which appear to be related to their natural diet. The use and substitution of plant protein and oils is likely to increase with further research into alternatives and as prices of fish meal and oil increase. Fish Health Proper feed formulations also are essential to promote fish health and prevent disease outbreaks. When fish are farmed at high densities, good nutrition tends to reduce stress, decrease the incidence of disease, and boost immune systems. A deficiency in any required nutrient may impair health by affecting the organism's metabolism and increasing susceptibility to disease. Research has shown that the use of plant oils and the ratio of different fatty acids can affect the immune response in fish. Dietary additives of immunostimulants, probiotics, and prebiotics have been found to increase immunity, feed efficiency, and growth. An ongoing challenge is to improve knowledge and commercial application of feed formulations, especially for nutrimental requirements of newly domesticated species. Human Health and Preferences The human health benefits of seafood are widely recognized because fish species contain high-quality protein, oils, minerals, and vitamins. Some research has found that diets that include omega-3 fatty acids enhance early brain and eye development and reduce heart disease and cognitive decline later in life. Feeds with plant-based substitutes can affect the quality of seafood products because these alternatives lack the fatty acids that are beneficial to human health. Farmed fish products that have been fed plant substitutes for fish oil may have lower concentrations of beneficial fish oils in their flesh. Two potential ways to reduce the use of fish oils in feed while maintaining high levels of omega-3 fatty acids in fish are (1) to develop genetically modified plants, fungi, or microbes to produce DHA and EPA for use in fish feeds or (2) to grow fish on low fish oil diets in the beginning of the production cycle and boost the omega-3 fatty acids in fish diets to raise their levels at the end of the production cycle. There also are growing public health concerns about persistent organic pollutants, such as polychlorinated biphenyls (PCBs), and inorganic contaminants, such as heavy metals, in farmed fish. The accumulation of contaminants varies by location and associated sources of pollutants. It can occur in both wild and farmed fish. Fish fed with fish meal and oils may accumulate contaminants from marine sources. Several studies have reported elevated levels of contaminants in feeds and farmed Atlantic salmon flesh. An advantage of using plant protein and oil is the potentially lower contaminant levels than those found in some wild seafood products. Several studies have found that replacing fish protein and oil with plant-derived material lowered the level of contaminants significantly. Consumer perceptions of changes in the quality of fish raised with substitute feeds also may affect acceptance of aquaculture products. There are widely held beliefs regarding the composition and health benefits of farmed and wild fish. Studies have shown that there are differences in taste and texture of fish farmed with alternative proteins and oils, but consumer preference studies have yielded mixed results. Public perceptions of aquaculture products also include concerns with the use of therapeutants such as antibiotics and the crowding and industrial nature of fish farming. Sustainability Concerns Some stakeholders have described the use of fish meal and oils for aquaculture feeds as an issue related to the sustainability of forage species and marine ecosystems. More than 30% of global fish production and a large portion of fish meal and oil used for aquaculture feeds (75%) is derived from the harvest of forage species, such as herring, anchovies, capelin, and menhaden. Fatty acids are produced by marine algae (phytoplankton), consumed and concentrated in fish that consume algae, and transferred to organisms higher in the food chain that consume forage species. As stated earlier, forage species have a relatively low economic value, and most are not marketed for direct human consumption. However, their biomass is relatively large because they feed at somewhat low tropic levels, and they can be caught fairly easily in large volumes because they are schooling species. Forage species serve as prey for higher tropic level fish species such as tuna, cod, and striped bass, marine mammals, and marine birds. Aquatic ecologists question whether aquaculture demand and increasing prices may encourage higher levels of fishing pressure and cause or continue overfishing of forage fish populations. Management of wild fish stocks is improving in many parts of the world, and many stocks are now considered to be well managed. However, some researchers have concluded that fishing for forage species should be limited to relatively low levels, because forage species are needed to support production of other marine species. Research using ecosystem models suggests that forage fish should be fished at lower rates to benefit the ecosystem rather than at rates that would provide long-term maximum yield. One report recommended that catch rates should be reduced by half and biomass of forage fish should be doubled. However, other researchers have questioned whether there is a strong connection between forage fish abundance and the abundance of their predators; they conclude that harvest policies for forage species need to be guided by a variety of factors that recognize the complexities of fisheries and ecosystems. Economics, International Conditions, and Stakeholder Concerns Increasing demand for seafood, advances in aquaculture methods, and increases in global aquaculture production have led many observers to take an optimistic view of potential offshore aquaculture development in the United States. Nevertheless, the future of offshore development is uncertain because of the paucity of experiences in establishing and managing U.S. offshore aquaculture facilities. Greater regulatory certainty may encourage U.S. offshore development, but economic viability will determine whether the industry expands and produces significant quantities of seafood. The viability of offshore aquaculture in the United States is likely to depend on future developments, such as further technical advances, economic conditions, and social and political acceptance. Another economic consideration for policymakers is how to integrate policies that recognize the potential costs (externalities) of environmental harm that may be caused by offshore aquaculture and are not captured by markets. In addition to economics, user conflicts and related political factors are likely to play a role in the potential development of an offshore industry. Factors Related to the Economic Viability of Offshore Aquaculture The economic potential of offshore aquaculture will depend on the prices of seafood products and the cost to produce them. The following discussion identifies some of the factors that will determine whether offshore aquaculture may be profitable. Demand The quantity demanded for an aquaculture product is a function of price—each point along the demand curve is the quantity that consumers are willing to buy at a specific price. Consumers are generally willing to buy less product at higher prices and more product for lower prices. A change in demand, a shift of the demand curve, depends on a variety of factors, such as changes in income, prices of substitutes (domestic wild fish) and complements, and consumer tastes and preferences. Offshore aquaculture production will compete with a variety of other protein products, such as imported seafood; domestically produced wild fish; and agriculture sources such as chicken, pork, and beef. Generally, demand for seafood products is rising both globally and domestically because of increasing population levels and incomes. The health benefits of seafood are also influencing changes in consumer preferences, with general movement away from traditional protein sources such as beef. Other types of domestic marine aquaculture production, such as land-based and inshore aquaculture, may compete with offshore aquaculture, but currently these activities provide a relatively small portion of the seafood consumed in the United States. Domestic sources of seafood may increase marginally as some overfished stocks recover, but most domestic fisheries are already at or near their natural limits. Some have reported that offshore aquaculture could produce a higher-quality product because of the constant flow of clean water through net pens. If it can be shown that offshore products contain fewer toxin residues or if offshore products can be raised without aquaculture drugs, these products may become more attractive to health-conscious consumers. The FDA Seafood Safety Program and the NOAA Seafood Inspection Program also may reassure U.S. consumers of the safety and quality of domestic seafood, including seafood produced by offshore aquaculture. These factors may allow offshore producers to differentiate their products and receive higher prices relative to imports or other domestic seafood, especially in niche markets. Supply The amount of seafood that aquaculturalists will be willing to produce at a given price depends on production costs. Economic conditions determine the costs of labor, hatchery supplies for stocking, feed, maintenance, and other inputs. For most aquaculture operations, the bulk of costs are for feed and stocking of early life stages, such as finfish fingerlings or oyster seed. Fixed costs include equipment depreciation, insurance, taxes, and lease payments. Shifts in supply result from changes in input prices, which also may be affected by technology, weather conditions, and other influences. At the level of individual farms or facilities, most costs are not set and often depend on short-run and long-run choices of the aquaculturalist. For example, in the short run, the producer may change feed quality and quantity, harvest intervals, or stocking rates, while in the longer term she may change species, location, technology, and scale. Costs to produce seafood in offshore aquaculture facilities are likely to be higher than costs in inshore areas, because of the need for more resilient cage materials and construction, shore-side infrastructure, specialized vessels, and automation of facility systems. The location of offshore aquaculture facilities also is likely to increase costs for fuel, monitoring, harvest, and security. According to the Food and Agriculture Organization, offshore facilities operating at distances of greater than 25 nm from shore are unlikely to be profitable, because costs increase with distance from shore. Some have speculated that offshore facilities will need to take advantage of economies of scale because of the relatively high costs of transporting materials between inshore and offshore facilities. Operating large-scale operations will require new coastal facilities and networks to supply and transport feed, construction materials, fingerlings, and harvested fish. Logistics networks to supply these inputs would need to be developed in coastal areas, where "working waterfronts" are already threatened due to competing uses and the relatively high cost of coastal real estate. These startup costs may exclude smaller producers who may not have access to the capital and resources needed to establish large-scale operations. Financial risk, generally the probability of losing money, is another factor that is related to potential viability of offshore aquaculture and may affect the availability of capital and insurance. Risk is defined as uncertain consequences, usually unfavorable outcomes, due to imperfect knowledge. Assessing risk for offshore aquaculture is complicated by different species, technologies, site characteristics, and the lack of experience working in offshore areas. Risks may be greater in offshore than inshore areas because of the threat of severe weather conditions and exposed offshore environments. Attracting investment may be difficult because offshore aquaculture is a new industry with limited experiences for investors to evaluate. As risk and uncertainty increase, generally, a greater revenue stream is required to justify the same level of investment. Known risks can be reduced by decreasing the probability of adverse outcomes, such as by using stronger materials to build more resilient structures. The cost of reducing risks must be weighed against the probability and magnitude of potential losses. Another approach to reducing risk is through insurance. Insurance transfers risk from the producer to the insurance underwriter through payments of insurance premiums. The cost of insurance premiums may be higher for offshore than inshore areas because of greater uncertainty and potentially higher risks of losses for offshore facilities. Private Benefits and Externalities The previous discussion of supply and demand considers private costs of production that are borne by the producer. Policymakers are concerned with a broader definition of costs that may affect individuals who are not involved in the aquaculture business—often referred to as externalities . Externalities are defined as spillover costs or benefits, which are unintended consequences or side effects associated with an economic activity. For example, commercial fishermen may be harmed by habitat degradation caused by pollution from aquaculture because of associated declines of wild populations. When externalities are not considered, markets become inefficient because more of a good or service is produced than when the externality is fully considered. The recognition of externalities is another way in which policymakers can examine the tradeoffs related to the private benefits from aquaculture production and the environmental harm caused by the activity. In the case of offshore aquaculture, external costs may be associated with environmental harm from pollution, escaped organisms, disease transmission, and other effects. The existence of externalities means that policymakers may need to consider whether and to what degree the government should intervene to account for these costs. Intervention may involve regulatory measures that minimize externalities while maximizing benefits associated with the industry (e.g., fish production). Decisions related to site selection, technology, and facility operations are likely to be some of the main factors that determine the level of offshore aquaculture externalities. International Factors and Domestic Experiences Trade DOC has expressed concern with increasing U.S. imports of seafood products. According to NMFS, 80%-90% of the seafood consumed in the United States is imported. International trade in seafood has grown over the last several decades. The value of seafood trade is now more than twice the trade of meat and poultry combined. Relatively high-value seafood from wild fisheries and aquaculture dominates imports. In 2017, the United States imported approximately 2.7 mmt of edible seafood valued at $21.5 billion. After accounting for exports valued at $5.7 billion, the value of imports was $15.8 billion greater than exports of edible seafood products. Approximately half of seafood imports are cultured. The two main imported products are farmed shrimp and salmon. In 2017, shrimp accounted for $6.5 billion and salmon accounted for $3.5 billion of U.S. seafood imports. Supporters of offshore aquaculture assert that development of offshore areas and associated increases in seafood production could reduce the U.S. deficit in seafood trade. The Department of Commerce Strategic Plan states that, "a strong U.S. marine aquaculture industry will serve a key role in U.S. food security and improve our trade balance with other nations." Some may counter that the seafood trade deficit is not a good reason to support development of the aquaculture industry. Cultured salmon and shrimp imports have lowered prices and, therefore, the profits of domestic wild fisheries and aquaculture producers, but U.S. consumers have benefited from lower salmon and shrimp prices. According to economic theory, countries gain from trade when they specialize in products that they are best at producing. If other countries have an absolute or comparative advantage in aquaculture, the United States would likely benefit from supporting other industries. Advocates of aquaculture note that the United States has advantages compared to other countries because of its extensive coastline and EEZ, skilled labor, technology, domestic feed production, stable government and economy, and large seafood market. Others counter that U.S. federal waters are exposed to high winds and wave action for large parts of the year, whereas other parts of the world have readily available inshore areas and calmer offshore waters that could be developed, as well as lower labor costs. Overall operating costs and environmental standards for aquaculture in other countries are often lower than in the United States. Some have speculated that costs of inputs such as labor and less strict regulations provide producers outside the United States with an insurmountable competitive advantage. Other observers stress that costs may be lower in other countries, but if prices are high enough, U.S. producers may still be able to operate profitably. Domestic producers also have some advantages, such as a large and relatively wealthy market and lower shipping costs than those for imports. The government sometimes provides government-sponsored trade protections such as tariffs or import quotas to new industries. Protection may be rationalized by an infant industry that claims it requires time to overcome short-term cost disadvantages. Cost disadvantages may be related to the need to become more efficient by constructing new facilities, training workers, and installing new equipment. In these cases, tariffs would act as a subsidy that increases the domestic price of the good. When the industry becomes more efficient, the tariff would expire. However, as the industry becomes larger and more politically powerful, it may become difficult to remove the tariff. U.S. Experiences U.S. aquaculture production from inshore marine areas and freshwater ponds and raceways is small relative to global production levels. The bulk of U.S. aquaculture production is from freshwater catfish, crayfish, and trout. Catfish production increased from 62,256 mt in 1983 to its peak of 300,056 mt in 2003. Factors that have supported the industry's development include research and development, marketing efforts, industry leadership, and vertical integration. However, production decreased from 215,888 mt in 2009 to 145,230 mt in 2016. An increase of pangasius (an Asian catfish) and tilapia imports has contributed to lower prices, which have contributed to decisions by less profitable catfish farms to take acreage out of production. Salmon is the only marine finfish with significant U.S. marine aquaculture production, but it has struggled to compete with relatively inexpensive imports from Norway, Chile, and Canada. These countries are endowed with protected coastal areas such as fjords or bays where net pens may be deployed. Although environmental regulations and limitations on inshore leases may have affected U.S. salmon aquaculture production, stagnant prices and competitive imports also appear to have played a role. There is room for expansion of inshore net pen salmon aquaculture in areas of Maine, Washington, and Alaska. However, many residents in these areas do not support establishing or expanding net pen aquaculture because of environmental concerns and potential impacts on existing fishing industries. The ban on finfish aquaculture in Alaska and regulatory constraints in other states reflect these concerns. Offshore Development in Other Countries Currently, nearly all worldwide marine aquaculture production is from relatively well-protected inshore waters. Countries in the forefront of efforts to move offshore have experience with inshore aquaculture and with aquaculture industries that are characterized by relatively large investments in vertically integrated firms. Norway and China are the two largest investors in offshore aquaculture development, but neither country has facilities that are operating commercially. Their efforts have focused on developing structures that can withstand harsh offshore conditions and operate at scales that may offset the higher costs of offshore areas as compared to inshore areas. Norway's industry already has extensive experience with inshore salmon aquaculture industry and is a leader in developing technology needed to move farther offshore. Norway has granted development licenses in offshore waters, and Norwegian companies are experimenting with different offshore concepts. Although there has been significant investment in offshore aquaculture in Norway, it is unclear whether these concepts will be profitable. It appears that long-term business strategies are still focused on inshore waters. Offshore aquaculture facilities are also under development in other countries, including Mexico, Panama, and Turkey. The characteristics of specific regions also may offer advantages, as some believe future development will occur in the calm water tropical belt between 10°N and 10°S. One former offshore aquaculture farmer believes future investment will focus on new species in tropical and subtropical regions. It appears that growth of marine aquaculture may take different approaches in different parts of the world, with further increases in production from proven nearshore areas and research and development of potential land-based and offshore areas. Generally, movement offshore is likely to occur if seafood demand continues to increase and suitable nearshore areas are occupied or constrained by other factors. Stakeholder Concerns and Aquaculture Development Some stakeholders have expressed concerns about offshore aquaculture that include environmental degradation, competition for ocean space, and market interactions between wild fishery and aquaculture products. Historically, user conflicts associated with aquaculture have occurred in inshore areas where oceans activity and use are more intensive. For example, some fishermen oppose aquaculture and perceive it as competition that lowers prices and fishing revenues. Most interactions are characterized as conflicts, but in some cases synergistic relationships may emerge. Environmental concerns have been among the most controversial elements of the aquaculture debate, including expansion of aquaculture into offshore waters. Generally, environmental and commercial fishing interests have been opposed to plans for offshore aquaculture development because of potential harm to marine resources. They have asserted that poorly regulated inshore aquaculture development has degraded the environment and harmed wild fish populations and ecosystems. Concerns identified by these stakeholders include pollution, the use of wild species for fishmeal, fish escapement, threat of disease and parasites, harm to marine wildlife, and general impacts on marine ecosystems. Most commercial fishing and environmental interests advocate a precautionary approach. Industry supporters and aquaculturalists respond that research, innovation, and management practices have reduced or eliminated environmental risks. Generally, aquaculturalists assert that many previous environmental concerns have been addressed and that long-term aquaculture production relies on maintaining a clean and productive environment, an objective that environmental and fishing industry advocates also hold. Some also view offshore aquaculture as an additional means to support the domestic seafood industry, which has decreasing levels of employment in many regions. Some have noted that synergistic effects might support infrastructure and services such as docks, cold storage, and processing facilities that benefit both wild fishing and aquaculture. Seafood imports from aquaculture production have affected seafood markets and coastal communities, such as salmon fishermen in Alaska and shrimp fishermen in the Gulf of Mexico. Prices fell during the 1990s, as global salmon and shrimp aquaculture production and associated imports increased. This shift caused significant economic difficulties for Alaska salmon fishermen, processors, and communities. Wild salmon prices have recovered to some extent, likely due to growing consumer differentiation between wild and cultured products. Some have responded that competition will occur with or without domestic growth in aquaculture because imports of farmed products are likely to continue and grow. Other changes that have been attributed to aquaculture include accelerated globalization of the seafood industry, increased industry concentration and vertical integration, and introduction of new product forms. Marine aquaculture, especially the offshore aquaculture industry, is a small and new industry with few committed supporters and relatively little money and political influence. One observer noted that, "marine aquaculture will become politically stronger as it grows—but it is difficult to grow without becoming politically stronger." The industry also faces opposition from environmental and commercial fishing interests. Several developments will need to take place if offshore aquaculture can be expected to become established and grow into a viable commercial industry; these developments are discussed in the next section. Institutional Needs and Industry Support Regulatory Framework for Offshore Aquaculture Most stakeholders agree that a regulatory framework likely needs to be developed before establishing offshore aquaculture in U.S. federal waters. A potential framework would need to fulfill the government's public trust responsibilities while remaining flexible enough to take advantage of evolving technology and markets. Many of the basic elements of the framework would depend on legislation providing statutory authority and requirements for leasing offshore areas, agency leadership and interagency coordination, and environmental protection. A regulatory framework could provide the industry with clear and understandable requirements for aquaculture facilities while minimizing potential environmental harm. Supporters of offshore aquaculture have advocated for a permitting and consultation process that is more timely, efficient, and orderly than the existing process. Most also agree that the regulatory process should be transparent and support public involvement. Lead Agency NMFS has been the lead federal agency for marine aquaculture in inshore areas and for the potential development of offshore aquaculture. According to a 2008 U.S. Government Accountability Office (GAO) study, "there is no lead federal agency for regulating offshore aquaculture, and no comprehensive law that directly addresses how it should be administered, regulated, and monitored." Stakeholders also have supported NOAA's role in managing federal aquaculture research, including research and development of offshore aquaculture technologies. Since publication of the GAO report, NMFS has attempted to regulate offshore aquaculture under the MSA. A recent court decision, however, cast doubt on whether NOAA has the authority under MSA to regulate offshore aquaculture. Several studies have recommended that NOAA should be granted clear authority to regulate offshore aquaculture. They point out that NOAA already has authority to evaluate proposed marine activities and projects to ensure the protection of marine mammals, endangered species, and marine sanctuaries. Furthermore, NOAA is responsible for federal management of marine fisheries and essential fish habitat. Permits and Leases One of the needs for offshore aquaculture development is permitting or leasing of discrete ocean areas. Within the EEZ, the United States has sovereign rights for the purpose of exploring, exploiting, conserving, and managing natural resources, whether living and nonliving, of the seabed and subsoil and superjacent waters. The federal government grants rights to develop specific areas for specific activities in the EEZ are granted. Currently, no permitting or leasing program is specific to offshore aquaculture and leases depend on permits and consultation requirements under different laws and agencies that apply to marine activities generally. Observers generally agree that aquaculture developers will need assurances that they will have exclusive rights via leases or permits to use specific ocean areas for agreed-upon periods. A leasing system could provide aquaculturalists with clearly defined rights to ocean space including the water surface, water column, and ocean bottom. Other characteristics of a leasing system might include transferability of the lease or permit, which would allow the aquaculturalist to transfer the permit or lease and benefit from its sale or use. Stakeholders told GAO that clear rights to use specific ocean areas would be needed to obtain loans. Proponents of offshore aquaculture development stress that, without some form of long-term (at least 25 years) permitting or leasing, offshore aquaculture will have problems securing capital from traditional funding sources and obtaining suitable insurance on the capital investment and stock. The Gulf of Mexico Aquaculture Fishery Management Plan (Gulf FMP) provides a 10-year site permit and 5-year permit renewals. Aquaculture industry representatives have expressed concern that these intervals are too short because of the time it will take their businesses to become profitable. Environmentalists would prefer "shorter timeframes to ensure more frequent reviews and closer scrutiny of environmental impacts during the lease or permit renewal process." In state waters, Maine grants 10-year leases for salmon net pen aquaculture. Hawaii grants 20-year leases for permits in its waters. The public's primary concerns are likely to include minimizing harmful effects on environmental quality and conflicts among ocean uses. Most recognize that a leasing framework will require review of potential environmental impacts of offshore aquaculture. This review likely would require the preparation of a programmatic environmental impact statement (PEIS) with a follow-up site-specific environmental review before a facility might be established. A PEIS could review potential environmental impacts of offshore aquaculture over broad areas of the ocean. Aquaculturalists generally agree that this approach would be useful if it reduced the need for facility-specific reviews. Some have suggested that permits should be issued on a case-by-case basis by determining whether a specific site is appropriate for the proposed aquaculture facility. Others oppose this approach, because it could lead to an approval process that is less consistent and it could make it more difficult for regulators to assess cumulative impacts of different facilities within a region. Still others have suggested that ocean planning should identify both appropriate and prohibited areas for aquaculture. Regulators could assess potential sites for permitting aquaculture before and independently of individual permit applications. Some believe that this would make permitting more predictable and consistent. For example, the likelihood of harm to marine mammals might be decreased by limiting permits for aquaculture facilities to areas with a low risk of interactions. However, some aquaculturalists question whether regulators will choose the most viable sites for aquaculture. Conditions of Use A regulatory framework is likely to require specific conditions on the use of a site. These requirements likely will vary depending on the species and technology employed. Nevertheless, some basic requirements related to environmental quality, inspections, and other public concerns are likely to be common to many offshore aquaculture operations. The Gulf FMP includes specific requirements that could be applicable to managing offshore aquaculture in other regions. A partial list of operational requirements under the Gulf FMP includes the following: placing at least 25% of the facility in the water at the site within two years of issuance of the permit; marking each system placed in the water with an electronic locating device; obtaining juveniles for stocking from certified hatcheries within the United States; providing a health certificate prior to stocking fish at the aquaculture facility; complying with all FDA requirements when using drugs or other chemicals; monitoring and reporting environmental survey parameters consistent with NMFS guidelines, inspecting for interactions or entanglements of protected species; and allowing access to facilities to conduct inspections. Some have recommended requirements for aquaculture facility plans to address potential contingencies, such as fish escapes from aquaculture facilities. Some representatives of fishery management councils supported marking or tagging hatchery fish as a potential means of tracking escaped organisms. However, some have questioned whether the added costs of marking fish are warranted and contend that tagging requirements should depend on the level of associated risk to natural resources. Monitoring could also be required to track interactions with marine life and other changes to the environment. State regulators in Maine and Washington have developed monitoring requirements for net pen salmon aquaculture, such as monitoring the benthic community under net pens. Both states also require notification of disease outbreaks and can require specific mitigation measures depending on the severity of the outbreak. Federal monitoring requirements could be informed by state experiences and modified as better information becomes available. The Gulf FMP includes reporting requirements for stocking, major escapement, pathogen episodes (disease), harvest, change of hatchery, marine mammal and sea bird entanglement, and other activities or events. Aquaculture facilities in offshore areas would occupy areas that may be used for other ocean uses, such as oil and gas development, wind and tidal energy, maritime transportation, and commercial and recreational fisheries. Some have recommended that "development of a national aquaculture management framework must be considered within the context of overall ocean policy development, taking into account other traditional, existing, and proposed uses of the nation's ocean resources." If conflicts develop over access to particular areas, a process would need to be developed to identify suitable areas in federal waters for aquaculture development and/or to mediate disputes. For example, commercial and recreational fishermen may have concerns regarding access to areas they have fished historically and potential interactions of cultured and wild fish. Some ocean managers have suggested that overlaying maps of different jurisdictions, ocean uses, and conditions favorable to aquaculture would be useful in avoiding user conflicts. Other Management Entities As a regulatory framework for offshore aquaculture is developed, it could be enhanced by improving coordination and cooperation among federal, state, territorial, and tribal entities. Existing groups, such as the Subcommittee on Aquaculture, have provided a means for communication among federal agencies that might be used to enhance federal coordination of offshore aquaculture development and management. The fishery management councils established under the MSA likely would have a role in offshore aquaculture development. Each of the eight regional councils develops FMPs for wild marine fisheries within its particular region. These plans are then sent to NMFS for approval and implementation. Historically, fishery management councils have had a role in considering whether to support offshore aquaculture in federal waters. In addition to the Gulf of Mexico FMP for aquaculture, several exempted fishing permits were issued for limited periods to investigate potential aquaculture development in federal waters off New England. Potential interactions with wild fisheries and harm to essential fish habitat and wild fish populations are likely to be fishery management councils' main concerns. In addition to consultation requirements under the Coastal Zone Management Act, the state role in developing a regulatory framework for offshore aquaculture may deserve additional consideration. Some stakeholders support an opt-out provision allowing states to refuse development in federal waters adjacent to state waters. Others suggest that the opt-out provision should apply only within a certain distance of shore (such as 12 nm). In response to earlier proposed legislation, NOAA supported a 12 nm distance to provide states with a buffer zone and simplify the difficulties of projecting state boundaries out to 200 nm. Harmonizing aquaculture regulations with adjacent states could provide an advantage to future development, because states would be in a position to limit or promote offshore aquaculture development. Federal Support for Offshore Aquaculture Some assert that federal government assistance would be needed to promote the initial development of a U.S. offshore aquaculture industry. Assistance could range from general support of research to direct support of industry needs, such as finance. One argument in support of government assistance is that, in comparison to relatively well-known agriculture sectors such as animal husbandry, there are more uncertainties associated with offshore aquaculture. With the exception of Atlantic salmon, culture of most marine finfish is still at a relatively early stage of development. Development of offshore aquaculture is likely to require new culture techniques for rearing species not presently cultured. For this reason, the U.S. Oceans Commission recommended more assistance for aquaculture generally and an active government role to foster industry development. Stakeholders identified federal research needs in four areas: developing fish feeds that do not rely on harvesting wild fish; developing best management practices; exploring how escaped offshore aquaculture-raised fish might impact wild fish populations; and developing strategies to breed and raise fish while effectively managing disease. In addition to improving culture techniques, further research of interactions between aquaculture and the environment and potential harm to specific species and ecosystems could inform decisions related to site selection and monitoring needs. A remaining question is which agency or agencies will provide the support needed for offshore aquaculture development. Some may question whether NOAA has adequate institutional experience with aquaculture or whether additional resources are needed to provide adequate program management and services. Some NOAA programs support the fishing industry, but none focus specifically on offshore aquaculture. Similarly, USDA administers a number of programs that support agriculture in areas such as finance, research, extension, market development, and disaster assistance, but none are specifically focused on offshore aquaculture. Legislation in the 116 th Congress to support offshore aquaculture may address whether and how NOAA and/or USDA programs could be adapted to the needs of offshore aquaculture, which is the appropriate agency to manage specific programs, and what level of federal support is appropriate. Potential Issues for Congress Currently, development of offshore aquaculture appears unlikely because of regulatory, technical, and economic uncertainties. One of the main issues for Congress is whether legislation can be developed that could provide the industry with greater regulatory certainty while assuring other stakeholders that environmental quality can be maintained and other potential conflicts minimized. Research and development of inshore facilities have shown that offshore aquaculture is technically feasible but have not shown whether moving facilities to offshore areas would be profitable. It is likely that the investment required for commercial development of offshore aquaculture facilities will depend to some degree on greater regulatory certainty. For example, one business that was developing offshore aquaculture in Puerto Rico has moved its operations to Panama; according to the owner, U.S. regulations made expansion impossible. Aquaculturalists and investors are likely to require secure property or leasing rights and clear regulatory requirements before investing in large-scale operations. Stakeholders with concerns that aquaculture will degrade the environment also may need assurances that adequate regulation, inspections, and enforcement will be required features of a regulatory program. These concerns have been reflected in several aquaculture bills that would prohibit offshore development until comprehensive legislation is enacted. Previous congressional actions, such as hearings and bills, have concentrated on several areas, which include providing institutional support for aquaculture, such as planning, research, and technology transfer; identifying a lead agency to administer and coordinate aquaculture development and regulation; establishing and streamlining permit and consultation requirements to improve the efficiency of the permitting process; developing processes to consult and communicate with other stakeholders to reduce user conflicts; and minimizing environmental harm and addressing environmental concerns through planning and monitoring. If aquaculture is developed in the EEZ, most stakeholders likely would agree that there is a need for better coordination, clear regulation, and focused agency leadership. Some assert that congressional action will be necessary to support both commercial development and environmental protection. Congressional Actions Congress has made several attempts to pass offshore aquaculture legislation, including bills in the 109 th , 110 th , 111 th , 112 th , and 115 th Congresses, but none of these bills were enacted. Bills also were introduced that would have prevented aquaculture development in federal waters until statutory authority for offshore aquaculture development is enacted. While many stakeholders continue to call for federal legislation, it has been difficult to find a common vision among them for future development of an offshore aquaculture industry. 116th Congress In the 116 th Congress, no comprehensive offshore aquaculture legislation has been introduced, but several bills have been introduced that are related to offshore aquaculture and aquaculture generally. The Keep Finfish Free Act of 2019 ( H.R. 2467 ) would prohibit the issuance of permits to conduct finfish aquaculture in the EEZ until a law is enacted that allows such action. The Commercial Fishing and Aquaculture Protection Act of 2019 ( S. 2209 ) would amend the MSA to provide assistance to eligible commercial fishermen and aquaculture producers. Assistance could be provided when an eligible loss occurs due to an algal bloom, freshwater intrusion, adverse weather, bird depredation, disease, or another condition determined by the Secretary of Commerce. Other bills include the Prevention of Escapement of Genetically Altered Salmon to the United States Act ( H.R. 1105 ) and the Shellfish Aquaculture Improvement Act of 2019 ( H.R. 2425 ). 115th Congress In the 115 th Congress, the Advancing the Quality and Understanding of American Aquaculture Act (AQUAA Act; S. 3138 and H.R. 6966 ) would have established a regulatory framework for aquaculture development in federal waters. The bills would have provided NMFS with the authority to issue aquaculture permits and to coordinate with other federal agencies that have permitting and consultative responsibilities. They also would have identified NOAA as the lead federal agency for providing information on federal permitting requirements in federal waters. S. 3138 and H.R. 6966 would have required the Secretary of Commerce to develop programmatic environmental impact statements for areas determined to be favorable for marine aquaculture and compatible with other ocean uses. Section 9 of the bills stated that it would not supersede the requirements of the National Environmental Policy Act of 1969 (NEPA) and that individual projects may require additional review pursuant to NEPA. The bills would have required the Secretary of Commerce to consult with other federal agencies, coastal states, and fishery management councils to identify the environmental and management requirements and standards that apply to offshore aquaculture under existing federal and state laws. The bills also identified 10 standards that should be considered for offshore aquaculture and applied when issuing permits conducting programmatic environmental impact statements. These standards included other ocean uses, conservation and management of fisheries under the MSA, and minimizing adverse impacts on the marine environment, among others. S. 3138 and H.R. 6966 would have provided institutional support of offshore aquaculture by establishing the Office of Marine Aquaculture within NOAA. The Office of Marine Aquaculture would have been responsible for coordinating NOAA activities related to regulation, scientific research, outreach, and international issues. The Office of Marine Aquaculture would have replaced the current Office of Aquaculture, which conducts activities that are similar to those proposed by the bills. The bills also would have made NOAA the lead agency for establishing and coordinating a research and development aquaculture grant program A bill was also introduced ( H.R. 223 ) that would have prohibited the issuance of permits to conduct finfish aquaculture in the EEZ except in accordance with a law authorizing such action. Similar bills also were introduced in earlier Congresses to stop offshore aquaculture development in the EEZ. Congressional Actions Prior to the 115th Congress Offshore aquaculture bills also were introduced in the 109 th , 110 th , 111 th , and 112 th Congresses. Generally, these bills focused on establishing a regulatory framework to develop offshore aquaculture in federal waters of the EEZ. The bills varied to some degree on the balance between the potential rights and responsibilities of aquaculturalists, especially between aquaculture development and environmental protection. For example, S. 1195 (109 th Congress), and H.R. 2010 and S. 1609 (110 th Congress) would have supported production of food, encouraged development, established a permitting process, and promoted research and development of offshore aquaculture. In contrast, H.R. 4363 (111 th Congress) and H.R. 2373 (112 th Congress) would have focused to a greater degree on potential impacts of offshore aquaculture. These bills stressed elements such as determining appropriate locations, issuing regulations to prevent impacts on marine ecosystems and fisheries, and supporting research to guide precautionary development of offshore aquaculture. Other bills that would have constrained offshore aquaculture development were introduced in the 108 th , 109 th , 110 th , 112 th , 113 th , and 114 th Congresses. Most of these bills would have prohibited the issuance of permits for marine aquaculture facilities in the EEZ until requirements for issuing aquaculture permits are enacted into law. Conclusion The United States is the largest importer of seafood products in the world, and nearly half of domestic seafood imports are produced by aquaculture. Aquaculture development and production in the United States have lagged behind other countries due to a variety of factors, such as relatively inexpensive imports, regulatory policies, user conflicts, and higher costs of production. Some have speculated that marine aquaculture facilities could be developed farther offshore in federal waters, where they would be subject to fewer user conflicts and have space to operate in relatively clean ocean waters. However, movement to offshore areas also would involve several significant challenges, such as establishing a regulatory framework, developing new technologies, and competing with other existing sources of seafood. According to many stakeholders and researchers, the lack of a governance system for regulating offshore aquaculture hinders the industry's development in the United States. Development of marine offshore aquaculture would likely require a new regulatory framework for establishing offshore aquaculture in federal waters. A regulatory framework potentially could provide the industry with clear requirements for its development while minimizing potential environmental harm. It remains an open question whether legislation could be crafted to achieve a balance between providing the certainty sought by potential commercial developers of aquaculture and satisfying environmental and other concerns of stakeholders such as environmentalists and fishermen. While a new regulatory framework potentially could provide greater certainty to offshore aquaculture developers, other challenges would remain. For example, offshore aquaculture may involve higher costs and greater risk of losses associated as compared to inshore operations. Lack of experience operating in offshore areas and limited knowledge of culture techniques for many candidate marine species contribute to the financial risk of offshore aquaculture. Some observers expect that offshore aquaculture may occur incrementally as inshore areas are developed and culture techniques are refined. Federal support may be needed for finance, research, extension, market development, and disaster assistance, similar to USDA support of agriculture.

Regulatory uncertainty has been identified as one of the main barriers to offshore aquaculture development in the United States. Many industry observers have emphasized that congressional action may be necessary to provide statutory authority to develop aquaculture in offshore areas. Offshore aquaculture is generally defined as the rearing of marine organisms in ocean waters beyond significant coastal influence, primarily in the federal waters of the exclusive economic zone (EEZ). Establishing an offshore aquaculture operation is contingent on obtaining several federal permits and fulfilling a number of additional consultation and review requirements from different federal agencies responsible for various general authorities that apply to aquaculture. However, there is no explicit statutory authority for permitting and developing aquaculture in federal waters. The aquaculture permit and consultation process in federal waters has been described as complex, time consuming, and difficult to navigate. Supporters of aquaculture have asserted that development of the industry, especially in offshore areas, has significant potential to increase U.S. seafood production and provide economic opportunities for coastal communities. Currently, marine aquaculture facilities are located in nearshore state waters. Although there are some research-focused and proposed commercial offshore facilities, no commercial facilities are currently operating in U.S. federal waters. Aquaculture supporters note that the extensive U.S. coastline and adjacent U.S. ocean waters provide potential sites for offshore aquaculture development. They reason that by moving offshore, aquaculturalists can avoid many user conflicts they have encountered in inshore areas. Offshore areas also are considered to be less prone to pollution and fish diseases. Environmental organizations and fishermen generally have opposed development of offshore aquaculture. They assert that poorly regulated aquaculture development in inshore areas has degraded the environment and harmed wild fish populations and ecosystems. Those who oppose aquaculture development generally advocate for new authorities to regulate offshore aquaculture and to safeguard the environment and other uses of offshore waters. Some segments of the commercial fishing industry also have expressed concerns with potential development of aquaculture on fishing grounds and competition between cultured and wild products in domestic markets. Proponents of aquaculture counter that in many parts of the world a combination of farming experiences, technological advances, proper siting, and industry regulation has decreased environmental impacts and improved efficiency of marine aquaculture. They argue that many who oppose marine aquaculture lack an understanding of the benefits and risks of aquaculture and that opposition persists despite research that contradicts the extent or existence of these risks. Generally, the outcomes associated with aquaculture development depend on a variety of factors, such as the characteristics of aquaculture sites, species, technology, and facility management. Regardless of potential environmental harm, it remains to be seen whether moving to offshore areas would be profitable and if offshore aquaculture could compete with inshore aquaculture development and lower costs in other countries. Comprehensive offshore aquaculture bills were introduced in the 109 th , 110 th , 111 th , 112 th , and 115 th Congresses, but none were enacted. In the 115 th Congress, the Advancing the Quality and Understanding of American Aquaculture Act (AQUAA; S. 3138 and H.R. 6966 ) was introduced; AQUAA would have established a regulatory framework for aquaculture development in federal waters. It also would have provided National Oceanic and Atmospheric Administration (NOAA) Fisheries with the authority to issue aquaculture permits and coordinate with other federal agencies that have permitting and consultative responsibilities. Conversely, since the 109 th Congress, bills have been introduced that would constrain or prohibit the permitting of aquaculture in the EEZ. The Keep Finfish Free Act of 2019 ( H.R. 2467 ), introduced in the 116 th Congress, would prohibit the issuance of permits to conduct finfish aquaculture in the EEZ until a law is enacted that allows such action. It remains an open question whether legislation could be crafted that would provide the regulatory framework desired by potential commercial developers of offshore aquaculture and avoid or minimize risks of environmental harm to the satisfaction of those currently opposed to offshore aquaculture development.

CRS_R46129

F ollowing his resignation as President, Richard Nixon wanted to destroy recordings created in the White House that, among other things, documented actions he and others took in response to investigations connected to a burglary in the Watergate building and his reelection campaign. Under policy at the time, presidential materials were considered the President's private property. In response, Congress passed a number of laws to preserve the integrity of documents and other information related to Nixon's presidency and made those laws applicable to all future presidencies. Enacted in 1978, the Presidential Records Act (PRA; 44 U.S.C. §§2201-2207) established public ownership of records created by Presidents and their staff in the course of discharging their official duties. The PRA additionally established procedures for congressional and public access to presidential and vice presidential information and the preservation and public availability of such records at the conclusion of a presidency. This report provides context on the institutions involved in presidential recordkeeping, explains what is and is not considered to be a presidential record, and identifies recordkeeping responsibilities and access policies during and after a presidency. The report concludes with information and policy options for congressional oversight and enforcement of the PRA with respect to electronic records provisions under the Presidential and Federal Records Act Amendments of 2014. While the PRA provides similar provisions for records created by the Vice President, this report focuses on presidential records. Also, information on the Federal Records Act (FRA), more broadly, is available in CRS Reports CRS Report R43072, Common Questions About Federal Records and Related Agency Requirements , by Meghan M. Stuessy and CRS In Focus IF11119, Federal Records: Types and Treatments , by Meghan M. Stuessy. The Institutions The PRA governs the records of the President, Vice President, and certain components of the Executive Office of the President (EOP). The PRA specifies roles and responsibilities for the management and enforcement of presidential records policy to the President, the National Archives and Records Administration (NARA), and the Department of Justice (DOJ). The PRA requires the President to take "all such steps as may be necessary to assure that the activities, deliberations, decisions, and policies that reflect the performance of the President's constitutional, statutory, or other official or ceremonial duties are adequately documented." The President is further directed to implement records management controls to accomplish these ends and may consult NARA and DOJ on how to best comply with the statute. NARA preserves selected government records, oversees recordkeeping throughout the government, and makes government records publicly available pursuant to the PRA and other authorities. NARA provides advice and assistance to the White House on records management practices upon request, throughout a presidential transition and a presidency, and to former Presidents. The PRA details which presidential records and materials NARA is to assume responsibility for at the conclusion of a President's Administration. The PRA requires the head of NARA, the Archivist of the United States, to consult with Congress and particular congressional committees on requests for the disposal of such records deemed to be of special congressional interest. DOJ provides guidance to the executive branch on how to comply with the legal requirements of government information policy, of which records maintenance policy, including presidential records, is a part. Additionally, the Archivist and the Attorney General jointly investigate the unlawful removal or destruction of government and presidential records. Defining Presidential Records The PRA defines presidential records as documentary materials, or any reasonably segregable portion thereof, created or received by the President, the President's immediate staff, or a unit or individual of the Executive Office of the President whose function is to advise or assist the President, in the course of conducting activities which relate to or have an effect upon the carrying out of the constitutional, statutory, or other official or ceremonial duties of the President. Such term— (A) includes any documentary materials relating to the political activities of the President or members of the President's staff, but only if such activities relate to or have a direct effect upon the carrying out of constitutional, statutory, or other official or ceremonial duties of the President. This definition of presidential records is distinct from federal records and excludes a President's personal records. Unlike federal records, which may be considered temporary or permanent records depending on their content, all presidential records are considered permanent records due to their permanent value and, as a result, should be maintained in perpetuity by the federal government, subject to some limitations described below. A President's personal records—identified in the PRA as documents "of a purely private or nonpublic character"—are excluded from preservation requirements. As a result of the Presidential and Federal Records Act Amendments of 2014, all government records (both presidential and federal) are assessed for preservation not by the media used to store the information but rather by the content of the information itself. In the PRA's case, documentary materials , of which presidential records are a part, includes "all books, correspondence, memoranda, documents, papers, pamphlets, works of art, models, pictures, photographs, plats, maps, films, and motion pictures, including, but not limited to, audio and visual records, or other electronic or mechanical recordations, whether in analog, digital, or any other form." If the content of any documentary material meets the criteria of a presidential record, the information must be preserved according to the PRA regardless of the information's format. Presidential records are additionally protected and restricted from public consumption for a set period of time. Because of these additional restrictions on presidential records versus federal records, it is important to identify which organizations within the EOP create presidential records instead of federal records. Additionally, the time during a President's life in which the documents are created may help differentiate between personal, private records and presidential records. Creators of Presidential Records As defined in statute, the President and the President's immediate staff create presidential records. However, certain EOP components create presidential records, while others create federal records. The difference in statutory application between these components may have implications for access to their records. According to NARA, EOP components considered to "solely advise and assist the President" and therefore create presidential records include: The White House Office, The Office of the Vice President, The Office of Policy Development, The Council of Economic Advisors, The National Security Council, The President's Foreign Intelligence Advisory Board, The President's Intelligence Oversight Board, The National Economic Council, and The Office of Administration. Conversely, NARA has identified EOP components that create federal records and not presidential records as follows: The Office of Management and Budget, The Office of the United States Trade Representative, The Council on Environmental Quality, The Office of Science and Technology Policy, and The Office of National Drug Control Policy. Presidential versus Personal Records The PRA distinguishes between a President's personal records and presidential records. Personal records of a purely private or nonpublic character include such things as diaries or journals but also include (1) materials relating exclusively to the President's own election and to the election of a particular individual or individuals to federal, state, or local office that "have no relation to or direct effect upon the carrying out of constitutional, statutory, or other official or ceremonial duties of the President;" and (2) materials relating to private political associations. Because personal records are not presidential records, they are not subject to the same materials retention or access requirements. Presidential Transition Materials Records created by the President-elect and his transition team prior to inauguration are considered personal records. However, NARA notes, "To the extent that these records are received and used after the inauguration by the incoming Presidential Administration, they may become Presidential or Federal records. Former Presidents have traditionally donated these personal transition records to [NARA] for deposit in their Presidential Library." During the 2016 election cycle, NARA issued additional guidance relating to President-elect transition team materials where it specified how the PRA would govern such materials. As the statute makes clear, materials relating to the President's own election (e.g., campaign materials) are not considered presidential records. Similarly, transition team materials are considered personal and private, not presidential records. In instances where the transition team receives briefing materials from a federal agency, however, the briefing materials are considered federal records of the briefing agency and maintained accordingly. Who Decides If Information Is a Presidential Record? While statute allows for materials relating to campaign events and private political associations to be considered personal records so long as the materials have no relation to or direct effect upon the carrying out of the President's various duties, critically, the President has a high degree of discretion over what materials are to be preserved under the PRA. NARA does not have direct oversight authority over the White House records program as it does over federal agencies' records programs. Instead, NARA "provides advice and assistance to the White House on records management practices upon request," which would appear to give the President discretion over which materials might be included under the PRA. As noted previously, whether these records are classified as presidential or personal records affects public and congressional access to such materials. For example, the PRA does not provide an access mechanism for personal records. In the event of potentially unlawful removal or destruction of government records, Title 44, Section 3106, of the U.S. Code requires the head of a federal agency to notify the Archivist, who initiates action with the Attorney General for the possible recovery of such records. The Archivist is not authorized to independently investigate removal or recover records. Custody and Control of Presidential Records Policies concerning the custody of presidential materials informs the way such information is controlled, accessed, and released during and after a President's time in office. Prior to the PRA's enactment, presidential papers were traditionally the private property of the President, who would then donate the materials to institutions for public consumption. The PRA fundamentally changed the status of presidential records as publicly owned materials. The PRA is explicit: "The United States shall reserve and retain complete ownership, possession, and control of Presidential records; and such records shall be administered in accordance with the provisions of this chapter." In passing the PRA, Congress required that "public access to the materials would be consistent under standards fixed in law." The PRA provides records maintenance requirements and permissions depending on whether a presidency is in progress or has concluded. During a Presidency During a presidency, the incumbent President is exclusively responsible for custody, control, and access to presidential records, and the Archivist may maintain and preserve the records on behalf of the President. While the PRA establishes the President's responsibility, NARA notes that the agency is available for the President to consult with regarding records management practices upon request, although the PRA does not require such a consultation. Disposal of Presidential Records An incumbent President also has authority under the PRA to seek the disposal of records, which routinely occurs with temporary records under the Federal Records Act. All presidential records are initially considered permanent records, but the PRA provides a process for the incumbent President to seek a change in the disposal schedule of the President's own records by obtaining the Archivist's written approval. Additionally, such presidential records may be disposed of if the President submits copies of the intended disposal schedule to (a) the Senate Committee on Rules and Administration and the Senate Committee on Homeland Security and Governmental Affairs, and (b) the House Committee on Oversight and Government Reform (now the House Committee on Oversight and Reform) and the House Committee on Government Operations (now the House Subcommittee on Government Operations) at least 60 calendar days before the proposed disposal date. If the Archivist considers the identified records in the President's proposed disposal schedule to be of special interest to Congress or that consultation with Congress is necessary to assess the disposal request, the Archivist shall request the advice of the listed committees. After a Presidency After a presidency, the responsibility for the custody, control, preservation of, and access to presidential records shifts to the Archivist. Additionally, statute requires the Archivist to make the former President's records publicly available as rapidly and as completely as possible. The PRA does not provide the former President with a process for disposing of presidential records after leaving office. In contrast to the disposal request process for incumbent Presidents, the Archivist may dispose of a former President's presidential records if they are deemed by the Archivist to have insufficient value to warrant their continued preservation. The Archivist must publish a notice in the Federal Register at least 60 days in advance of the proposed disposal date. Designating a Presidential Library Because the United States owns all presidential records, a former President must seek the Archivist's permission to display presidential records in a different facility, such as a presidential library. The Archivist is directed to deposit all of the former President's records in a presidential archival depository or another federal archival facility and is authorized to designate, after consultation with the former President, a director of the chosen facility who is responsible for the care and preservation of the records. Presidential libraries are not constructed using federal funds but are operated and maintained by NARA through its budget. Restricted Access to Presidential Records The PRA does not establish automatic access for an incumbent President's records, which may be protected by executive privilege on a case-by-case basis. However, the PRA does statutorily narrow an outgoing President's ability to restrict records access. As the length of time between the conclusion of a presidency and the present day increases, presidential records become more accessible. Access to a former President's records is governed in terms of time passed since the conclusion of the presidency: Less than five years out, no public access is granted due to the Archivist's processing of the records. Between five and 12 years out, the Archivist determines PRA restrictions in accordance with Title 44, Section 2204, of the U.S. Code with the former President. After 12 years, these PRA restrictions no longer apply. The Freedom of Information Act (FOIA; 5 U.S.C. §552) governs the public release of government information, including presidential records. Throughout these time periods, FOIA exemptions (for example, information that is prohibited from disclosure by another federal law) may additionally restrict records access. However, records created by a former President are not subject to FOIA's (b)(5) deliberative process exemption (which incorporates the deliberative process, executive, and attorney-client privileges, among others). The PRA (44 U.S.C. §2204) permits the outgoing President to restrict access to six categories of presidential records for specified durations of time, not to exceed 12 years. The records categories for which a former President can restrict access include: 1. Records described in an executive order as in the interest of national defense or foreign policy or are otherwise classified documents, 2. Records relating to appointments to federal office, 3. Records specifically exempted from disclosure by statute, 4. Records that contain trade secrets and commercial or financial information, 5. Records of confidential communications requesting or submitting advice between the President and the President's advisers or between such advisers, and 6. Records of personnel and medical files whose disclosure would constitute an invasion of personal privacy. After the expiration of the 12-year period, under Executive Order 13489, incumbent and former Presidents must be notified of the Archivist's intent to disclose materials at least 30 days in advance of the release of the records. Prior to this release, incumbent and former Presidents may assert a claim of executive privilege over certain presidential records, thereby limiting public access. If an incumbent President invokes a claim of executive privilege over the release of a former President's records, the Attorney General and the Counsel to the President shall review and decide whether the invocation of executive privilege is justified. Similarly, if a former President invokes a claim of executive privilege, the current Archivist, Attorney General, and Counsel to the President are to confer and determine whether to honor the former President's claim of executive privilege. The incumbent President may extend the time period to withhold the records and is to provide a reason for the extension. Exceptions to Restricted Access of a Former President's Records Certain federal officials may access a former President's records within the 12-year time frame by gaining "special access" to presidential records. Per the PRA: [S]ubject to any rights, defenses, or privileges which the United States or any agency or person may invoke, Presidential records shall be made available— (A) pursuant to subpoena or other judicial process issued by a court of competent jurisdiction for the purposes of any civil or criminal investigation or proceeding; (B) to an incumbent President if such records contain information that is needed for the conduct of current business of the incumbent President's office and that is not otherwise available; and (C) to either House of Congress, or, to the extent of matter within its jurisdiction, to any committee or subcommittee thereof if such records contain information that is needed for the conduct of its business and that is not otherwise available. Observers have questioned what constitutes a House or Senate request for presidential records and who needs to make the request for the records for it to qualify under Section 2205(C). However, NARA explains that its "longstanding and consistent practice has been to respond only to requests from the Chair of Congressional Committees, regardless of which political party is in power." This practice as a result of statutory ambiguity may impact the ability of minority party members or general committee members to gain access to presidential records. Issues for Congress: Enforcement of the PRA The PRA's effectiveness relies on its ability to be enforced, both in terms of accessing presidential records for oversight purposes through the mechanisms described in statute and in terms of maintaining the records themselves so that they may be accessed. In light of the Presidential and Federal Records Act Amendments of 2014 requirement to collect presidential records regardless of their media but based on their content, questions regarding the volume and the meaning of an electronic record's completeness are creating policy implications that may be suitable for congressional consideration. These matters may be of particular interest to Congress as it carries out its oversight activities and ensures that emerging formats of presidential records are effectively collected and controlled. Volume of Electronic Presidential Records The volume of presidential records has increased exponentially in the digital age, as indicated by reporting on the amount of such records at the conclusion of a presidency. According to NARA's 2009 Report on Alternative Models for Presidential Libraries , the Clinton Administration provided NARA 20 million presidential record emails at the conclusion of the President's eight-year tenure. The George W. Bush Administration provided 150 million email records after its eight-year tenure—more than seven times the number of emails provided by the previous Administration. To date, the Barack Obama Presidential Library estimates that NARA has received 300 million emails, doubling the amount from the previous Administration. "Huge volumes of electronic information" are a "major challenge" in record management, according to the Government Accountability Office (GAO), and "electronic information is increasingly being created in volumes that pose a significant technical challenge to our ability to organize it and make it accessible." NARA's ability to process the volume of presidential records is closely linked to information access issues. In its FY2020 congressional budget justification, NARA noted it has "a significant backlog of unanswered [FOIA] requests at Presidential Libraries covered" by the PRA in part because of the volume of records and the information restriction process: NARA must review all Presidential papers page-by-page, to identify and redact national security and other restricted information, which means it will take decades to make all of the records available to the public. Processing records in response to FOIA requests is even more time-consuming than processing the same number of pages in a systematic, archival fashion and does not produce discrete records collections that would be meaningful to the general public. Because of this increased volume, NARA's ability to keep pace with the explosion of records will be dependent on NARA's staffing, funding, and training levels. Any delay in NARA's processing of records may impact the ability of interested parties to access materials in a timely fashion, and NARA's ability to comply with the PRA's statutory directive to make records available as rapidly and completely as possible. Completeness of Electronic Presidential Records The increasing use of electronic records also requires the institutions involved in presidential records oversight to ensure the record information's authenticity and completeness. The EOP and NARA need to ensure that record materials are appropriately protected from corruption or destruction, but these protections take on a different meaning in a digital, instead of analog, environment. Given the increase in presidential records, Congress may consider whether or not the presidential records institutions are able to consistently meet NARA directives, bearing in mind that while NARA supervises agency implementation of the FRA, NARA provides advice and assistance to the White House on records management practices upon request . NARA has provided guidance on including metadata elements in the collection of federal records under the FRA that the EOP may adopt as well. However, data on implementation is self-reported by agencies, and similar information is not required to be provided for presidential records on a routine basis. Last updated in 2005, NARA's guidance on identifying and maintaining trustworthy websites says that such records have the following characteristics: reliability: content is trusted as a full and accurate representation of transactions, activities, or facts; authenticity: proven to be what it purports to be; integrity: complete and unaltered; and usability: can be located, retrieved, presented, and interpreted. NARA's guidance suggests that agencies "maintain the content, context, and sometimes the structure of" their websites to ensure that their records are trustworthy. One instructive example is NARA's attempts to archive underlying documents and web materials on whitehouse.gov. While collecting records material appears to be a straightforward task, policy decisions such as when and what to collect impact the material's context (i.e., the circumstances that situate the material and give it meaning), usability, and completeness. Some accompanying digital information, such as who accessed the information or reviewed the document, may not be available without holistic preservation. For example, NARA acknowledges that it does not archive the user interface of the White House website, but it has attempted to "freeze" an approximation of the website as it appeared at the conclusion of a presidency and not at various points during an Administration. Further, NARA notes, "These 'frozen in time' sites are representations of the original websites and approximate the interface and functionality for easy access by the public. These websites are no longer updated so links to external websites and some internal pages will not work." Such decisions may have implications on the type of information available to future researchers, federal agencies, and Congress.

Presidential records provide Congress, members of the public, and researchers with documentation, context, and explanations for presidential actions. The Presidential Records Act (PRA; 44 U.S.C. §§2201-2207) set forth requirements regarding the maintenance, access, and preservation of presidential and vice presidential information during and after a presidency. This report describes the institutions involved in presidential recordkeeping, explains what is and is not considered a presidential record, and identifies recordkeeping responsibilities and access policies during and after a presidency. The report concludes with information and policy options for congressional oversight and enforcement of the PRA with respect to electronic records provisions under the Presidential and Federal Records Act Amendments of 2014. Prior to the PRA, records were considered the President's private property. Now, the PRA states that presidential records are the property of the United States. Under the PRA, the President may request advice and assistance from the National Archives and Records Administration (NARA) regarding records management practices, and the Archivist of the United States (the head of NARA) plays an important role in the maintenance and access of a former President's records. The PRA does not establish automatic access to an incumbent President's records, which may be protected by executive privilege on a case-by-case basis. However, the PRA does statutorily narrow an incumbent President's ability to restrict records access as the Administration draws to a close. As the length of time between the conclusion of a presidency and the present day increases, presidential records become more accessible. Access to a former President's records is governed in terms of time passed since the conclusion of the presidency: Less than five years out, no public access is granted due to the Archivist's processing of the records. Between five and 12 years out, the Archivist determines PRA restrictions with the former President in accordance with Title 44, Section 2204, of the U.S. Code . After 12 years, these PRA restrictions no longer apply. Certain federal officials may access a former President's records within the 12-year time frame by gaining "special access" to presidential records. The PRA permits either house of Congress, committees, or subcommittees requesting information for chamber or committee business to be granted special access to the former President's records. In practice, observers have questioned what constitutes a House or Senate request for presidential records and who needs to make the request to qualify under the PRA. This statutory ambiguity may impact the ability of minority party members and general committee members to gain access to presidential records. As a result of the Presidential and Federal Records Act Amendments of 2014, presidential records are assessed for preservation not by the media used to store the information but rather by the content of the information itself. Questions regarding the volume and completeness of records may be suitable for congressional consideration. Any delay in NARA's processing of records will directly impact timely access to those records and the ability of NARA to comply with the PRA's statutory directive to make records available as rapidly and completely as possible.

CRS_R46338

T he constitutional system of checks and balances and the separation of powers among the legislative, executive, and judicial branches is a cornerstone of the American system of government. By separating and checking powers in this way, the Framers hoped to prevent any person or group from seizing control over the nation's government. For example, the Framers checked congressional legislative power by providing the President the power to veto legislation and, in turn, checked the President's veto power by providing Congress a means to override that veto. Over time, it has become clear that the presidential veto power, even when not formally exercised, provides the President with an important tool to engage in the legislative process. Most Presidents have exercised their veto power in an effort to block legislation. Of 45 Presidents, 37 have exercised their veto power. As of the end of 2019, Presidents have issued 2,580 vetoes, and Congress has overridden 111. President George W. Bush vetoed 12 bills during his presidency. Congress attempted to override six of them and succeeded four times. President Barack Obama also vetoed 12 bills during his presidency. Congress attempted to override six of them and succeeded once. Presidents have also attempted to influence the shape of legislation through the use of veto threats. Since the 1980s, formal, written Statements of Administration Policy (SAPs, pronounced "saps") have frequently been used to express the President's support for or opposition to particular pieces of legislation. SAPs sometimes threaten to use the veto power if the legislation reviewed reaches the President's desk in its current form. Among the George W. Bush Administration (2001-2009) and the Obama Administration (2009-2017) SAPs examined later in this report, for example, 24% and 48%, respectively, contained a veto threat. This report begins with a brief discussion of the veto power and Congress's role in the veto process. It then examines the ways Presidents communicate their intention to veto, oppose, or support a bill. The report then provides and discusses summary data on veto threats and vetoes during the Bush and Obama Administrations. The President's Veto Power As specified by the U.S. Constitution (Article I, Section 7), the President has 10 days, Sundays excepted, to act once he has been presented with legislation that has passed both houses of Congress and either reject or accept the bill into law. Within those 10 days, Administration officials consider various points of view from affected agencies (as is the case throughout the legislative process) and recommend a course of action to the President regarding whether or not to veto the presented bill. The President has three general courses of action during the 10-day presentment period: The President may sign the legislation into law, take no action and allow the bill to become law without signature after the 10 days, or reject the legislation by exercising the office's veto authority. The President may reject legislation in two ways. The President may veto the bill and "return it, with his Objections to that House in which it shall have originated." This action is called a "regular" or "return" veto (hereinafter return veto). Congress typically receives the objections to the bill in a written veto message. If Congress has adjourned during the 10-day period, the President might also reject the legislation through a "pocket veto." This occurs when the President retains, but does not sign, presented legislation during the 10-day period, with the understanding that the President cannot return the bill to a Congress that has adjourned. Under these circumstances, the bill will not become law. A pocket veto is typically marked by a type of written veto message known as a "Memorandum of Disapproval." As discussed in greater detail below, this practice has sometimes been controversial, because arguably it prevents Congress from attempting to override the President's veto. Congress's Response A President's return veto may be overridden, or invalidated, by a process provided for in Article 1, Section 7, of the U.S. Constitution. To override a return veto, Congress may choose to "proceed to reconsider" the bill. Passage by two-thirds of Members in each chamber is required to override a veto before the end of the Congress in which the veto is received. Neither chamber is under any constitutional, legal, or procedural obligation to conduct an override vote. It is not unusual for either chamber of Congress to make no effort to override the veto if congressional leaders do not believe they have sufficient votes to do so. If a two-thirds vote is successful in both chambers, the President's return veto is overridden, and the bill becomes law. If a two-thirds vote is unsuccessful in one or both chambers, the veto is sustained, and the bill does not become law. In contrast, Congress cannot override the President's pocket veto. By definition, a pocket veto may occur only when a congressional adjournment prevents the return of the vetoed bill. If a bill is pocket vetoed while Congress is adjourned, the only way for Congress to pass a version of the policy contained in the vetoed bill is to reintroduce the legislation as a new bill, pass it through both chambers, and present it to the President again for signature. Recent Presidents and Congresses have disagreed about what constitutes an adjournment that prevents the return of a bill such that a pocket veto may be used. For purposes of the sections below concerning the use of veto threats, the unit of analysis is a veto. The analysis does not distinguish between regular and pocket vetoes. Veto Threats in the Legislative Process Because Congress faces a two-thirds majority threshold to override a President's veto, veto threats may deter Congress from passing legislation that the President opposes. The veto override threshold may also prompt Congress to change a bill in response to a veto threat. The Framers of the U.S. Constitution viewed the veto power as a way of reminding Congress that the President also plays an important legislative role and that threatening to use the veto power can influence legislators into creating more amenable bills. Political scientist Richard A. Watson writes that "the veto is available to a President as a general weapon in his conflicts with Congress: Franklin Roosevelt sometimes asked his aides for 'something I can veto' as a lesson and reminder to congressmen that they had to deal with a President." Veto threats are, therefore, an important component in understanding the use of the President's veto power. In recent presidencies, these threats have generally been expressed either through SAPs or verbally. President Trump has also used social media to communicate his intention to veto, oppose, or support a bill. Signaling Policy Intentions Before a Veto Presidents may signal their intention to support, oppose, or veto a bill early in the legislative process using both verbal and written means. For example, Presidents can mention in a speech that they intend to veto legislation, or they can authorize others (such as a press secretary) to verbally indicate the Administration's position on specific legislation. Presidents can also issue, through the Office of Management and Budget (OMB), formal, written SAPs to communicate their intention to veto, oppose, or support a bill. Verbal Veto Threats Verbal veto threats may include commentary related to the President's strategy for working with Congress along with a threat to veto legislation if the President's policy agenda is not heeded. For example, at a press conference President George W. Bush explained, "I want the Members of Congress to hear that once we set a budget we're going to stick by it. And if not, I'm going to use the veto pen of the President of the United States to keep fiscal sanity in Washington, D.C." In another instance, President Obama said that the House "is trying to pass the most extreme and unworkable versions of a bill that they already know is going nowhere, that can't pass the Senate and that if it were to pass the Senate I would veto. They know it." In these remarks, both President Bush and President Obama used their words to attempt to deter Congress from passing bills that did not match the President's policy agenda and unambiguously remind the public of their veto power. Written Veto Threats Formal, written SAPs are frequently used to express the President's support for or opposition to particular pieces of legislation. The decision to issue a SAP is a means for the President to insert the Administration's views into the legislative debate. While SAPs provide Presidents an opportunity to assert varying levels of support for or against a bill, perhaps the most notable statement in a SAP is whether the Administration intends to veto the bill. Members of Congress may pay particular attention to a SAP when a veto threat is being made. At least one congressional leader has characterized SAPs as forerunner indicators of a veto. SAPs are often the first public document outlining the Administration's views on pending legislation and allow for the Administration to assert varying levels of support for or opposition to a bill. Because written threats are typically required to be scrutinized by the Administration through the central legislative clearance process in advance of their release, written SAP veto threats are often considered more formal than verbal veto threats. When a SAP indicates that the Administration may veto a bill, it appears in one of two ways: 1. A statement indicating that the President intends to veto the bill (hereinafter a presidential veto threat) or 2. A statement that agencies or senior advisors would recommend that the President veto the bill (hereinafter a senior advisors veto threat). These two types of SAPs indicate degrees of veto threat certainty. Generally speaking, a presidential veto threat signals the President's strong opposition to the bill. A senior advisors veto threat, on the other hand, may signal that the President may be more likely to enter into negotiations in order to reach a compromise with Congress on the bill. By publicly issuing a veto threat, the President may leverage public pressure upon Congress to support the President's agenda. Furthermore, many SAPs propose a compromise to Congress wherein the President would not exercise a veto. In addition, a President or an Administration's senior advisors may not always issue a veto threat prior to a decision to veto passed legislation. As discussed below, both Presidents Bush and Obama vetoed legislation for which they never issued a written veto threat. Veto Threats Within Different SAP Types During both the Obama and Bush Administrations, roughly three-quarters of SAPs issued were on non-appropriations bills, and roughly one-quarter concerned appropriations bills. Each SAP signaled the Administration's intent to veto, oppose, or support a bill. There are fundamental differences between non-appropriations bill SAPs and appropriations bill SAPs. Non-appropriations bill SAPs typically involve specific policy objections, such as how a program operates or what constituency the program is designed to serve. Appropriations bill SAPs, in contrast, often involve more general budgetary policy objections, such as the perceived need to balance the budget or to reallocate resources for other purposes. Therefore, the President may generally support a particular provision in an appropriations bill on programmatic policy grounds but oppose it for budgetary reasons. Or the President may oppose a particular provision in an appropriations bill for both programmatic and budgetary reasons. This report focuses on the impact of the President's veto threat in non-appropriations bill SAPs given their more targeted nature. Veto Threats During the George W. Bush and Obama Administrations Data in this report were compiled from SAPs located on the archived White House websites of the Bush and Obama Administrations. Using the classification of SAPs on each website, analysis was conducted with only non-appropriations SAPs for reasons described above. The analysis examined each SAP and individually assessed whether the SAP contained a veto threat, the type of threat (presidential or senior advisor), and whether the veto threat concerned a part of the bill or the whole bill. The analysis considers each SAP to be an individual veto threat. In instances where one bill received veto threats in multiple SAPs, veto threats were counted individually and not combined. To assess the final outcome of bills, the analysis used information on bill statuses located at Congress.gov and does not track whether bills that received a SAP were later combined into other legislative vehicles. The inherent limitations in this methodology make it difficult to determine direct effects of any veto threat on the final outcome of a bill. However, in the aggregate, general trends may be observed. The proportion of non-appropriation bill SAPs with veto threats steadily increased over the course of each of the two presidencies reviewed. SAPs containing veto threats as a proportion of all SAPs was at its highest at the conclusion of both President Bush's and President Obama's second terms. Figure 1 illustrates this trend by showing SAP veto threats as a percentage of issued SAPs. George W. Bush Administration Veto Threats While the Bush Administration remained relatively consistent in the number of veto threats issued in SAPs during its first six years, the number of threats increased during the final two years of the Administration. The Bush Administration issued a total of 491 SAPs on non-appropriations bills. Just under one-quarter (24%) of the non-appropriations bill SAPs contained a veto threat: 24 presidential veto threats and 94 senior advisors veto threats. Of bills that received a presidential veto threat, one was signed by the President, seven were vetoed, and the remaining 16 did not make it to the President's desk. Of bills that received a senior advisors veto threat, 16 were signed, one was vetoed, and the remaining 77 were not passed by both chambers. Seven of the 12 Bush Administration vetoes were preceded by a SAP containing a veto threat. While the number of veto threats in SAPs slowly increased during the first three Congresses of the Bush Administration (two in the 107 th Congress, three in the 108 th Congress, and seven in the 109 th Congress), the number of veto threats grew sharply in the 110 th Congress—to 107 veto threats—coinciding with Democrats gaining control of both chambers of Congress during the Republican President's final two years in office. This might suggest (and is supported by Obama Administration data) that the partisan constitution of Congress, as well as whether the Administration is in its first or second term, may impact the number of veto threats issued. Below, Figure 2 illustrates this change in the number of veto threats over time across the four Congresses associated with President Bush's two terms in office. Nevertheless, presidential veto threats in the Bush Administration remained a fraction of overall veto threats and often resulted in an actual veto. The rarity with which the Bush Administration issued presidential veto threats suggests that the Administration viewed them as a message to be used sparingly. Although the relationship between Congress and a President may change every two years with each new Congress, the relationship between an Administration and its President may also change by presidential term. Compared to a President's first term, in a second term Administration, executive branch officials may become more adept in coordinating the veto power. Additionally, a second-term President cannot be re-elected, which may allow the Administration to take a stronger position on unfavorable legislation. Alternatively, it could be that the President lacks the political influence necessary to advance his legislative agenda and instead relies on veto power to block legislative vehicles more often as his presidency concludes. Figure 3 presents veto threat percentages by presidential term for the Bush Administration, showing an increase in the President's second term. During President Bush's first term (2001-2005), 98% of SAPs did not contain a veto threat, 1% contained a senior advisors veto threat, and 1% contained a presidential veto threat. During President Bush's second term (2005-2009), 60% did not contain a veto threat, 32% contained a senior advisors veto threat, and 8% contained a presidential veto threat. Obama Administration Veto Threats In comparison to the Bush Administration, the Obama Administration steadily increased its use of veto threats issued in SAPs in every subsequent Congress. The Obama Administration issued 472 SAPs on non-appropriations bills. Just under half (48%) of these contained a veto threat: 43 presidential veto threats and 186 senior advisors veto threats. Of bills that received a presidential veto threat, four were ultimately signed by the President, five were vetoed, and 34 did not make it to the President's desk. Of bills that received a senior advisors veto threat, 17 were signed, two were vetoed, and 167 were not passed by the two chambers. Six of the 12 Obama Administration vetoes were preceded by a SAP containing a veto threat. President Obama (a Democrat) issued more veto threats in his SAPs with each passing Congress. (Democrats controlled both chambers during the 111 th Congress and the Senate during the 112 th Congress, and Republicans controlled the House during the 113 th Congress and both chambers during the 114 th Congress. ) Below, Figure 4 illustrates this change in the number of veto threats over time by Congress. Although the number of veto threats increased over the course of the Obama presidency (eight in the 111 th Congress, 54 in the 112 th Congress, 63 in the 113 th Congress, and 104 in the 114 th Congress), the number of presidential veto threats remained small when compared to the total number of veto threats, varying from a low of 14.3% in the 111 th Congress to a high of 28.3% in the 114 th Congress. The increase over time in total number of veto threats may indicate that President Obama was presented with more legislation he was likely to oppose. However, the increase is mostly composed of senior advisors veto threats. This suggests that the Administration nonetheless treated presidential veto threats, compared to senior advisors veto threats, as a tool to be used more rarely. As with the Bush Administration, President Obama's use of veto threats in the first and second terms differ. Figure 5 presents veto threat percentages by presidential term as opposed to by Congress. During President Obama's first term (2009-2013), 69% of SAPs did not contain a veto threat, 27% contained a senior advisors veto threat, and 4% contained a presidential veto threat. During President Obama's second term (2013-2017), 39% of SAPs did not contain a veto threat, 49% contained a senior advisors veto threat, and 13% contained a presidential veto threat. Congressional Responses to Veto Threats CRS analyzed all veto threats contained in SAPs on non-appropriations legislation across these two Administrations and determined whether the veto threat was isolated to a provision of the bill (a partial bill veto threat) or if the veto threat was not particularized (a whole bill veto threat). President Bush issued partial bill veto threats and whole bill veto threats an equal amount of the time. However, the type of threat he used in each category varied. Of partial bill veto threats, 7% were presidential veto threats and the remaining 93% were senior advisors veto threats. Of whole bill veto threats, 34% were presidential veto threats and the remaining 66% were senior advisors veto threats. In contrast, President Obama issued partial bill veto threats more sparingly (8% versus 92% for whole bill veto threats). Similar to President Bush, however, of partial bill veto threats, 6% were presidential veto threats and the remaining 94% were senior advisors veto threats. Of whole bill veto threats, 20% were presidential veto threats and the remaining 80% were senior advisors veto threats. The difference in frequency of partial and whole bill veto threats across the Administrations may suggest that the two Presidents viewed the use of veto threats differently: One President may have used partial threats to negotiate more with Congress, whereas another President preferred to threaten a veto only when he viewed an entire bill as unfavorable. Likewise, the increased frequency of partial bill senior advisors veto threats suggests that both Presidents preferred to use presidential veto threats in rejecting an entire bill and leaving senior advisors veto threats for negotiations where only part of a bill is unfavorable. Legislative Action Following a Veto Threat A presidential veto threat in a SAP may be more likely than a senior advisors veto threat to deter passage of a bill because of the President's direct association with the threat. However, an analysis of these two Administrations does not necessarily support this argument. Figure 6 shows that bills appeared less likely to pass when the bill received a senior advisors veto threat versus a presidential veto threat. This may be due to a number of factors, including that senior advisors threats are more frequently issued than presidential veto threats (279 senior advisors threats and 67 presidential veto threats were issued across these two presidencies) or that Congress may perceive it to be beneficial to pass presidentially threatened legislation anyway based on certain political calculations and circumstances. Veto Threats and Veto Patterns During the Bush and Obama Administrations, enrolled bills that passed both chambers and were met with a presidential veto threat SAP were vetoed more often than were those that were met with a senior advisors threat. Figure 7 shows the outcomes of bills receiving veto threats that were passed by Congress and sent to the President. Across both the Bush and Obama Administrations, a bill that received a presidential veto threat and was passed was followed by a veto 70.6% of the time, whereas a bill that received a senior advisors veto threat was later vetoed 8.3% of the time. When a President vetoes a bill, it marks the end of the President's ability to procedurally affect whether or not a bill becomes law. Whether or not that specific bill becomes law is no longer in the President's hands. Congress may or may not elect to attempt an override. George W. Bush Administration Vetoes and Ensuing Congressional Action President Bush exercised the veto power 12 times. Four of these vetoes were overridden. Six vetoed bills were forewarned with a written veto threat. (Four received a presidential threat, and two received senior advisors threats.) Three additional bills received statements noting the Administration's opposition to the bill but did not include a veto threat. None of the bills that Congress later overrode were preceded by a presidential veto threat. Three-quarters of President Bush's vetoes (9 of 12) were preceded by a written statement of opposition to the bill. President Bush also issued multiple written veto threats on four bills that would later receive a veto: Three bills received two threats each, and one bill received two statements of opposition. Obama Administration Vetoes and Ensuing Congressional Action President Obama vetoed 12 bills, and Congress overrode his veto once. As was true for President Bush, six of President Obama's vetoes were preceded by a written veto threat (four presidential and two senior advisors threats). Unlike the patterns observed for the Bush presidency, however, all of President Obama's veto threats were whole bill veto threats. Whereas President Bush also communicated in SAPs his opposition to three bills short of threatening a veto, President Obama either did not issue a SAP at all or issued one that contained a veto threat. One of President Obama's vetoed bills received two veto threats. President Obama's approach of issuing either no statement at all on a bill or a statement containing a veto threat marks a different approach from the one used by President Bush.

The Framers checked congressional legislative power by providing the President the power to veto legislation and, in turn, checked the President's veto power by providing Congress a means to override that veto. Over time, it has become clear that the presidential veto power, even if not formally exercised, provides the President some degree of influence over the legislative process. Most Presidents have exercised their veto power as a means to influence legislative outcomes. Of 45 Presidents, 37 have exercised their veto power. This report begins with a brief discussion of the ways Presidents communicate their intention to veto, oppose, or support a bill. It then examines the veto power and Congress's role in the veto process. The report then provides analysis of the use of veto threats and vetoes and the passage of legislation during the George W. Bush Administration (2001-2009) and the Obama Administration (2009-2017) with some observations of the potential influence of such actions on legislation. As specified by the U.S. Constitution (Article I, Section 7), the President has 10 days, Sundays excepted, to act once he has been presented with legislation that has passed both houses of Congress and either reject or accept the bill into law. The President has three general courses of action during the 10-day presentment period: The President may sign the legislation into law, take no action, or reject the legislation by exercising the office's veto authority. A President's return veto may be overridden, or invalidated, by a process also provided for in Article 1, Section 7, of the U.S. Constitution. Because Congress faces a two-thirds majority threshold to override a President's veto, veto threats may deter Congress from passing legislation that the President opposes. By going public with a veto threat, the President may leverage public pressure upon Congress to support his agenda. For purposes of this report, which focuses on the use of veto threats, the unit of analysis throughout is a veto (or a threatened veto), and the report does not distinguish between regular and pocket vetoes. Formal, written Statements of Administration Policy (SAPs, pronounced "saps") are frequently used to express the President's support for or opposition to particular pieces of legislation and may include statements threatening to use the veto power. Among the Bush and Obama Administrations' SAPs examined later in this report, for example, 24% and 48%, respectively, contained a veto threat. Although the relationship between Congress and a President may change every two years with each new Congress, the relationship between an Administration and its President may also change by presidential term. For example, while the number of veto threats in SAPs slowly increased during the first three Congresses of the Bush Administration, the number of veto threats grew sharply in the 110 th Congress. In comparison to the Bush Administration, the Obama Administration steadily increased its use of veto threats issued in SAPs in every subsequent Congress. President George W. Bush exercised the veto power 12 times during his presidency. Congress attempted to override six of President Bush's 12 vetoes and succeeded four times. President Barack Obama similarly exercised the veto power 12 times during his presidency. Congress also attempted to override six of President Obama's 12 vetoes and succeeded once. During the Bush and Obama Administrations, enrolled bills that passed both chambers and were met with a statement indicating that the President intended to veto the bill (a presidential veto threat SAP) were vetoed more often than were those that were met with a statement that agencies or senior advisors would recommend that the President veto the bill (a senior advisors threat SAP).

CRS_R45962

Introduction Mapping broadband availability, which means graphically displaying where broadband is and is not available on a map, is complex and depends on data—with the accuracy of the map depending on the accuracy of the data used to compose the map. Congress has an interest in accurate broadband mapping data, because accurate data can help ensure that federal broadband programs target areas of the country that are most in need of assistance. The Telecommunications Act of 1996 ( P.L. 104-104 ) requires the Federal Communications Commission (FCC) to determine annually whether broadband is being deployed to all Americans on a timely basis, and the FCC relies on broadband mapping data to make this determination. Additionally, the FCC uses broadband mapping data to direct billions of dollars per year to deploy broadband in unserved or underserved areas. Congress has also taken an interest in broadband mapping due to concerns from constituents that certain areas, especially rural areas, remain underserved or unserved. Pinpointing where broadband is and is not available in the United States has been an ongoing challenge. Current data on broadband availability is provided by private telecommunications providers, collected by the FCC, and displayed on the FCC's Fixed Broadband Deployment Map. Difficulty in accurately mapping broadband availability has been attributed to a number of factors, including the adequacy of census block data, the lack of independent data validation outside the FCC, and the absence of a challenge process for consumers and other entities that believe the Fixed Broadband Deployment Map may overstate availability in their area. In early 2019, it came to the FCC's attention that inaccuracies in the Fixed Broadband Deployment Map's broadband data may cause broadband deployment to be overstated. The Fixed Broadband Deployment Map may indicate that areas have access to broadband when in reality, they do not. Inaccurate data on broadband deployment could lead to overbuilding in areas that currently have broadband while leaving other areas underserved or unserved. In the 116 th Congress, numerous pieces of legislation on improving broadband mapping efforts have been introduced, and multiple hearings have been held on the issue. In August 2019, the FCC adopted a Report and Order to establish a new Digital Opportunity Data Collection (DODC). The goal of this effort is to make the Fixed Broadband Deployment Map more accurate and reliable by—among other things—incorporating public feedback and obtaining additional granularity of data. Options for Congress in this area could include oversight of the FCC effort and additional legislative action to improve the accuracy of broadband mapping. Broadband Defined The term broadband commonly refers to high-speed internet access that is faster than dial-up access and is immediately accessible. Broadband includes several high-speed transmission technologies, such as: digital subscriber line (DSL), cable modem, fiber, wireless, satellite, and broadband over power lines (BPL). The internet became publicly available in the 1990s and has evolved since that time as information has continually become digital (e.g., job applications and government forms have moved online). However, not all Americans currently have equal access to broadband. As methods to reach the internet have evolved, so have speeds, with the FCC's current broadband benchmark speed set at 25 megabits per second (Mbps) download and 3 Mbps upload (25/3). Table 1 shows how the FCC's broadband definition has changed from 1996 to its current definition, which was adopted in 2015. The Urban/Rural Digital Divide The term digital divide refers to a gap between those Americans who use or have access to telecommunications and information technologies and those who do not. While urban areas likely see speeds close to 25/3, broadband speeds in rural areas often do not approach that speed—with some areas having no access to broadband. Several factors contribute to geographic disparity, including terrain, population density, demography, and other market factors. These factors discourage build-out to areas that are not as densely populated, because they typically result in a lower return on investment for broadband providers. Although strides have been made in the deployment of broadband to rural areas, the urban/rural digital divide persists. In a survey conducted by the Pew Research Center in 2018, adults who live in rural areas were more likely to say that getting access to high-speed internet is a major problem in their local communities. The primary goal of broadband mapping is to identify areas without access to broadband so that policymakers can make informed decisions on policies to address the urban/rural digital divide. Federal Agency Roles in Broadband Mapping The major federal agencies involved in broadband mapping are the National Telecommunications and Information Administration (NTIA) in the Department of Commerce, the FCC, and the Department of Agriculture (USDA). National Telecommunications and Information Administration The Broadband Data Improvement Act ( P.L. 110-385 ), enacted on October 10, 2008, directed the Department of Commerce to establish a state broadband data and development grant program. One of the purposes of the program was to assist states in gathering data twice a year on the availability, speed, and location of broadband service as well as on the broadband services used by community institutions, such as schools, libraries, and hospitals. This data was used to establish the National Broadband Map, the first public, searchable, nationwide map of broadband availability, which was launched in 2011. This program, known as the State Broadband Initiative (SBI), was administered by NTIA, an agency in the Department of Commerce, and funded under the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ). Through the SBI program, NTIA awarded a total of $293 million to 56 grantees—one from each of the 50 states, five territories, and the District of Columbia. The grantees were required to use the funds to promote broadband adoption and access tailored to their local needs and collect broadband-related data and provide it to NTIA. In 2015, the SBI program ended, collecting its last data as of June 30, 2014. The National Broadband Map was decommissioned on December 21, 2018, due to the age of the data. Mapping responsibility shifted to the FCC. In the Consolidated Appropriations Act of 2018 ( P.L. 115-141 ), Congress provided $7.5 million to NTIA to develop a National Broadband Availability Map. Specifically, Congress directed NTIA to acquire and display available third-party data sets to augment data from the FCC, other federal government agencies, state governments, and the private sector. The stated objective of this funding was "to help identify regions with insufficient service, especially in rural areas." In response, NTIA announced in February 2019 it had partnered with eight states—California, Maine, Massachusetts, Minnesota, North Carolina, Tennessee, Utah, and West Virginia—for a pilot to improve the FCC's Fixed Broadband Deployment Map. The first phase of NTIA's new National Broadband Availability Map was published in October 2019. It is available only to state and federal partners due to the inclusion of nonpublic data, which may be business sensitive or have other restrictions that prevent public disclosure. The conference report on the Consolidated Appropriations Act of 2019 ( P.L. 116-6 ) directed an additional $7.5 million to NTIA to continue this mapping effort. Federal Communications Commission In 2000, the FCC established the Form 477 Data Program to collect from providers "data regarding broadband services, local telephone service competition, and mobile telephony services on a single form and in a standardized manner." In 2013, an FCC Report and Order on Form 477 expanded the scope of the data collection program just as NTIA's National Broadband Map was nearing its end. Among the notable changes to the FCC program were: the collection of fixed broadband data by census block and of mobile broadband and mobile voice data by network coverage area; a requirement for providers of broadband services to provide maximum advertised speeds in each census block for fixed broadband and the minimum advertised speed in each coverage area for mobile broadband; provisions for providers to file all data in a single, uniform format instead of different formats across states; and the elimination of the use of speed tiers for broadband subscription data. The FCC collects data on both fixed and mobile broadband availability through Form 477. It does not combine the two sets of data into a single map; rather, it uses the fixed data to create the Fixed Deployment Broadband Map, and it uses the mobile broadband data to determine which areas are eligible for the Mobility Fund Phase II program (see " Eligibility for Federal Assistance " below). Form 477 Fixed Broadband Data Methodology Every six months, all facilities-based providers of fixed broadband are required to submit a list of all census blocks where they provide, or could provide, fixed broadband service to at least one location. For each census block, the provider is required to submit data specifying the last-mile technology used; whether the provider can or does offer consumer, mass market, or residential service; the maximum advertised download and upload speeds for consumer service; and whether the service is also available for business, enterprise, or government customers. In 2017, the FCC acknowledged some shortcomings of this methodology: Facilities-based providers of fixed broadband must provide in their Form 477 submissions a list of all census blocks where they make broadband connections available to end-user premises, along with the last-mile technology or technologies used. These deployment data represent the areas where a provider does, or could, without an extraordinary commitment of resources, provide service. Thus, the meaning of "availability" in each listed census block can be multifaceted, even within the data of a single filer. In a particular listed block, the provider may have subscribers or it may not. At the same time, the provider may be able to take on additional subscribers or it may not. The various combinations have varying implications that make it difficult to understand availability. Specifically, if a block was listed by a provider, it is impossible to tell whether residents of that block seeking service could turn to that provider for service or whether the provider would be unable or unwilling to take on additional subscribers. This may limit the value of these data to inform our policymaking and as a tool for consumers and businesses to determine the universe of potential broadband service providers at their location. Form 477 Mobile Broadband Data Methodology The collection of accurate and reliable mobile broadband data is particularly challenging, because a user's mobile wireless experience varies and is affected by factors such as terrain, user location, weather, network congestion, and the type of connected service. Under Form 477 filing rules, facilities-based providers of mobile broadband service are required to submit and certify, for each technology and frequency band employed, polygons in shapefiles that digitally represent the geographic areas in which a customer could expect to receive at least the minimum speed the provider advertises for that area. Additionally, mobile broadband providers must report the census tracts in which their service is advertised and available to potential customers. Digital Opportunity Data Collection In August 2019, the FCC adopted a Report and Order introducing the DODC. The DODC is intended to address some of the issues that currently lead to inaccurate broadband mapping data by collecting coverage polygons from broadband service providers, incorporating public input, and revising Form 477. Specifically, the DODC would: require all fixed providers to submit broadband coverage polygons depicting areas where they actually have broadband-capable networks and make fixed broadband service available to end-user locations; reflect the maximum download and upload speeds actually made available in each area, technology used, and differentiation between types of customer (e.g., residential, business, or a combination); incorporate public feedback on fixed broadband coverage; and require Universal Service Administrative Company (USAC) verification of broadband data. In conjunction, the FCC is seeking stakeholder comment on using the DODC exclusively for its broadband mapping and discontinuing use of Form 477. DODC for Fixed Providers The new data collection obligations will initially be limited to fixed broadband providers. For purposes of the DODC, service is considered to be available in an area if the broadband service provider has an active broadband connection or if it could provide such a connection within 10 business days of a customer request, without an extraordinary commitment of resources, and without construction charges or fees exceeding an ordinary service activation fee. DODC for Mobile Providers The FCC is currently seeking comment on how best to incorporate mobile broadband data into the DODC. The August 2019 Report and Order proposes revising the existing Form 477 data process for mobile providers by: transitioning the collection of mobile broadband-capable network deployment data to a USAC-administered portal created for fixed data; maintaining the commission's current Form 477 data collection for mobile broadband and voice data in the interim; and reducing the burden on service providers required to submit the form. These changes suggest that the FCC may be planning to add mobile broadband data to the Fixed Broadband Deployment Map. Department of Agriculture USDA's Rural Utilities Service (RUS) oversees federal programs that fund the deployment of broadband infrastructure. To help determine where to direct federal resources, USDA also maps broadband availability. However, USDA maps are used differently than the FCC's Fixed Broadband Deployment Map. While the FCC's map is used to determine where broadband is and is not, USDA uses its maps to provide a resource for visualizing existing or proposed broadband service areas. For example, the USDA's Broadband Program Mapping Tool is used by: existing borrowers or those interested in applying for funding under the Infrastructure Loan Program, Broadband Loan and Loan Guarantee Program, or Community Connect Grant Program, enabling them to draw existing or proposed service area maps; RUS to post Public Notices of proposed funded service areas for received loan applications, as well as by existing service providers to submit information on their service offerings; other entities that wish to upload an authenticated map of existing broadband services. USDA's other mapping tool is part of the ReConnect Program, which was established under the Consolidated Appropriations Act, 2018 ( P.L. 115-141 ), and is administered by RUS. For ReConnect, RUS established an eligibility area map and application mapping tool designed to assist in the determination of service area eligibility across the United States by displaying four categories of data: the FCC's Connect America Fund winners, nonrural areas, pending applications, and protected broadband borrower service areas. Why Broadband Mapping Accuracy Matters Accurate broadband data and mapping helps policymakers to make informed decisions about where federal funding should be directed, such as with the FCC's upcoming Rural Digital Opportunity Fund, and enables federal agencies to fulfill certain statutory requirements, such as the FCC's annual "reasonable and timely deployment" determination. Eligibility for Federal Assistance Accurate maps are important in federal funding decisions designed to target areas where broadband is needed the most. Without accurate data, maps may not be reliable indicators of need, and federal assistance may be provided to areas that already have adequate broadband services. This may result in overbuild in some areas and neglect of other areas, further widening the disparities between areas that are served and those that are not. In December 2018, FCC Commissioner Jessica Rosenworcel stated: Getting [the broadband map] right matters because we cannot manage what we do not measure. If we don't have proper maps, we will not be able to target policy solutions effectively. The FCC distributes billions of dollars each year to help accelerate the build-out of broadband so we can connect all our communities. It's irresponsible for the agency to do so without having a truly accurate picture of where those resources should go. A recent example of how inaccurate data has affected eligibility for federal assistance occurred in the FCC's Mobility Fund II program. In August 2018, the FCC published initial eligibility maps for Mobility Fund II, which were to be used in allocating up to $4.53 billion in support for rural wireless broadband expansion. In December 2018, the FCC announced it would launch an investigation into whether one or more major carriers violated the Mobility Fund reverse auction's mapping rules and submitted incorrect coverage maps. Until this investigation concludes, the FCC will not distribute the $4.53 billion. This incident drew congressional attention, including a letter to the FCC from a bipartisan group of 30 Senators, who wrote: As you know, many of us have expressed concern about the accuracy of the Federal Communications Commission's map of eligible areas for Mobility Fund Phase II Support (MFII). This map is intended to reflect areas that lack unsubsidized mobile 4G LTE service, but it unfortunately falls short of an accurate depiction of areas in need of universal service support. Another example is the FCC's recent announcement of the Rural Digital Opportunity Fund, which would distribute $20.4 billion over 10 years to expand broadband in rural areas. Though this initiative aims to help close the urban/rural digital divide, without accurate broadband mapping, it will be difficult to determine which areas are in most need of funds. FCC Chairman Ajit Pai stated: One important reason I'm so pleased that we are moving forward with this item is that we'll be putting the new maps to work right away. The Rural Digital Opportunity Fund Notice of Proposed Rulemaking that we adopted earlier today specifically proposes to use the new map to direct more than $4 billion in Phase II funding to deploy high-speed broadband networks to serve Americans living in areas of the country that Form 477's census-block level reporting deems served, but where some residents are actually not served. Reasonable and Timely Deployment Determination The Telecommunications Act of 1996 ( P.L. 104-104 ) requires the FCC to "initiate a notice of inquiry concerning the availability of advanced telecommunications capability to all Americans." In conducting this inquiry, the FCC must "determine whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion." If that determination is negative, the commission "shall take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market." Using data from Form 477, the FCC develops an annual Broadband Deployment Report, also referred to as the Section 706 Report, in which the FCC evaluates the availability of fixed and mobile broadband services. In its 2019 analysis, the FCC made a Section 706 finding that advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion. This finding was supported by Chairman Pai, Commissioner Michael O'Reilly, and Commissioner Brendan Carr, with Commissioners Jessica Rosenworcel and Geoffrey Starks dissenting. The 2019 report makes frequent references to broadband mapping and concerns about data quality. Broadband Mapping Challenges and Criticisms Difficulty in mapping broadband availability has been attributed to a number of factors, including lack of data granularity, overstated availability, lack of independent data validation, and the difficulty in keeping up with real-time deployments. Adequacy of Census Block Data The FCC requires each broadband service provider to submit information on the services it offers at the census block level. Census blocks are the smallest unit of geography defined by the Census Bureau and are "statistical areas bounded by visible features, such as streets, roads, streams, and railroad tracks, and by nonvisible boundaries, such as selected property lines and city, township, school district, and county limits and short line-of-sight extensions and roads." Census blocks vary in size and population, and their geographical area can be especially large in rural areas. For the purposes of Form 477, the FCC considers a census block served if even one house or business in the block is served. Since census blocks in rural areas can be large, this may provide a misleading impression. For example, if fiber is connected to a home in one part of a census block, it may not be connected to another home in the same census block that is a mile down the road. With the use of census blocks, areas within a large block that might otherwise be eligible for federal assistance may not be considered eligible. The Utah Governor's Office of Economic Development told the NTIA: Basing data collection, planning efforts, and funding decisions on census blocks is problematic, particularly in blocks which are large, remote, and include terrain that makes it difficult to install infrastructure. For example, in Utah, the largest populated census block is 947 square miles. Under the current Form 477 submission process, any census block that is partially covered would be ineligible for all federal broadband programs, even if only a small percentage of households or census block area is covered. Overstated Availability Although staff examine FCC Form 477 data for quality and consistency, the FCC acknowledges that the data may understate or overstate deployment of services to the extent that broadband providers misreport or fail to report. For example, after the FCC released a draft annual Broadband Deployment Report in February 2019, it was discovered that a relatively new company, Barrier Communications Corporation, had apparently submitted data claiming presence in every single census block in Connecticut, the District of Columbia, Maryland, New Jersey, New York, Pennsylvania, Rhode Island, and Virginia—which collectively contain nearly 62 million people. A subsequent correction of this data resulted in the FCC issuing a revised Broadband Deployment Report. In April 2019, Microsoft asserted that the percentage of Americans without broadband access is much higher than the figures reported by the FCC. Microsoft claimed that although the FCC indicates that 24.7 million people do not have broadband available, Microsoft's own data indicates that 162.8 million people do not use the internet at broadband speeds of 25 Mbps or more. Microsoft released a map showing differences between the FCC's claimed broadband access and actual usage of broadband. NCTA—The Internet and Television Association criticized this analysis, however, saying that it "conflates availability and usage" and, as a result, draws "a number of unsupportable conclusions." Lack of Validation and Challenge Process Broadband service providers self-report information on Form 477. Although the FCC reviews the data, it is not verified independently outside of the agency. There is also no challenge process in place if a consumer, provider, or other entity identifies any of the data as potentially inaccurate. Stakeholders who testified at an April 2019 hearing before the Senate Committee on Commerce, Science, and Transportation asserted that a challenge process is needed, citing the problems with the FCC's mobility fund auction and how it was difficult for wireless carriers to challenge mobile broadband availability data that the FCC had intended to use as a basis for awarding funding. Real-Time Deployments The FCC currently updates the Fixed Broadband Deployment Map every six months, but the map reflects data that is a year or more behind the current date. For example, as of October 2019, the Map reflects June 2018 data. The telecommunications industry is fluid. Broadband service providers are constantly changing, building new networks, or revising older networks. Once implemented, the FCC's new DODC will require broadband service providers to submit updates within six months of completing new broadband deployments, making changes to (including upgrading or discontinuing) existing offerings, or acquiring new or selling existing broadband-capable network facilities that affect the data submitted on their DODC filings. This may help produce maps that are more up to date. Policy Issues for Congress As Congress considers broadband mapping, it may consider ways to address the challenges of data granularity and lack of validation, the frequent differences between advertised and actual broadband speeds, the balance between short-term and long-term solutions, ways to improve interagency coordination, and state efforts that might be models for future federal action. Some of these issues are address by legislation already introduced in the 116 th Congress (see Appendix A ). Granularity How much more granular maps need to be to serve policymakers remains an open question. Increasing the granularity of data costs money, and costs may not be shared equally among stakeholders. Some stakeholders have expressed concern that requiring additional granularity might place a larger burden on smaller broadband service providers. As stated by WTA—Advocates for Rural Broadband: The Commission's decision to use polygon shapefile reporting, and potentially create a location fabric, is a vast improvement over the current Form 477 regime that has overstated the amount of locations served. However, as the Commission is well aware, small providers have limited staff and resources such that new reporting requirements should be carefully balanced so as to provide necessary information without becoming overly burdensome. USTelecom has proposed a methodology to the FCC to provide additional granularity called the Broadband Serviceable Location Fabric (BSLF). The methodology contains: multiple sources of address, building, and parcel data to develop and validate a comprehensive database of all broadband serviceable locations in the two pilot states; a vendor to conform address formats, remove duplicates, and assign a unique latitude and longitude to the actual building where broadband service is most likely to be installed using a georeferencing tool; a mediated crowdsourcing platform that will enable consumers to submit information to improve the accuracy of the database; and customer address lists provided by participating companies to augment the validation process that will be automatically indexed to the final database to facilitate accurate broadband availability reporting. Different methods for reporting service availability will be tested. To test this methodology, USTelecom launched a Broadband Mapping Initiative Pilot in Virginia and Missouri. The results were released to the public in August 2019 and revealed that in Virginia and Missouri combined, over 450,000 homes and business are counted as served under the FCC's Form 477 process but are not receiving service from participating providers. Further, USTelecom stated that the pilot demonstrates it is now possible to identify and precisely locate virtually every structure in a geographic area that is capable of receiving broadband service. On one hand, USTelecom's initiative might yield better data; on the other hand, the cost of collecting that data would be higher than current methods. USTelecom's proposal estimates that the cost to implement the initial nationwide BSLF would be between $8.5 million and $11 million and, because the BSLF would be a living database, keeping it updated would cost approximately $3 million to $4 million per year. If Congress were to contemplate an initiative of this type, it might wish to consider whether funding at such levels for ongoing broadband map maintenance is sustainable and where the necessary funding would come from. Lack of Validation When broadband service providers submit Form 477, the FCC reviews the data, but there is no validation process outside of the agency to verify that the data is accurate. Having no validation process can be problematic, as there may be instances in which submitted data may be erroneous. In conjunction, there is also no present process in place for the public, providers, or other entities to challenge the data if they believe it to be incorrect. To improve accuracy, the FCC and other stakeholders have cited crowdsourcing as one method to get "boots-on-the-ground" information into the Fixed Broadband Deployment Map. For example, NCTA has proposed that after the FCC publishes maps based on the new FCC reporting regime, consumers and other stakeholders could submit evidence demonstrating potential inaccuracies. In its August 2019 Report and Order , the FCC directed USAC, under the oversight of the Commission's Office of Economics and Analytics, to create an online portal for local, state, and tribal governmental entities—as well as members of the public—to review and dispute coverage under the new DODC. However, NCTA raised a concern with delegating the responsibility to USAC: The delegation of such broad authority to USAC is unusual and raises many questions. NCTA suggests that a more traditional approach, i.e., delegating authority to the relevant Commission bureaus and offices, which would then direct USAC to take action where needed, is the better approach in this case. One option for Congress might be to enact legislation either confirming the delegation to the USAC or directing the FCC to conduct this activity in-house. Alternatively, Congress might choose to leave that decision to the FCC while focusing congressional oversight on how the USAC handles the DODC to determine whether the effort is being handled judiciously. Actual versus Advertised Speeds The FCC currently requires broadband service providers to submit maximum advertised upload and download speeds. However, in some cases these speeds can vary greatly from speeds the customer is actually receiving. For example, the FCC has identified Iowa as the only Midwestern state with virtually complete access to high-speed internet, with every county covered by download speeds of 25 Mbps. Speed tests conducted by the Open Technology Institute—a technology program of the New America Foundation that formulates policy and regulatory reforms—claims that internet users in Iowa actually experience download speeds of 25 Mbps only 22% of the time. Rather than the previous requirement of maximum advertised speeds, the FCC's August 2019 adopted Report and Order now requires broadband service providers to provide the maximum upload and download speeds actually made available in each area. This will provide greater insight into what speeds consumers are actually receiving, but relying on available maximum upload and download speeds may still not reflect the actual user experience due to network congestion or weather. Collecting information on actual speeds would provide additional insight into the broadband experience of actual consumers, but this might impose a burden on broadband service providers. One option for Congress might be to mandate a pilot project to assess the feasibility of download and upload speed collection that accurately reflects the consumer experience as well as the burden on providers. Alternatively, Congress might choose to leave this issue to the FCC's discretion. Short-Term versus Long-Term Solutions Should the FCC should adopt a short-term solution to fix mapping issues quickly, but perhaps not thoroughly? Or should it adopt a longer-term solution that might delay the distribution of funds of other initiatives but might ultimately achieve a more accurate result? NCTA's proposed solution of using shapefiles—instead of census blocks and similar to what is currently used for mobile broadband reporting through Form 477—for fixed broadband data collection has been criticized as being overly vague, but NCTA believes its proposal offers the fastest solution: [For this reason], we agree with the FCC and members of Congress that the current broadband map must be meaningfully improved. We also believe that a pragmatic approach can yield significant improvements in the shortest timeframe. That is why NCTA has proposed a solution that can be implemented nationwide very quickly, without any need for a pilot, and would result in the granular data needed to more accurately identify areas that currently are not served by a fixed broadband provider. USTelecom disputes NCTA's approach, stating: We agree with NCTA that shapefiles are one of several reasonable methods for broadband providers to report their service data. The difference is that NCTA wants the FCC to stop at shapefiles and not create the BSLF, but shapefiles alone do not produce the detailed data the Commission needs to responsibly close the digital divide. The DODC will include the collection of polygons, but the FCC's Second Notice of Proposed Rulemaking seeks comment on ways that location-specific data could be overlaid onto the polygon-based data to precisely identify the homes and small businesses that have and do not have broadband access. A consideration for Congress is whether the need for more granular and accurate data justifies withholding federal broadband funding until better data are available or whether the goal of closing the urban/rural digital divide is so pressing that funding should proceed based on the data currently available. Frequent Updates The FCC collects data from broadband service providers every six months through Form 477 and updates the Fixed Broadband Deployment Map twice a year. However, the Fixed Broadband Deployment Map's data lags approximately a year and a half behind. For example, as of October 2019, the Fixed Broadband Deployment Map contains data with the latest public release as of June 2018. A consideration for Congress may be whether the Fixed Broadband Deployment Map could be updated more frequently (e.g., data could be collected every month) to reflect continuing network changes and, if so, whether that would impose a significant burden on broadband service providers. Agency Roles and Interagency Coordination The involvement of multiple agencies—NTIA, FCC, and USDA—in broadband mapping and the provision of broadband subsidies and technical assistance may present challenges for interagency coordination and communication. For example, without interagency coordination, there is a potential for federal broadband funding efforts to be duplicative. The 116 th Congress is considering additional legislation regarding interagency coordination (see Appendix B ). Interagency coordination was also a major focus of the February 2019 USDA American Broadband Milestones Initiatives Report . As an example, the report discusses how NTIA is working on creating a "one-stop shop" for broadband permitting and deployment. Finally, the conference agreement for the 2019 Consolidated Appropriation ( P.L. 116-6 ) has language regarding interagency coordination: To ensure these investments are maximized, the conference agreement reminds the Department to avoid efforts that could duplicate existing networks built by private investment or those built leveraging and utilizing other federal programs and directs the Secretary of Agriculture to coordinate with the Federal Communications Commission (FCC) and the National Telecommunications Information Administration (NTIA) to ensure wherever possible that broadband loans and grants issued under the broadband programs are targeted to areas that are currently unserved. State Broadband Efforts Some state broadband offices have undertaken broadband mapping efforts, which could serve as models for federal efforts. For example: Kansas' new map published in July 2019 shows service availability at the street level for broadband across the state; North Carolina's broadband map has a new user-reporting tool that allows residents to provide feedback and identify pockets of unserved and underserved areas; and Wyoming's interactive map shows the results of internet-speed tests and broadband availability across the state. The map displays a color-coded dot for every speed test that has been completed in the state, creating a visual demonstration of served and unserved areas, along with quality of service at those locations. Concluding Observations Broadband mapping has garnered congressional interest since the creation of the SBI under the Broadband Data Improvement Act ( P.L. 110-385 ) and introduction of the NTIA's National Broadband Map. Mapping efforts have continually improved since that time, but congressional interest in mapping accuracy has been heightened due to recent challenges that have resulted in potential overstatement of broadband availability. The FCC's DODC, which will take effect once specifications for the coverage polygons are defined through the FCC's comment-and-reply process, is a first step in obtaining more granular and accurate broadband mapping data. As the new collection effort unfolds, Congress may take an interest in monitoring whether the effort seems sufficient to alleviate the current broadband mapping issues, whether to wait on distribution of federal funding until the map is determined accurate, or whether additional legislative action should be taken. Appendix A. Broadband Mapping Legislation in the 116 th Congress H.R. 1644 (Doyle), introduced on March 8, 2019, as the Save the Internet Act of 2019, includes provisions that would require the Government Accountability Office to prepare reports on broadband internet access service competition, ways to improve broadband infrastructure in rural areas, challenges to accurate broadband mapping, and the benefits of standalone broadband. It would require the FCC to engage with tribal communities to address broadband needs, delay release of its 706 Report until broadband data inaccuracies are corrected, and submit to Congress a report containing a plan for how the FCC will evaluate and address problems with Form 477 broadband data. Passed by the House on April 10, 2019. Placed on the Senate Legislative Calendar under General Orders on April 29, 2019. H.R. 2643 (Latta), introduced on May 9, 2019, as the Broadband MAPS Act of 2019, would direct the FCC to establish a challenge process to verify fixed and mobile broadband service coverage data. Referred to the Committee on Energy and Commerce. H.R. 2741 (Pallone), introduced on May 15, 2019, as the LIFT America Act, would provide $40 billion to the FCC to establish a reverse auction (nationally and by states) that would fund broadband infrastructure deployment in unserved and underserved areas (Title I, Subtitle A). Section 11001 of the bill would direct how existing broadband data/mapping should be used and challenged. Referred to the Committee on Natural Resources, Subcommittee for Indigenous Peoples of the United States. H.R. 3055 (Serrano), introduced June 3, 2019, as the Commerce, Justice, Science, Agriculture, Rural Development, Food and Drug Administration, Interior, Environment, Military Construction, Veterans Affairs, Transportation, and Housing and Urban Development Appropriations Act, 2020. As passed by the House, includes broadband mapping-related provisions. One provision would prevent NTIA from using funding to update broadband maps using only Form 477 data, and the other would provide $1 million in broadband mapping funding to NTIA. Placed on Senate Legislative Calendar under General Orders. Calendar No. 141. H.R. 3162 (McMorris Rodgers), introduced June 6, 2019, as the Broadband Data Improvement Act of 2019, would require the FCC to establish a reporting requirement under which each provider submits accurate and granular information regarding the geographic availability of broadband internet access and to establish a framework for an ongoing challenge process through which a provider or a member of the public may submit information challenging the accuracy of the information reflected on the National Broadband Map. Referred to the Committee on Energy and Commerce. H.R. 4024 (Finkenauer), introduced on July 25, 2019, as the Broadband Transparency and Accountability Act of 2019, would direct the FCC to require an entity to report data that reflects the average speed and characteristics of broadband service. It would also require the FCC to establish a process to use data that is reported by consumers, businesses, and state and local governments to verify the data used in the Broadband Map. Referred to the Committee on Energy and Commerce. H.R. 4128 (Luján), introduced on July 30, 2019, as the Map Improvement Act of 2019, would direct the FCC to establish a standardized methodology for collecting and mapping accurate fixed broadband internet service and mobile broadband internet service coverage data. It would also establish an Office of Broadband Data Collection and Mapping within the FCC. Referred to the Committee on Energy and Commerce. H.R. 4227 (McEachin), introduced on September 6, 2019, as the Mapping Accuracy Promotes Services Act, would prohibit the submission to the Federal Communications Commission of broadband internet access service coverage information or data for the purposes of compiling an inaccurate broadband coverage map. Referred to the House Committee on Energy and Commerce. H.R. 4229 (Loebsack), introduced on September 6, 2019, as the Broadband Deployment Accuracy and Technological Availability Act, would require the FCC to issue rules relating to the collection of data with respect to the availability of broadband services. Referred to the House Committee on Energy and Commerce. S. 842 (Klobuchar), introduced on March 14, 2019, as the Improving Broadband Mapping Act of 2019, would require the FCC to establish a process to use coverage data reported by consumers and state, local, and tribal government entities to verify coverage data reported by wireless carriers. Additionally, it would direct the FCC to consider other measures, including, but not limited to, an evidence-based challenge process, to help in verifying coverage data reported by providers of both fixed and mobile broadband services. Referred to the Committee on Commerce, Science, and Transportation. S. 1485 (Manchin), introduced on May 15, 2019, as the Map Improvement Act of 2019, would require the FCC, in coordination with NTIA, to establish a standardized methodology for collecting and mapping accurate fixed and mobile broadband coverage data. It would establish an Office of Broadband Data Collection and Mapping at the FCC to serve as the central point of collection, aggregation, and validation of data. It would establish a technical assistance grant program at NTIA to support state and local entities in broadband mapping and assessing broadband adoption and pricing within their communities. Referred to the Committee on Commerce, Science, and Transportation. S. 1522 (Capito), introduced on May 16, 2019, as the Broadband Data Improvement Act of 2019, would direct the FCC to establish rules that require providers to submit more accurate and granular broadband data; a three-pronged data validation process involving public feedback, third-party commercial datasets, and an on-the-ground field validation process; and a periodic challenge process. It would require the National Broadband Map to be used by federal agencies to identify areas that remain unserved and track where awarded funds have actually resulted in broadband buildout. Referred to the Committee on Commerce, Science, and Transportation. S. 1822 (Wicker), introduced on June 12, 2019, as the Broadband Deployment Accuracy and Technological Availability Act, would require the FCC to issue rules to collect more granular broadband coverage data, including a decision on whether to collect verified information from others, such as state, local, and t ribal governmental entities that are primarily responsible for mapping or tracking broadband internet access service coverage for their respective jurisdictions. Referred to the Committee on Commerce, Science, and Transportation. S. 2275 (Bennet), introduced on July 25, 2019, as the Broadband Transparency and Accountability Act of 2019, would direct the FCC to require an entity to report data that reflects the average speed and characteristics of broadband service. It would also require the FCC to establish a process to use data that is reported by consumers, businesses, and state and local governments to verify the data used in the Broadband Map. Referred to the Committee on Commerce, Science, and Transportation. Appendix B. Broadband Interagency Coordination Legislation in the 116 th Congress H.R. 292 (Curtis), introduced on January 8, 2019, as the Rural Broadband Permitting Efficiency Act of 2019, would coordinate federal broadband permitting to encourage expansion of broadband service to rural and tribal communities. Referred to the Subcommittee on Conservation and Forestry. H.R. 1328 (Tonko), introduced on February 25, 2019, as the ACCESS Broadband Act, would establish the Office of Internet Connectivity and Growth within NTIA. The office would provide outreach to communities seeking improved broadband connectivity and digital inclusion, track federal broadband dollars, and facilitate streamlined and standardized applications for federal broadband programs. Passed by the House on May 8, 2019. H.R. 2601 (Peterson), introduced on May 8, 2019, as the Office of Rural Telecommunications Act, would direct the FCC to establish the Office of Rural Telecommunications, which would coordinate with RUS within the USDA, NTIA, and other federal broadband programs. Referred to the House Committee on Energy and Commerce. H.R. 3278 (Loebsack), introduced on June 13, 2019, as the Connect America Act of 2019, would provide for the establishment of a program to expand access to broadband and coordinate with other federal programs that expand access to broadband, such as the Connect America Fund or the Broadband e-Connectivity Pilot Program, to ensure the efficient use of program funds. Referred to the House Committee on Energy and Commerce. H.R. 3676 (Khanna), introduced on July 10, 2019, as the Measuring Economic Impact of Broadband Act of 2019, would direct the Secretary of Commerce to conduct an assessment and analysis of the effects of broadband deployment and adoption on the economy, including consultation with the heads of agencies and offices of the federal government as the Secretary considers appropriate. Referred to the House Committee on Energy and Commerce. H.R. 4283 (Pence), introduced on September 11, 2019, as the Broadband Interagency Coordination Act of 2019, would require federal agencies with jurisdiction over broadband deployment to enter into an interagency agreement related to certain types of funding for broadband deployment. Referred to the Committee on Energy and Commerce and the Committee on Agriculture. S. 454 (Cramer), introduced on February 12, 2019, as the Office of Rural Broadband Act, would establish an Office of Rural Broadband within the FCC that would coordinate with RUS/USDA, NTIA, and other FCC broadband-related activities. Referred to the Committee on Commerce, Science, and Transportation. S. 1046 (Cortez Masto), introduced on April 4, 2019, as the ACCESS Broadband Act, would establish the Office of Internet Connectivity and Growth within NTIA. The office would provide outreach to communities seeking improved broadband connectivity and digital inclusion, track federal broadband dollars, and facilitate streamlined and standardized applications for federal broadband programs. Referred to the Committee on Commerce, Science, and Transportation. S. 1289 (Klobuchar), introduced on May 2, 2019, as the Measuring Economic Impact of Broadband Act of 2019, would direct the Secretary of Commerce to conduct an assessment and analysis of the effects of broadband deployment and adoption on the economy, including consultation with the heads of agencies and offices of the federal government as the Secretary considers appropriate. Referred to the House Committee on Energy and Commerce. S. 1294 (Wicker), introduced on May 2, 2019, as the Broadband Interagency Coordination Act of 2019, would require federal agencies with jurisdiction over broadband deployment (FCC, USDA, NTIA) to enter into an interagency agreement related to certain types of funding for broadband deployment. Referred to the Committee on Commerce, Science, and Transportation.

Access to high-speed internet, also known as broadband, is increasingly important in the 21 st century, as more and more aspects of everyday life, such as job applications and homework assignments, become digital. Some areas of the United States—particularly rural areas—have limited or no access to broadband due to market, geographic, or demographic factors. The gap between those who have access to broadband and those who do not is referred to as the digital divide. The Federal Communications Commission (FCC), National Telecommunications and Information Administration (NTIA), and Rural Utilities Service (RUS) have developed maps to help guide resources toward closing the digital divide. Since 2018, the FCC has had the responsibility for developing a comprehensive map of broadband access in the United States. However, the data available to determine where to invest resources may be incomplete or inaccurate. For example, the FCC's current methodology considers a census block served if at least one home or business in that census block has broadband access. In addition, the data is self-reported by broadband service providers and not independently verified outside the FCC. On August 1, 2019, the FCC adopted a Report and Order introducing a new process, called the Digital Opportunity Data Collection (DODC), for collecting fixed broadband data. The new process would require broadband service providers to provide geospatial broadband coverage maps—which provide greater granularity than census blocks—indicating where fixed broadband service is actually made available. The new process would also implement a crowdsourcing mechanism for public feedback, as individual consumers will likely know whether they have access to broadband. The FCC also adopted a Second Further Notice of Proposed Rulemaking (FNPRM) , seeking comment on issues including the need for additional granularity and the potential sunset of the current data collection process upon complete implementation of the DODC. As the FCC implements the DODC process, Congress has a wide variety of options for oversight and legislation. For example, Congress may continue to consider issues such as the optimal level of data granularity, the process for independent validation, and costs and burdens of broadband data collection on both consumers and broadband service providers. Congress could consider providing federal funding for a broadband mapping pilot to thoroughly assess these factors and assist in determining how to strike the desired balance, as well as exploring what funding levels for ongoing broadband map maintenance would be sustainable and where the necessary funding would come from. Congress may debate whether to leave factors within the proposed DODC, such as the current delegation of broadband data collection authority to the Universal Service Administrative Company, to the discretion of the FCC, or Congress may wish to enact legislation to keep broadband data collection efforts under the purview of the FCC. To assist with future federal action, Congress may take into consideration successful state broadband mapping efforts, which could provide additional insight into models that could be replicated on a national scale. Congress may continue to debate potential short-term and long-term broadband mapping solutions, including whether federal funding for rural broadband expansion should be withheld until mapping issues are resolved. In conjunction, Congress may also contemplate whether to provide oversight over federal agency broadband activities or enact legislation regarding interagency coordination efforts on broadband deployment to reduce the potential for duplicative funding. Another consideration for Congress may be whether the FCC's Fixed Broadband Deployment Map could be updated more frequently so that data reflects continuing network changes and, if so, whether that would impose a significant burden on broadband service providers. Bills addressing many of these broadband mapping issues have been introduced in the 116 th Congress, including the Save the Internet Act of 2019 ( H.R. 1644 ), passed by the House on April 10, 2019, and the ACCESS Broadband Act ( H.R. 1328 ), passed by the House on May 8, 2019.

GAO_GAO-20-216

Background NMFS and the eight regional fishery management councils are responsible for managing approximately 460 fish stocks in federal waters, as shown in figure 1. NMFS has overall responsibility for collecting data on fish stocks and ocean conditions and for generating scientific information for the conservation, management, and use of marine resources. NMFS carries out this responsibility primarily through its five regional offices and six regional fisheries science centers, which are responsible for collecting and analyzing data to conduct stock assessments. Stock assessments consider information about the past and current status of a managed fish stock, including information on fish biology, abundance, and distribution that can be used to inform management decisions. To the extent possible, stock assessments also predict future trends of stock abundance. NMFS provides the results of its stock assessments and other analyses, as appropriate, to the councils for use in implementing their respective fisheries management responsibilities. In the South Atlantic and Gulf of Mexico regions, NMFS provides support to the councils’ management efforts through its Southeast Regional Office and the Southeast Fisheries Science Center. Under the Magnuson-Stevens Act, the councils are responsible for managing the fisheries in their region. This includes developing fishery management plans, subject to NMFS approval, based on the best scientific information available and through collaboration with a range of stakeholders. The councils convene committees and advisory panels to assist them in developing research priorities and selecting fishery management options, in addition to conducting public meetings. The councils are to comprise members from federal and state agencies, as well as the commercial and recreational fishing sectors (see fig. 2). The councils—supported by council staff such as biologists, economists, and social scientists—are responsible for preparing proposed fishery management plans or plan amendments for NMFS review. These plans or amendments are to identify, among other things, conservation and management measures to be used to manage a fishery, including determining the maximum size of a fish stock’s allowable harvest. This is generally done by developing annual catch limits for each fish stock, that is, the amount of fish that can be harvested in the year. Fishery management plans or amendments also include establishing or revising any allocations between the commercial and recreational sectors for mixed-use fish stocks where the councils determine it may be warranted. For example, councils may allocate a percentage of a fish stock’s annual catch limit between the recreational and commercial fishing sectors. See figure 3 for an overview of the federal fisheries management process. Council staff facilitate the fisheries management process by organizing council meetings, preparing and providing analyses for those meetings, and facilitating input from stakeholders and the public on fisheries management issues, among other things. Stakeholders include participants in the commercial and recreational fishing sectors and related industries, such as fishing associations, seafood dealers and processors, food and travel industry representatives, and conservation groups. Once the councils complete proposed fishery management plans or plan amendments, they are to provide them to NMFS for review. NMFS is responsible for determining if the plans or amendments are consistent with the Magnuson-Stevens Act and other applicable laws, and for issuing and enforcing final regulations to implement approved plans. Tables 1 and 2 highlight the mixed-use fish stocks the South Atlantic and Gulf of Mexico councils manage, respectively. Fisheries Allocations Under the Magnuson-Stevens Act’s national standards for fishery management plans, allocations are to be fair and equitable to all U.S. fishermen; reasonably calculated to promote conservation; and carried out in such manner that no particular individual, corporation, or other entity acquires an excessive share. NMFS guidelines for the national standards further indicate that in making allocations, councils should consider certain factors relevant to the fishery management plan’s objectives. These factors include economic and social consequences of the allocations, food production, consumer interest, dependence on the fishery by present participants and coastal communities, efficiency of various types of gear used in the fishery, transferability of effort to and impact on other fisheries, opportunity for new participants to enter the fishery, and enhancement of opportunities for recreational fishing. In reviewing and approving fishery management plans and amendments, NMFS is responsible for ensuring that the councils’ allocation decisions comply with the Magnuson-Stevens Act’s national standards. In this report, the terms “established” and “revised” allocations refer to allocations established or revised by the councils and subsequently approved by NMFS, unless otherwise stated. Historically, mixed-use fisheries allocations have been based predominantly on data estimating each fishing sector’s past use of the resource, according to NOAA. To collect commercial and recreational data, NMFS works with partners such as coastal states and interstate marine fisheries commissions. In particular, for the commercial fishing sector, NMFS collects data on landings, which include the weight and value of fish stocks sold to seafood dealers using a network of cooperative agreements with states. For recreational fishing, NMFS uses data from its Marine Recreational Information Program, which the agency began implementing in 2008 in place of the Marine Recreational Fisheries Statistics Survey. The Marine Recreational Information Program collects data on private anglers’ fishing effort and catch rates and uses these to estimate total recreational fishing catch. NMFS officials said that the program also collects information to estimate recreational landings. The program collects these data through such methods as mail surveys and shore-side interviews of anglers at public access fishing sites. Recognizing the difficulty in making allocation decisions—in part because allocations may be perceived as unfair by some stakeholders—NMFS commissioned a nationwide study in 2012 to examine allocation issues and gain stakeholders’ perspectives from commercial and recreational fishing sectors. The results of the study showed widespread dissatisfaction with how past allocation decisions were made. The study found little consensus on how to address concerns with allocations. For example, some stakeholders said that some allocations were outdated and that changes over time in human population, seafood demand, and recreational fishing warranted a comprehensive examination of allocations. Other stakeholders expressed concern that a uniform approach to allocation policy could harm fishing sectors, while others noted that it is important for the councils to have the flexibility to make regionally-focused decisions. The study concluded that many stakeholders may continue to view allocations as unbalanced or unfair unless the outcomes align with the positions they seek. The study recommended that NMFS take a number of steps to address allocation issues, including increasing stakeholder engagement in allocation decisions, periodically reviewing allocations, and creating a list of factors to guide allocation decisions. In response to the 2012 study, NMFS issued a fisheries allocation review policy in 2016 and two guidance documents to the councils, intended to help the councils and NMFS review and update allocations. The objective of the NMFS policy was to describe the fisheries allocation review process, which called for using an adaptive management approach. NMFS policy defined fisheries allocation review as the evaluation that leads to the decision of whether or not the development and evaluation of allocation options is warranted, but the allocation review is not, in and of itself, an implicit trigger to consider alternative allocations. Through its policy, NMFS established a multi-step process for reviewing and potentially revising fisheries allocations. Specifically, once an allocation review trigger has been met (as described below), the councils are to complete an allocation review. For this review, NMFS policy does not call for in-depth analyses but calls for a clear articulation of how objectives are or are not being met and a clear rationale and documentation on relevant factors considered. Based on the allocation review, the councils may decide to maintain existing allocations, or proceed to evaluate allocation options for a fishery management plan amendment. When proceeding with this next step, the councils are to undertake formal analyses and follow the fishery management plan amendment process to ultimately recommend that an existing allocation either be retained or revised. To supplement its fisheries allocation review policy, NMFS also issued two guidance documents, as follows: Criteria for initiating fisheries allocation reviews. NMFS guidance recommended that the councils establish criteria for initiating allocation reviews—or allocation review triggers—within 3 years, or as soon as practicable, for all fisheries that have allocations between sectors. The guidance identified three types of potential criteria for allocation review triggers: (1) time-based, which include provisions for periodic allocation reviews at specific time intervals on a regular basis; (2) public interest-based, which provide an opportunity for the public to express interest in allocation reviews; and (3) indicator-based, such as triggers based upon economic or other metrics. Factors to consider when reviewing and making allocation decisions. NMFS guidance outlined four categories of factors for the councils to consider when making allocation decisions, and noted that there may also be other appropriate factors to consider. These factors are not intended to prescribe particular outcomes with respect to allocations, but rather are intended to provide a framework for analysis, according to the guidance. The four categories of factors include: Fishery performance and change factors, to assess the current conditions of a fishery and any changes in those conditions that may indicate a need for updated allocations. Such factors could include historical or current trends in catch or landings, the status of the fish stock (for example, whether it is subject to overfishing, is overfished, or is rebuilding), or changes in the distribution of species within the fishery. Economic factors, to consider the monetary consequences of an allocation, such as by analyzing (1) whether the existing or recommended allocation is the most economically efficient, and (2) the economic impacts of the allocation. Social factors, to assess the consequences of an allocation on individuals and communities, such as whether an allocation may have disproportionate adverse effects on low income or minority groups or could lead to fishing despite unsafe conditions if access to the fishery is restricted to a limited number of days. Ecological factors, to consider the potential ecological impacts of allocations, such as impacts on the habitat or predator-prey dynamics of the fishery or of other fisheries within the ecosystem. South Atlantic and Gulf of Mexico Councils Have Established and Revised Allocations to Varying Degrees Since the Magnuson-Stevens Act was passed in 1976, the South Atlantic and Gulf of Mexico councils have established and revised allocations to varying degrees for the mixed-use fish stocks they manage in their regions. The South Atlantic council has established allocations for almost all of its mixed-use fish stocks and the Gulf of Mexico council has done so for certain stocks. South Atlantic Council Has Established Allocations for Almost All Mixed-Use Fish Stocks and Revised Most of those Allocations in 2012 Based on documents from the South Atlantic council, we found that the council has established allocations for 50 of the region’s 51 mixed-use fish stocks. The council first established an allocation for one fish stock—king mackerel—in 1985. From 1987 through 2010, the council set allocations for eight fish stocks. The council then established most allocations, encompassing 40 of its mixed-use fish stocks, in 2011, with allocations generally based on estimates of each fishing sector’s historical landings. The council’s most recently established allocation—for a cobia stock—was in 2014, according to council documents. Appendix I provides additional information on the allocations for the mixed-use fisheries in the South Atlantic council region and the years in which the council established and revised allocations. According to South Atlantic council staff, the council’s approach to revising allocations has been to rely on stakeholder input to inform them of allocations that may need revision but to otherwise leave established allocations in place. For example, council staff noted that the allocation for king mackerel—which distributes a percentage of the annual catch limit to each fishing sector—has not changed since 1985 because it is still effective for both the commercial and recreational fishing sectors. Council staff explained that because neither sector has typically caught the amount of king mackerel they have been allocated, the council has not needed to revise the allocation. As of December 2019, the South Atlantic council had revised allocations for most of their mixed-use fish stocks once, according to council documents, as shown in table 3. The council revised allocations for 30 fish stocks in 2012, based on changes to the source of recreational catch data the council was using in its formulas for calculating allocation percentages. The South Atlantic council has revised few allocations more than once. Specifically, they revised allocations for two fish stocks twice and for one, dolphin, three times. For example, the council first established an allocation for dolphin (also known as mahimahi, dolphinfish, and dorado) in 2003. It established the allocation to maintain the fishery as predominantly recreational and based the allocation on historical landings, according to the council’s fishery management plan (see fig. 4). According to council documents, the council then revised the dolphin allocation three times: in 2011, when initially setting annual catch limits for dolphin, in 2013, based on changes to the source of recreational catch data used to calculate allocation percentages, and in 2015, because the recreational sector had not been catching the amount of fish it was allocated, and the council was concerned that the commercial sector could exceed its allocation in the future. The extent to which the South Atlantic council may have considered other revisions to allocations is unclear. For example, South Atlantic council staff said that their council had deliberated on revising allocations for some fish stocks at council meetings, but they do not have records of the deliberations because the council decided not to make revisions and did not initiate related fishery management plan amendments. South Atlantic council staff explained that they document all allocation revisions through fishery management plan amendments, but they have not otherwise formally documented reviews that did not result in revisions. Council staff said they recognize the need to better document such reviews in the future; however, the council did not identify how it plans to do so, as discussed later in this report. Gulf of Mexico Council Has Established Allocations for Certain Mixed-Use Fish Stocks and Revised Three of Those Allocations in 2008 The Gulf of Mexico council established commercial and recreational allocations for nine of the region’s 23 mixed-use fish stocks, according to documents from the council (see app. I for allocations for the mixed-use fisheries in the Gulf of Mexico council region). Council staff said most of the council’s allocations were made based on estimates of each sector’s historical landings. The council has not established allocations for most mixed-use fish stocks in the region because allocations for these stocks have not been warranted, according to council staff. Council staff said the council generally considers establishing allocations when stakeholders identify issues, or if new information such as a stock assessment becomes available and indicates that allocations may be needed to help manage a fish stock. In the absence of such information, the Gulf of Mexico council manages the fish stocks with other methods— for example, with seasonal closures or trip or bag limits, which establish the number of fish that can be legally taken in a specified period. As of December 2019, the Gulf of Mexico council had revised allocations for three mixed-use fish stocks, as shown in table 4. For example, the council revised the allocation for red grouper in 2008 to increase the recreational sector’s allocation after a stock assessment indicated the fishery had recovered from overfishing, according to a council document. In 2008, the council also revised the gag grouper allocation to increase the commercial sector’s allocation. In addition, the Gulf of Mexico council completed a fishery management plan amendment in 2015 that revised the red snapper allocation by increasing the recreational sector’s percentage. However, after the Secretary of Commerce approved the amendment in 2016, a U.S. District Court vacated the amendment in 2017, and the council returned to the initial allocation established for red snapper. Gulf of Mexico council staff said the council has not identified a need to revise allocations for the other mixed-use fish stocks in the region with allocations. For instance, for the deep water grouper and tilefish complexes, council staff said there has been limited competition between the recreational and commercial fishing sectors and the council has not needed to revise the allocations initially established for those fish stocks in 2011. When the Gulf of Mexico council has considered revising allocations, it has done so through fishery management plan amendments, according to council staff. For example, in a 2016 fishery management plan amendment, the council considered revising the allocation for king mackerel because estimates indicated that the recreational sector had not been landing the amount of fish it was allocated. However, the council decided not to revise the allocation, citing the potential for increased recreational fishing for king mackerel in the future. Various Sources of Information May Be Available to Help NMFS and the Councils Conduct Allocation Reviews Through our review of agency documents and interviews with NMFS and South Atlantic and Gulf of Mexico council staff, we found that various sources of information may be available to help NMFS and the councils review allocations, but each source presents some challenges to councils for supporting allocation decisions. Councils can use these sources of information to consider the factors NMFS’ 2016 guidance calls for— including fishery performance and change, economic, social, and ecological factors—when reviewing allocations. Five key sources of information that NMFS and the councils identified are trends in catch and landings, stock assessments, economic analyses, social indicators, and ecosystem models. NMFS officials said that the councils would like to incorporate these key sources into their allocation reviews, and use such information in supporting future allocation decisions. However, they said the availability, specificity, or quality of information can present challenges to using some of the information. In particular, they noted that available information other than landings is often sparse and uncertain for many fish stocks. As a result, the officials said it may be difficult for the councils to use such information as the basis for allocation decisions. NMFS is taking some steps to improve the information available, as discussed below. Trends in Catch and Landings NMFS’ 2016 guidance states that changes in the performance or conditions of a fishery may indicate the need for updated allocations. Fishery performance and change factors include trends in catch or landings. Data on historical and current catch and landings can provide the councils with important information about demand, according to NMFS guidance, including whether a fishing sector may be catching above or below its allocation. Generally, NMFS collects landings data for commercial fisheries from state fisheries agencies, who obtain landings data from monthly reports submitted by seafood dealers on the weight and value of fish sold at the dock. NMFS collects data to estimate recreational catch and landings through survey and interview methods through its Marine Recreational Information Program. However, recreational catch estimates present some limitations. A 2017 National Academies study noted that obtaining reliable data on recreational catch can be challenging because of several attributes of the recreational fishing sector. For example, the greater number of recreational anglers compared with the number of participants in the commercial fishing sector, and the greater number of access and landing points available to recreational anglers, make it difficult to obtain reliable data on the extent of recreational fishing, according to the study. In 2018, the Marine Recreational Information Program updated how NMFS estimates recreational catch based on a change in the survey methodology used to collect data from anglers on the Atlantic and Gulf of Mexico coasts. According to NMFS documents, updated recreational catch estimates for many fish stocks are several times higher than previous estimates because of the change in methodology. However, any implications these updated estimates may have for allocations in the South Atlantic and Gulf of Mexico may not be fully understood until NMFS incorporates the estimates into stock assessments, which were scheduled for completion between 2019 and 2021, according to NMFS documents. Further, in the Gulf of Mexico, states collect recreational catch data through their own programs, which supplement NMFS’ Marine Recreational Information Program data. The states’ programs use different methodologies, however, which Gulf of Mexico council staff said make it difficult to reconcile the states’ recreational fisheries data with NMFS’ data on catch estimates. According to an NMFS document, some of the different methodologies the states use to design surveys have produced different estimates in years when two or more surveys were conducted side by side, making it difficult to determine the best estimates of recreational catch in the Gulf of Mexico. NMFS is taking steps to improve its recreational catch estimates. For instance, in September 2019 NMFS issued procedural guidance to help ensure that survey estimates from the Marine Recreational Information Program are based upon the best scientific information available and to promote nationwide consistency in collecting data and estimating recreational catch. NMFS is also working with Gulf of Mexico states to evaluate the critical assumptions made by each state’s data collection program and to help ensure that the states’ recreational catch estimates are comparable across years and with other states. As part of this effort, NMFS is calibrating recreational catch estimates from Gulf of Mexico states with data from the Marine Recreational Information Program. According to an agency official, NMFS anticipates completing this effort in May 2020. Stock Assessments Stock assessments are a key source of information the councils can use to review allocations given the information they provide on the status of fish stocks, according to NMFS documents. Stock assessments can range in complexity from a simple description of historical trends in catch and landings to complex assessment models that incorporate spatial and seasonal analyses in addition to ecosystem or multispecies considerations. Stock assessments are not available for all fish stocks with allocations, however. In the South Atlantic, 32 of the 50 mixed-use fish stocks with allocations do not have stock assessments, according to council staff. Of these fish stocks, NMFS plans to complete stock assessments for three—gray triggerfish, scamp, and white grunt—by 2024, according to South Atlantic council staff. In the Gulf of Mexico, stock assessments are available for the mixed-use fish stocks with allocations, with the exception of the shallow and deep water grouper aggregate complexes. Stock assessments can provide maps of the spatial distributions of fish stocks and may show changes in those distributions over time, according to NMFS officials. Changes in a fish stock’s distribution may lead to allocation disputes, and basing allocations on historical catch may not be appropriate in such situations, according to an NMFS document. NMFS’ 2016 guidance states that the councils may need to update allocations if the distributions of fish stocks change over time for reasons such as climate change or natural fluctuations in abundance. However, NMFS officials noted that few stock assessments incorporate spatial models that would allow forecasts of future spatial distributions. To help improve the availability of such information, NMFS is conducting evaluations that will, among other things, assess changes in the distribution of fish stocks in the Gulf of Mexico and South Atlantic in response to regional climate change impacts. NMFS officials said they anticipate completion of these evaluations in 2020, which will help them forecast future spatial distributions for some fish stocks going forward. In addition, stock assessments are one source of information that the councils can use to assess each fishing sector’s expected ecological impacts, according to NMFS officials. For example, NMFS officials said that stock assessments commonly provide information on each sector’s discards—fish intentionally thrown back. Discards may be caught as bycatch—that is, incidentally to the harvest of the primary fish stock targeted. NMFS’ 2016 guidance states that councils can consider the expected impacts of each fishing sector’s allocation on bycatch and bycatch mortality. However, the availability and certainty of bycatch and discard information can vary, according to NMFS officials. NMFS is taking steps to improve information on bycatch and discards. For instance, beginning in 2020, the for-hire component of the recreational fishing sector is to use an electronic system to report its bycatch and discards in the South Atlantic and Gulf of Mexico, according to NMFS officials. The officials said that the commercial fishing sector will begin using this system by 2023. NMFS officials said that the agency is also developing a model that will, among other things, estimate the number of released fish caught by the recreational fishing sector in the South Atlantic and Gulf of Mexico. The officials said that the first version of the model is focused on gag grouper in the Gulf of Mexico, but that the model could be customized to any fish stock with the necessary data available. As of December 2019, NMFS officials anticipated completion of the model by late 2020 and estimated that the model would be ready to incorporate into stock assessments in fiscal year 2021 or later. Economic Analyses Economic analyses can provide information on the economic consequences of allocations, according to NMFS documents. NMFS’ 2016 guidance notes that councils should consider if the current or preferred allocation results in the most economically efficient use of the fishery resource. According to the guidance and NMFS officials, economic efficiency refers to how well scarce resources are used in production and consumption, and is achieved when all resources are allocated to their most valuable productive use. In principle, an allocation is most economically efficient when the net economic benefits to the commercial and recreational fishing sectors in total are maximized. If net economic benefits are not maximized, then modifying the allocation may increase economic efficiency and economic benefits to the nation. NMFS officials said the agency focuses on conducting economic efficiency analyses to help guide allocation reviews. Economic efficiency analyses can help NMFS and the councils analyze whether a proposed change in an allocation would generate greater net economic benefits for society (that is, improve economic efficiency), compared with the current allocation, according to NMFS officials. We found the councils face challenges in using economic efficiency analyses in allocation decisions. According to NMFS officials and the agency’s published research, reliable data for estimating economic values associated with recreational fishing may not be readily available. This is because no market prices for fish caught by private anglers are available and thus, non-market valuation techniques must be used to estimate the marginal value of fish to recreational anglers. For example, a 2014 NMFS study on the economic efficiency of allocations for gag, red, and black grouper found that there are insufficient data on the recreational harvest by grouper species to generate statistically reliable estimates of economic value for each fish stock. In addition, it is difficult to estimate the economic value associated with one fish stock because recreational anglers may be willing to catch other species of fish if fishery managers limit anglers’ access to a particular stock, according to members of both councils’ socioeconomic panels. This transfer of effort from one fish stock to another makes it difficult to determine which fish stock drives the economic value that anglers associate with fishing. Further, a 2014 NMFS study on the economic efficiency of red snapper allocations indicated that a relevant market price that could be used as a benchmark for the recreational estimates is unavailable. The study found that in prior work the agency attempted to use charter fishing trip prices to address this concern, but no current data on charter prices existed to update that analysis. As a result, the study cautioned against comparing estimates of recreational value to that in the commercial sector, which is a key aspect of determining an economically efficient allocation. Moreover, two 2014 NMFS studies found that there are also methodological and data challenges related to obtaining economic information from the commercial fishing sector. For example, the studies raised questions about the quality of some of the price data that were used in developing estimates of economic values for the commercial sector. In addition, the studies’ estimates of the economic value of commercial fishing did not include the potential net value derived from other components of the commercial seafood supply chain, such as the processing, distribution, and sale of the fish to the end consumers, according to the NMFS studies and agency officials (see fig. 5). These NMFS studies noted that data for estimating the values from these other components are not readily available. Council staff and members, socioeconomic panel members, and fishery stakeholders we interviewed noted the importance of including the value of fish to the end consumers when considering the economic value of commercial fishing. To estimate the values of these other components of the commercial seafood supply chain, NMFS would need information about the consumer demand for fish as a function of domestic and international production, as well as information on changes in the price of the fish as they move from the dockside to retail markets, according to a separate NMFS study. NMFS officials said they are taking some steps related to improving economic analyses that the councils could consider in allocation reviews. For example, the agency is developing a manual of best practices for NMFS and council staff responsible for conducting economic analyses. NMFS officials said that they anticipate completing the manual by the end of fiscal year 2020. According to NMFS officials, the manual is intended to help (1) achieve consistency in analyses across the councils and regions, (2) establish an understanding of why economic analyses of allocations are important to fisheries management decisions, as well as their role in complying with various legal requirements and NMFS’ policy, and (3) establish an understanding of the basic concepts and tools used in these analyses and how they are expected to be applied in practice. In addition, NMFS conducted a study on the economics of the for-hire fishing sector in federal waters of the South Atlantic and Gulf of Mexico and completed a report on the study at the end of 2019. Among other things, agency officials said the study provides data sufficient to estimate producer surplus for the for-hire sector. This information could help inform future allocation decisions, according to NMFS officials. Social Indicators NMFS has developed social indicators to characterize community well- being for coastal communities engaged in fishing activities, which the councils could consider in reviewing allocations, according to NMFS officials. NMFS’ 2016 guidance states that the councils could consider individual, local, and regional fishing dependence and engagement, and that such analyses should include potential impacts on commercial, for- hire, private angler, and subsistence fishing, as well as fishing-related industries if data are available. NMFS’ social indicators are numerical measures that describe the well-being of fishing communities in coastal counties across the United States and their level of dependence on commercial and recreational fishing. For example, one indicator describes the vulnerability of fishing communities to disruptive events, such as a change to a fishing sector’s access to a fishery. Communities that are dependent on commercial fishing can be more socially vulnerable than other communities to changes, according to an NMFS document. However, NMFS’ social indicators on communities’ reliance on and engagement in commercial and recreational fishing are not specific to particular fish stocks. NMFS officials said this makes it challenging for councils to incorporate the information into their allocation reviews for specific fish stocks. The officials said that given current resource limitations and limited data available, it would be difficult to generate social indicators that are specific to fish stocks. In some instances, NMFS has some stock-specific information at the community level for the commercial fishing sector. But NMFS officials said that comparable information is not available for the recreational sector at the community level, making it difficult to develop fish stock-specific social indicators. NMFS officials said that the agency continues to work to update and improve social indicators relevant to recreational and commercial fisheries and is exploring other sources to provide better social data for fisheries management decisions. However, NMFS officials did not identify specific steps they plan to take to improve social indicators—such as developing information specific to particular fish stocks—so that the councils could more easily incorporate such information into their allocation reviews. Ecosystem Models NMFS’ 2016 guidance calls for the councils to consider the potential ecological impacts of allocation alternatives in determining the allocation between different sectors or groups. However, NMFS officials said there are few ecosystem models that incorporate ecological information that could be considered in reviewing allocations, in part because limited quantifiable ecological information is available. They said that it will be difficult to use ecosystem models in allocation decisions until such models are more fully developed. NMFS officials said they are taking some steps to enhance the use of ecological and ecosystem-based information. For instance, they noted that in 2016, NMFS released a policy to, among other things, establish a framework of guiding principles to enhance and accelerate the implementation of ecosystem-based fisheries management. Ecosystem- based fisheries management is a systematic approach to fisheries management in a geographically specified area that: contributes to the resilience and sustainability of the ecosystem; recognizes the physical, biological, economic, and social interactions among the affected fishery- related components of the ecosystem, including humans; and seeks to optimize benefits among a diverse set of societal goals, according to the policy. Among other things, this approach can help communicate the potential consequences of management decisions—including allocations—across fish stocks and improve the understanding of the potential benefits and effectiveness of management decisions, according to the policy. In 2019, NMFS issued plans for implementing ecosystem- based fisheries management in the South Atlantic and Gulf of Mexico. South Atlantic and Gulf of Mexico Councils Developed Criteria for Initiating Allocation Reviews, but Not Processes for Conducting or Documenting Them The South Atlantic and Gulf of Mexico councils each established criteria for initiating allocation reviews in response to NMFS’ 2016 guidance, but neither council has developed processes to guide how they will conduct or document their allocation reviews. The Gulf of Mexico council has taken initial steps to develop a process for how it will review allocations, and staff from both councils said they are waiting for our report to inform their next steps on developing processes for conducting allocation reviews in the future. Both Councils Established Criteria for Initiating Allocation Reviews The North Pacific council plans to review The four councils also identified public input as a potential allocation review trigger, but they did not specify what threshold of public interest would trigger a review. The remaining two councils—the Western Pacific and Caribbean—do not have allocations subject to National Marine Fisheries Service (NMFS) policy requiring councils to establish allocation review criteria, according to NMFS officials. the council reviews a fishery performance report. The South Atlantic council’s policy also established time-based triggers as secondary criteria for initiating allocation reviews. Its policy states that the council will review allocations not less than every 7 years if one of the conditions identified in the policy has not already triggered a review. The policy also states that once a review occurs, the next one will be automatically scheduled for 7 years later. In contrast, the Gulf of Mexico council’s April 2019 policy established time-based triggers as its primary criteria for initiating allocation reviews. Specifically, its policy indicates time intervals of 4 to 7 years for reviewing allocations, depending on the particular fish stock, and identifies the planned month and year for beginning each review. The council’s policy also identified public interest as a secondary allocation review trigger but did not specify thresholds for the level or type of public input that would trigger an allocation review. According to the policy, the council is to consider relevant social, economic, and ecological conditions as an intermediate step before determining whether public interest will trigger a review. According to NMFS’ 2016 guidance, periodic review of allocations on a set schedule is in several respects the most simple and straightforward criterion for such a review—it is unambiguous and less vulnerable to political and council dynamics. The guidance also states that time-based triggers for initiating allocation reviews might be most suitable for fisheries where the conflict among sectors or stakeholder groups makes the decision to simply initiate a review so contentious that use of alternative criteria is infeasible. In such a situation, a fixed schedule ensures that periodic reviews occur regardless of political dynamics or specific fishery outcomes, according to the guidance. However, the guidance also indicates that, compared with alternative approaches, adherence to a fixed schedule may be less sensitive to other council priorities and the availability of time and resources to conduct such reviews, which could potentially lead to significant expenditures. Therefore, given the inflexible nature of time-based triggers, the guidance recommends that they be used only in those situations where the benefit of certainty outweighs the costs of inflexibility. The South Atlantic and Gulf of Mexico councils’ policies laid out planned schedules for their respective allocation reviews, which both councils adjusted after issuing their policies. Table 5 shows both councils’ plans for allocation reviews as of December 2019. For example, the Gulf of Mexico council’s policy states that it plans to review the red grouper allocation in 2026. However, in response to the completion of an updated stock assessment for red grouper in July 2019, the council directed its staff in October 2019 to begin work on a fishery management plan amendment to update the red grouper allocation, according to a council document. The stock assessment for red grouper included the Marine Recreational Information Program’s updated estimates for recreational landings. The updated estimates approximately doubled previous estimates of recreational landings, according to a council newsletter. Council staff said that applying these updated estimates to the time series the council had used to establish the red grouper allocation could result in a percentage shift of the allocation to the recreational fishing sector. As a result, the council decided to begin review of the red grouper allocation sooner than the policy’s scheduled 2026 time frame, according to the staff. In addition, we found that the councils’ planned allocation review schedules may affect their workload and other priorities, but it is not clear to what extent. NMFS’ 2016 allocation guidance states that the councils’ allocation review processes should include consideration of current council priorities, other actions under deliberation, and available resources. NMFS officials and council staff expressed concern that the councils’ planned schedules—as identified in their April and July 2019 policies—may negatively affect the workloads and other priorities of NMFS’ social scientists, economists, and data analysts and council staff. For instance, staff from both councils said the planned allocation review schedules will increase their workloads and, depending on the nature and substance of how those reviews are conducted, could take resources away from other council activities and lead them to reprioritize or delay those activities. One council’s staff also noted that the council members have a difficult time keeping up with existing workloads. NMFS officials and council staff said that factors that may affect these types of costs include the complexity of the analyses, the number of NMFS or council staff involved in the process, and the degree of public interest. Fishery management plan amendments that establish or revise allocations can be controversial, and will likely have more public hearings and opportunity for public comment than other types of amendments, according to NMFS officials and council staff. NMFS officials and South Atlantic and Gulf of Mexico council staff said they have not tracked costs of establishing, reviewing, or revising allocations. The councils often make allocation decisions concurrently with other management actions, making it difficult to isolate costs. Further, NMFS officials stated the councils’ accelerated schedules as of December 2019, as shown in Table 5, will exacerbate the concerns. These schedules include starting reviews for 50 allocations in the South Atlantic between 2019 and 2026, assuming no conditions trigger earlier reviews, and reviews for 10 allocations in the Gulf of Mexico between 2019 and 2026. One NMFS official said that any additional workload for economists and social scientists in the Southeast Fisheries Science Center is difficult to anticipate because it will depend on the type of information the councils would like to use for the reviews and whether additional studies may be needed or data collected. Another NMFS official stated that the regional office will shift priorities from less important tasks and gain efficiencies where possible to accommodate the planned allocation reviews. Neither Council Has Developed a Process for How to Conduct or Document Allocation Reviews, Although the Gulf of Mexico Council Began Taking Steps to Develop One The South Atlantic and Gulf of Mexico councils have not developed processes for how they will conduct or document their allocation reviews to implement NMFS’ 2016 policy and related guidance, although the Gulf of Mexico council has begun taking steps to do so. As noted, NMFS policy calls for a multi-step process for reviewing and potentially revising fisheries allocations. Specifically, once an allocation review trigger has been met, NMFS policy calls for an allocation review, after which the councils may maintain existing allocations or evaluate allocation options through a fishery management plan amendment. NMFS guidance states that the councils should develop a structured and transparent process for conducting allocation reviews, including consideration of current council priorities, other actions under deliberation, and available resources. In April 2019, the Gulf of Mexico council began taking steps to develop an allocation review process, according to council documents. Specifically, the Gulf of Mexico council convened an allocation review workgroup consisting of staff from the council and from NMFS’ Southeast Regional Office and Southeast Fisheries Science Center. The council expects the workgroup to propose draft allocation review procedures, including identifying data sources that would be needed to conduct allocation reviews, according to a council document. The workgroup met in June and July 2019 and discussed these topics and other potential proposals, such as establishing a tiered system for allocation reviews that would involve different levels of analysis for different tiers of reviews, according to council documents. Council staff said the workgroup plans to next meet after the issuance of our report to finalize a proposal for developing an allocation review process for the council to consider. However, the council has not indicated what actions it will take, if any, regarding the workgroup’s proposal; instead, the council will determine its course of action after reviewing this report, according to council staff. The South Atlantic council postponed discussion of defining or documenting its allocation review process until March 2020, according to council staff and members, to review our report before deciding any next steps. At the council’s June 2019 meeting, the council chair questioned the need for developing an allocation review process through policy. For instance, the chair cited concerns that the council may be continuously developing exceptions to such a policy to accommodate fishery-specific issues or other unique circumstances. The chair also stated that aside from establishing criteria for initiating allocation reviews, NMFS’ guidance does not require the councils to take other actions related to developing allocation review processes. NMFS officials said that the agency’s 2016 guidance recommending that the councils develop a structured and transparent process was not intended to require the councils to develop a separate policy or documented process for conducting allocation reviews. NMFS officials said that the agency’s operational guidelines for processes under the Magnuson-Stevens Act and associated regional operating agreements with the councils lay out the key requirements and processes guiding development, review, and implementation of fishery management plans and plan amendments, which would include actions related to allocations. The officials further explained that in developing the 2016 allocation policy, they intended that allocation reviews be conducted through the processes identified in the agency’s operational guidelines and regional operating agreements with the councils, which allow the councils flexibility to factor in their own needs. However, the operational guidelines and regional operating agreements for the South Atlantic and Gulf of Mexico councils apply to the fishery management plan and amendment process overall, and they do not specifically address allocations. The goals of the operational guidelines include promoting a timely, effective, and transparent public process for development and implementation of fishery management measures, and the guidelines note that the regional operating agreements are meant to make council procedures and processes transparent. The guidelines and agreements, however, do not lay out processes the councils are to follow in reviewing allocations apart from developing fishery management plans or plan amendments. As noted in NMFS’ 2016 policy and guidance, the councils may conduct allocation reviews separate from the fishery management plan amendment process. Moreover, the regional operating agreements are not intended to limit or prevent the councils’ use of additional processes in response to specific management needs, according to these documents and the operational guidelines, and the Gulf of Mexico council has taken initial steps in developing an allocation review process as previously described. Based on the framework for internal controls established by the Committee of Sponsoring Organizations of the Treadway Commission, documented policies and processes can be more difficult to circumvent, less costly to an organization if there is turnover in personnel, and increase accountability. The framework also states that when subject to external party review, policies and processes would be expected to be formally documented. Among other things, documented processes— according to the framework—promote consistency; assist in communicating the who, what, when, where, and why of internal control execution; enable proper monitoring; and provide a means to retain organizational knowledge and mitigate the risk of having the knowledge within the minds of a limited number of individuals. The 2012 report commissioned by NMFS to review fisheries allocation issues found that allocation reviews had not been done in a regular, consistent manner and stated that this makes it harder for stakeholders to understand the reviews as well as the process for conducting them. Similarly, stakeholders we interviewed indicated that a clear process for conducting allocation reviews is needed and would increase their confidence in or understanding of the councils’ decisions, regardless of specific outcomes. Other stakeholders stressed the need for predictability and certainty to be able to plan critical business decisions, such as securing loans from local banks or other lenders. Such uncertainty may cause participants in the commercial sector to leave the fishery because they cannot secure loans or meet other business requirements, according to one stakeholder, or it may create instability that could affect the market price of fish, according to another stakeholder. By working with the councils to develop documented allocation review processes, NMFS would have better assurance that the councils carry out their upcoming allocation reviews in a structured and transparent manner, consistent with the agency’s 2016 guidance. Further, it is unclear whether or how the councils plan to document each allocation review, such as the basis for their allocation decisions, whether fishery management plan objectives are being met, and what factors were considered in each review. NMFS’ operational guidelines state that fishery management decisions must be supported by a record providing the basis for the decision. In addition, NMFS’ 2016 policy and guidance call for the councils to clearly articulate in their allocation reviews how fishery management plan objectives are or are not being met, as well as to document their rationale for determining whether any factors are unimportant or not applicable in making an allocation decision. NMFS officials and council staff said that any allocation revisions would be documented through fishery management plan amendments. However, the councils may conduct allocation reviews separate from the fishery management plan amendment process, and it is not clear whether or how the councils will document those reviews. For example, as previously noted, in the past the South Atlantic council has not formally documented the results of allocation reviews that did not lead to fishery management plan amendments that revised the allocations. By working with the councils to specify how they plan to document their allocation reviews, NMFS could help ensure that the councils provide a clear record of the basis for their decisions, whether fishery management plan objectives are being met, and applicable factors considered. Clear records could also help increase transparency and stakeholder understanding of the councils’ decisions, particularly in those instances when reviews are separate from the fishery management plan amendment process. Conclusions Making allocation decisions between the commercial and recreational fishing sectors can be complex and difficult, and the outcomes of those decisions may have important economic and social implications for stakeholders in each of the sectors. The South Atlantic and Gulf of Mexico councils have taken an important step in developing policies outlining criteria for initiating allocation reviews, in accordance with NMFS guidance. The Gulf of Mexico council has also taken initial steps to define how it will conduct its allocation reviews. However, neither council has developed a process for how they will conduct such reviews. By working with the councils to develop documented allocation review processes, NMFS would have better assurance that the councils carry out their upcoming allocation reviews in a structured and transparent manner, consistent with the agency’s 2016 guidance. Moreover, by working with the councils to also specify how they plan to document their allocation reviews, NMFS could help ensure that the councils provide a clear record of the basis for their decisions, whether fishery management plan objectives are being met, and applicable factors considered. Recommendations for Executive Action We are making the following two recommendations to the NMFS Assistant Administrator for Fisheries: The NMFS Assistant Administrator for Fisheries should work with the South Atlantic and Gulf of Mexico councils, and other councils as appropriate, to develop documented processes for conducting allocation reviews. (Recommendation 1) The NMFS Assistant Administrator for Fisheries should work with the South Atlantic and Gulf of Mexico councils, and other councils as appropriate, to specify how the councils will document their allocation reviews, including the basis for their allocation decisions, whether fishery management plan objectives are being met, and what factors were considered in the reviews. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of this report to the Department of Commerce for review and comment. In written comments (reproduced in app. II), Commerce and NOAA agreed with our recommendations and stated that NOAA’s NMFS will work to implement them to the extent possible. NOAA stated that the report accurately describes the extent to which the councils established and revised allocations for mixed-use fisheries, the key sources of information that may be available for reviewing allocations, and the extent to which the councils have developed processes to help guide such reviews. NOAA also highlighted the delicate balance that councils seek to achieve in deciding what fishery management approaches to implement to comply with the Magnuson-Stevens Act and its 10 national standards. In addition, Commerce and NOAA stated that NMFS does not have the legal authority to direct the councils to take the actions included in our two recommendations, stating that such actions are outside of legal requirements that guide council fishery management actions. In response, we revised the wording of our two recommendations to state that the NMFS Assistant Administrator for Fisheries should “work with,” rather than “direct,” the councils to take the recommended actions. In response to our first recommendation, NOAA stated that it would build on the recommendations in its allocation policy by working with the South Atlantic and Gulf of Mexico councils, and other councils as appropriate, to develop documented processes for conducting allocation reviews. In response to our second recommendation on specifying how the councils will document their allocation reviews, NOAA stated that it will work with the councils on consistent documentation of allocation reviews. NOAA noted that transparency in the allocation process improves with a documented process for conducting allocation reviews, and that consistent documentation of those reviews will create further transparency in the allocation process and could improve stakeholders’ understanding of the councils’ decisions. NOAA also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Commerce, and other interested parties. In addition, the report is available at no charge on the GAO website at https://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or fennella@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. Appendix I: Mixed-Use Fisheries Allocations in the South Atlantic and Gulf of Mexico Fishery Management Council Regions Tables 6 and 7 provide information on mixed-use fisheries allocations— privileges for catching fish between the commercial and recreational fishing sectors—in the South Atlantic and Gulf of Mexico Fishery Management Council (council) regions, respectively. Not all mixed-use fish stocks in these regions have allocations. In the South Atlantic council region, spiny lobster does not have an allocation. In the Gulf of Mexico council region, 14 of 23 mixed-use fish stocks do not have allocations. Appendix II: Comments from the Department of Commerce Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Anne-Marie Fennell, (202) 512-3841 or fennella@gao.gov. Staff Acknowledgments In addition to the contact named above, Alyssa M. Hundrup (Assistant Director), Krista Breen Anderson (Analyst in Charge), Leo Acosta, Mark Braza, Tim Guinane, Paul Kazemersky, Patricia Moye, Cynthia Norris, Dan C. Royer, Rebecca Sandulli, Kiki Theodoropoulos, and Khristi Wilkins made key contributions to this report.

Commercial and recreational marine fisheries—including those in the South Atlantic and Gulf of Mexico—are critical to the nation's economy, contributing approximately $99.5 billion to the U.S. gross domestic product in 2016, according to the Department of Commerce. NMFS and the councils may allocate fishing privileges for mixed-use fisheries in federal waters, but establishing and revising such allocations can be complex, in part because of concerns about equity. The Modernizing Recreational Fisheries Management Act of 2018 includes a provision for GAO to review mixed-use fisheries allocations in the South Atlantic and Gulf of Mexico. For these regions, this report examines (1) the extent to which the councils established or revised mixed-use fisheries allocations, (2) key sources of information that may be available for reviewing allocations, and (3) the extent to which the councils have developed processes to help guide such reviews. GAO reviewed NMFS and council policies and other council documents; analyzed information on allocations established and revised; compared council processes to agency guidance and internal control standards; and interviewed NMFS officials, council members and staff, and 46 stakeholders that reflected various interests. Views from these stakeholders are not generalizable. The South Atlantic and Gulf of Mexico regional fishery management councils, with approval from Department of Commerce's National Marine Fisheries Service (NMFS), established and revised allocations to varying degrees for mixed-use fish stocks—fisheries with a combination of commercial and recreational fishing. Regional councils were created by statute to help manage fisheries in federal waters, including allocating—or distributing—fishing privileges, when warranted. Starting in 1985, the South Atlantic council established allocations, generally a percentage of allowable harvest, for 50 of its 51 mixed-use fish stocks and revised most of those at least once. The Gulf of Mexico council established allocations for nine of its 23 mixed-use fish stocks, revising three of those once. Historically, allocations have been largely based on estimates of the commercial and recreational fishing sectors' past use of the resource, according to NMFS. Key sources of information that may be available to help NMFS and the councils review allocations include trends in catch and landings (the amount of fish caught or brought to shore); fish stock assessments; and economic analyses. Each source presents some challenges in supporting allocation decisions, however. For example, NMFS works with states to estimate recreational catch, which provides information about demand, but faces difficulties generating reliable estimates. This is in part because of attributes of the recreational fishing sector, including the greater number of recreational anglers compared with commercial fishing participants. NMFS issued guidance in 2019 to promote consistency in estimating recreational catch data to help improve the quality of the information. The South Atlantic and Gulf of Mexico councils developed processes for when to initiate fish stock allocation reviews, but not for how to conduct those reviews. A 2012 report for NMFS found that reviews had been done inconsistently, and stakeholders were dissatisfied with allocation decision-making. In response, NMFS developed guidance calling for structured and transparent allocation review processes. Both councils established criteria for initiating reviews, such as time-based triggers, and as of December 2019 they had several reviews underway (see figure). In April 2019, the Gulf of Mexico council began convening a workgroup to propose a draft allocation review process, but has not indicated what actions it will take, if any, in response to a proposal. The South Atlantic council postponed any discussions until March 2020. As of December 2019, neither council had a documented process. Documented processes for conducting allocation reviews would provide NMFS with better assurance that the councils carry out upcoming reviews in a structured and transparent manner.

GAO_GAO-20-151

Background DOD acquires new weapon systems for its warfighters through a management process known as the Defense Acquisition System. This system is implemented by two key acquisition policies: DOD Directive 5000.01, which establishes the overarching framework for the Defense Acquisition System; and DOD Instruction 5000.02, which provides detailed procedures for the operation of the Defense Acquisition System and the management of acquisition programs. These policy documents establish the guiding principles for all aspects of the DOD acquisition process. Additionally, each of the military services has its own acquisition policies which incorporate and enhance the DOD acquisition guidance. Figure 2 depicts DOD’s acquisition process beginning with Milestone A in general terms. Several entities in the Office of the Secretary of Defense and the military departments play a role in the oversight of DOD weapon system acquisition programs, including the following: The Under Secretary of Defense for Research and Engineering is responsible for establishing policies on and supervising all aspects of defense research and engineering, technology development, technology transition, prototyping, experimentation, and developmental testing activities and programs, including the allocation of resources for defense research and engineering. DOD’s Reliability and Maintainability Engineering lead reports to this Under Secretary. The Under Secretary of Defense for Acquisition and Sustainment is responsible for establishing policies on and supervising all matters relating to acquisition (including (1) system design, development, and production; and (2) procurement of goods and services) and sustainment (including logistics, maintenance, and materiel readiness). This organization has certain oversight responsibilities for major defense acquisition programs throughout the acquisition process, such as collecting and distributing performance data. The Under Secretary is the Defense Acquisition Executive and serves as the milestone decision authority for certain major defense acquisition programs, meaning the Under Secretary authorizes these programs to proceed through the DOD acquisition process’s major milestones. At the military department level, the service acquisition executive, also known as the component acquisition executive, is a civilian official within a military department who is responsible for all acquisition functions within the department and can serve as the milestone decision authority. Congress has recently devolved much of the decision making authority for major defense acquisition programs from OSD to these service acquisition executives. According to a DOD official the service acquisition executive will normally assign a relevant program manager who will then assign a chief engineer or lead systems engineer and team members with responsibility for the engineering effort of a program, including the reliability engineering effort. The following officials serve as the service acquisition executive for the military departments: the Assistant Secretary of the Air Force (Acquisition, Technology, and Logistics); the Assistant Secretary of the Army (Acquisition, Logistics and Technology); and the Assistant Secretary of the Navy (Research, Development and Acquisition) for both the Navy and the Marine Corps. Major defense acquisition program managers, who can be either civilian or military, are tasked with developing and delivering new weapon systems while balancing factors that influence cost, schedule, and performance and ensuring that systems are high quality, supportable, reliable, and effective. DOD’s Approach to Reliability According to DOD guidance, reliability is the probability of an item to perform a required function under stated conditions for a specified period of time. DOD’s acquisition environment has changed over time and this has affected the way the Department addresses reliability. Until the late 1990s, DOD’s goal was to achieve good reliability by focusing on specific reliability engineering tasks during design and manufacturing, and early testing to prevent, detect, and correct design deficiencies. In the late 1990s, in response to various NDAAs, DOD implemented certain acquisition reforms, eliminating and consolidating acquisition functions, and reducing the number of personnel assigned to the remaining functions. According to the Defense Science Board Task Force on Developmental Test & Evaluation, these reforms altered several aspects of the military acquisition process and DOD’s acquisition workforce. As a result, DOD lost experienced acquisition management and technical personnel. DOD officials stated this loss included reliability personnel who contributed to developmental testing and evaluation. DOD also canceled the Military Standard pertaining to reliability at this time. DOD officials explained that, after acquisition reform in the late 1990s, the department shifted much of the responsibility for reliability issues to contractors, and government personnel primarily focused on how systems performed during operational tests at the end of their development program. In the mid to late 2000s, Congress and DOD took actions to increase the focus on reliability engineering during weapon system design and development. Both Congress and DOD took steps to elevate the importance of reliability, which has continued through 2019. Figure 3 depicts selected laws related to reliability and DOD reliability efforts over time. Impacts of Poor Reliability on Warfighters Poor reliability can negatively affect the warfighters through low operational availability; that is, the amount of time a system is available to execute its mission. For example, the MV-22 aircraft was less reliable than intended, and required many more spare parts than expected. When the Marine Corps deployed to Iraq, MV-22 maintainers had to cannibalize parts from some MV-22s to keep other MV-22s flying, and as a result, the Marine Corps had fewer aircraft available to fly missions. Impacts of Poor Reliability on Operating and Support Costs Reliability can significantly influence a weapon system’s operating and support costs, which we have previously reported account for approximately 70 percent of a weapon system’s total life-cycle cost. Operating and support costs are a reflection of how programs achieve operational availability for weapon systems. Programs can achieve operational availability by building highly reliable weapon systems or, if the systems are not highly reliable, supporting them with an extensive logistics system that can ensure spare parts and other support items are available when needed. DOD has previously reported that deficiencies in DOD weapon systems—such as high failure rates and an inability to make significant improvements in reliability—have historically limited program performance and increased operating and support costs. Impacts of Poor Reliability on Commercial Companies In the commercial world, the manufacturer carries most of the risks that would result from developing a product with poor reliability. Such risks include increased warranty expenses that decrease profits. For example, reliability personnel from Ford, Cummins, and Thermo Fisher Scientific explained that more reliable products cost their companies less because they do not have to dedicate as many resources to fixing systems that fail, which would lead to warranty claims. In addition to increased costs, poor reliability can also negatively influence a company’s reputation. Ford representatives said that failures and product recalls are not just financial costs; recalls are highly publicized. A Thermo Fisher Scientific product manager explained that a customer’s bad experience can be shared in the media and negatively influence a company’s reputation. This may alter future buying behavior, especially in industries with relatively small customer bases in closely linked professional communities. This person shared a prior experience at a different company, where a design risk was identified during development. Instead of addressing the risk effectively, a standard cycle test was done to prove or disprove the risk. However, the test did not apply the stress necessary to cause the failure. The product was released to the market based on this successful but inadequate test. In the field, the components failed, and the company had to remove the product from the market. This damaged the company’s reputation and sales. We have previously reported that poor reliability is a concern for commercial companies because their customers demand products that work, or are reliable and do not experience failure, and the companies must develop and produce high-quality products to sustain their competitive position in the marketplace. Commercial Companies Proactively Address Reliability In the commercial sector, reliability engineers told us their companies proactively address reliability from the beginning of the development process. We reviewed documentation from these companies and the 2019 Reliability and Maintainability Symposium and found engineers strive to identify reliability issues at the component and sub-system level early in the development process to avoid expensive rework after producing an entire system. We identified the following key practices in the commercial sector: leveraging reliability engineers early and often, establishing realistic reliability requirements—for example, not expecting a product to operate twice as long as its predecessor before failing, emphasizing reliability with their suppliers, and employing reliability engineering activities to improve a system’s design throughout development. Figure 4 shows some of the activities involved with these key practices. Leverage Reliability Engineers Early and Often We found commercial companies in our review include reliability engineers as part of their development teams. In this role, reliability engineers implement reliability tools and methods that integrate statistics, physics, and engineering principles to help develop a reliable product. For example, HBM Prenscia identified that reliability engineers from several commercial companies said it was important to initiate their assessments early in the development life cycle when there is greatest opportunity to influence product design. According to leading reliability engineers, engineering activities can add value to decision-making by providing direction and feedback that helps development teams refine designs that lead to more reliable and cost effective systems. Researchers have reported reliability engineers should be empowered to influence decisions, such as delaying overall project schedule or negotiating for more resources when necessary. In addition, our analysis of reliability engineers’ documentation from the Reliability and Maintainability Symposium and commercial companies found it important that management provide sufficient resources and time dedicated specifically to improving reliability by discovering failures, implementing corrective actions, and verifying their effectiveness. Our analysis found that cost and schedule constraints can negatively influence reliability testing, which can limit development teams’ ability to discover failures and improve designs through corrective actions. Our analysis of documentation from the Symposium also highlighted the importance of having experienced reliability engineers. For example, Ford representatives told us they have a dedicated reliability engineering community that coaches the members of the company’s different product development teams. Ford’s reliability engineers said they focus on teaching development team members to ask the right questions at the right point in time with the right people in the room. Establish Realistic Reliability Requirements Based on Proven Technologies We found companies in our review emphasize that reliability requirements should be realistic, be based on proven technologies, and reflect customer usage and the operating environment. To determine feasibility of meeting a requirement, reliability engineers we spoke with at Cummins and Thermo Fisher Scientific recommend conducting comparative analysis with historical data and assessing risk due to new, unique, or difficult technology. In addition, an independent reliability engineer with over 40 years of experience told us programs should provide justifications for how reliability requirements were established to demonstrate they are within the realm of technological possibility. If the reliability requirement turns out not to be technically feasible, it could have broad implications for the intended mission, life-cycle costs, and other aspects of the system. We have previously reported on the importance of making informed trade-offs when considering requirements to reduce program risk or total ownership costs. HBM Prenscia representatives told us the commercial companies they work with regularly make trade-offs involving capability, reliability, and cost requirements. Reliability representatives at Ford told us it is important to have the right people involved in these trade-off decisions, and that they work with user representatives and reliability engineers to define their systems’ reliability requirements. Emphasize Reliability with Suppliers Systems produced by commercial companies in our review include parts or components produced by suppliers, and reliability engineers repeatedly told us the reliability of those parts or components directly impacts the reliability of the overall system. According to a leading reliability engineer, vendor quality can affect a part’s reliability, so it is critical that the reliability of vendors’ parts be evaluated before being approved for use. To emphasize reliability with suppliers, commercial companies in our review engage with suppliers early, clearly specify requirements with the supplier, and evaluate and monitor the supplier. Cummins representatives stated engaging the supplier early is critical. They explained that they engage the supplier early, during concept development, and ask the supplier to demonstrate it can meet requirements. According to Cummins representatives, this is to ensure the supplier is able to meet quality standards and to ensure there is enough lead time and testing of components. Reliability engineers at the Reliability and Maintainability Symposium also emphasized that reliability requirements must be clearly specified with suppliers, and product teams must actively monitor suppliers and assess their deliverables. Cummins representatives explained their engineers work directly with the supplier and hold it responsible for meeting reliability requirements. Ford representatives told us they evaluate and monitor the supplier to ensure the components it is providing are reliable. For example, they visit their suppliers’ testing facilities and evaluate their testing programs, focusing specifically on their failure analysis and reliability activities. We have previously reported that leading commercial companies use disciplined quality management practices to hold suppliers accountable for high quality parts through such activities as regular supplier audits and performance evaluations. A Thermo Fisher Scientific product manager provided a scenario where relying on an external supplier’s quality assurances would be insufficient. For example, a compressor is a critical – and commonly outsourced— component in complex industrial equipment. The product manager recommended in-house testing for critical components like a compressor rather than relying on a supplier’s testing that may not factor in real-world operating conditions. In house testing is recommended to avoid finding a failure after the product is brought to market. Post-sale failures result in dissatisfied customers, reputation damage, warranty claims and similar issues. The Thermo Fisher Scientific product manager said, in some cases, a company should establish a dedicated test facility for vital outsourced components provided by suppliers. Employ Reliability Engineering Activities to Improve a System’s Design throughout Development Based on our review of commercial sector practices, we found companies use reliability engineering activities to identify potential product failures and their causes. They also use these activities to improve a system’s design early and often throughout development to avoid surprises that lead to expensive rework or excessive repairs after integrating components and subsystems. For example, HBM Prenscia representatives told us that failures should be identified early, and that identification should be viewed as an opportunity to improve the design and make the product better. According to leading reliability engineers, the earlier changes are made to designs, the less costly they are to the program. It is expensive, time consuming, and risky to make changes late in development, as late changes jeopardize product reliability. The commercial company representatives we spoke with also emphasized the need to conduct reliability engineering activities iteratively until the design is optimized. For example, HBM Prenscia has identified that a common mistake is establishing a reliability plan but not actively utilizing it throughout development. Reliability engineers use various reliability engineering activities to increase system reliability, and generally refer to these activities as design for reliability tools. These tools can be tailored to meet the specific needs of a particular development project, and can complement one another and increase reliability prior to any testing. These tools can help identify how long a part or component will work properly, how a part or component’s failure will affect a system, and what actions are needed to correct failures. See table 2 for some examples of design for reliability tools that can be used to help meet reliability goals. We have previously reported that leading commercial companies use a knowledge-based development process that enables decision makers to be reasonably certain that product quality, reliability, and timeliness are assured. Our analysis of documentation from reliability engineers found that reliability engineering activities should be integrated into the product development process, and their outputs should be reviewed at development milestones. These reviews can help ensure that reliability is a robust process rather than a paper exercise by providing an opportunity to assess data from reliability analysis or testing. For example, Cummins incorporates reliability reviews into its product development processes to ensure products meet reliability goals prior to moving to the next phase of development. This helps ensure the company is on track to fulfill its reliability commitments and will be able to deliver the promised product reliability to customers. The leading commercial practices we reviewed highlight the importance of consistently collecting, sharing, and analyzing data from reliability engineering activities to inform development efforts. Commercial companies we spoke with recognized the value of reliability data. For example, Cummins representatives stated they capture reliability data and share it across different product development teams to help inform estimates of reliability for new product development efforts. In addition, Cummins representatives noted that they are moving to an interactive database that personnel throughout the entire company can access. Similarly, HBM Prenscia representatives told us that failures and lessons learned from previous projects should be captured and shared within a company, and that doing so could help inform future product development efforts. Selected Major Defense Acquisition Programs Did Not Consistently Reflect Key Reliability Practices We reviewed seven major defense acquisition programs and found they often reactively addressed reliability after identifying issues later in development. As shown below, these programs did not consistently reflect key practices we identified in the commercial sector, and instead prioritized other activities intended to have positive acquisition cost and schedule impacts. However, DOD officials noted that there has recently been a greater emphasis on reliability, and the three programs that started development in 2012 and 2014 reflected more of the key practices than the older programs. See figure 5, which notes a distinction between commercial companies’ suppliers and DOD contractors. For more detailed information on each program, see appendix I. Two of the Seven Selected Programs Did Not Leverage Government Reliability Engineers in Decision Making Early The Expeditionary Fighting Vehicle (EFV) and F-22 programs did not involve reliability engineers early during system development. Instead, these programs leveraged engineers after reliability problems arose, including after they integrated components and subsystems and during system-level testing. At the end of system development, the programs brought in additional engineers and established more concerted reliability growth efforts. In one example, the EFV program did not have an overall systems engineer. Marine Corps acquisition officials stated that reliability was not a priority during the original system development process, and we have previously reported the program was instead focused on achieving other performance parameters, including water speed, survivability, and lethality. Prime contractor representatives identified some of their design engineers who lacked experience and did not comply with engineering standards as a root cause for problems discovered late in the development process. We also reported the lack of early systems engineering discipline and knowledge undermined the EFV program’s ability to develop informed and reasonable reliability requirements, delayed the identification of potential failures until integration, and contributed to poor vehicle reliability. In addition to frequent hydraulic system failures, leaks, and pressure problems, the EFV also suffered main computer failures that froze steering while operating in water. As we have previously reported, the EFV program was subsequently restructured. The program office hired additional engineers and consulted with Army reliability engineers to institute a reliability growth program. This program was intended to mitigate previously identified vehicle design issues related to reliability and other risks before proceeding into a second development and demonstration phase. However, the EFV program never got to fully realize the benefits of its new reliability approach, as less than 3 years after restarting development it was canceled due to continuing technology problems, development delays, and affordability concerns. For the F-22 program, officials stated that at points during development the program did not have a leadership position focused on reliability, and the official who oversaw reliability was also responsible for supply chain management. The officials noted that at the time these were not focus areas because the Air Force expected the contractor to conduct the needed reliability engineering. In 2004, we reported that, as early as low- rate initial production, however, the Air Force identified 68 parts that had a high rate of failure and needed to be removed or replaced, requiring additional contractor work. We also reported the F-22 canopy also experienced failures during testing, allowing it to achieve only about 15 percent of its expected lifetime. In 2014, we reported that later reliability maturation projects intended to address reliability deficiencies had a positive effect on availability over time, but as of 2018 the F-22 still had not met its availability target. Four of the Seven Selected Programs Initially Pursued Unrealistic Operational Requirements for Reliability As we have found in our prior reports as well as in this review, the EFV, F-22, F-35, and V-22 programs set unrealistic operational requirements for reliability. These requirements were, therefore, unachievable during development and before fielding the systems to warfighters. As we have previously reported, when programs overpromise a weapon’s prospective performance and deliver systems that cannot achieve their requirements, such as reliability goals, the warfighter receives less capability than originally promised. In one example, as we reported in 2019, more than 11 years after the start of F-35 production, none of the three aircraft variants (Air Force, Marine Corps, and Navy) had met the minimum targets for two of the program’s five reliability metrics. These include mean flight hours between part removals for replacement and mean flight hours between critical failures. We found that only the Navy variant had achieved the minimum target for a third goal, mean flight hours between maintenance events. As we reported, while the program has instituted an effort intended to improve reliability, the effort does not align improvement projects with the F-35’s reliability requirements. That is, the reliability improvement projects being funded may not improve the F-35’s performance against its reliability metrics. Ultimately, the program does not expect to achieve the unmet reliability metrics by full aircraft maturity, and program officials have acknowledged that the requirements should be reevaluated. As a result, the warfighter may not receive an aircraft that is as reliable as was expected. In a review of the V-22 program, DOD found that the program integrated complex technologies and unprecedented capabilities into its weapon system without accounting for unknown reliability risks. Specifically, these capabilities included a conceptually new design and multiple service and mission needs. However, officials stated that the program derived its reliability requirements from antecedent helicopters, systems that were not representative of the V-22 given its increased complexity. With a limited understanding of the V-22’s mission profile, program officials stated that they also underestimated the amount of time the system would be used in helicopter mode and its operating time on the ground. Subsequently, when the Marine Corps variant of the V-22—the MV-22—was deployed in Iraq from 2007 to 2009, a number of components experienced high rates of failure, affecting systems such as the engines and engine housing. This situation, combined with an immature parts supply chain, reduced the system’s availability significantly below minimum levels. At the time, as we reported in May 2009, the MV-22 had a stated minimum mission capability rate of 82 percent, but the three MV-22 squadrons in Iraq demonstrated an average of 62 percent. The development and integration of new technologies on the F-22— stealth, supersonics, and integrated avionics—were critical to achieving operational success, but also presented significant reliability risks. Officials told us that the F-22 was initially expected to cost less to acquire and operate than one of its predecessors, the F-15, and be more reliable as well. However, they also stated this was an unrealistic expectation. We have previously reported that the immaturity of technologies at the start of and throughout development weaken a system’s ability to achieve reliability requirements. Since 2005, when full rate production of the F- 22 began, the program has made substantial additional investments in increasing the system’s reliability through various improvement programs. But the program also changed its mean time between maintenance reliability requirement to an operational availability metric, a target that as of 2018 it had yet to meet and may need to reevaluate, according to program officials. If the F-22 cannot achieve its current reliability requirement, warfighters will have to execute their missions with a less capable aircraft than expected. Four of the Seven Selected Programs Did Not Effectively Emphasize Reliability with Contractors The AMPV, EFV, F-35, and V-22 programs did not effectively emphasize reliability with DOD contractors. Specifically, according to DOD, the AMPV, EFV, and V-22 did not effectively incentivize reliability with the contractor and one program, the F-35, did not include all of the program’s reliability metrics in the contract. Each F-35 aircraft variant is measured against five reliability metrics, two of which are in part of the contract. Contractors are not responsible for achieving reliability requirements if programs do not include them in contracts. As of August 2018, two of the F-35’s three variants had not met minimum targets for any of the three metrics that are not in the contract. The last variant (Navy) has met the minimum target for only one of the three metrics. As we have previously reported, the warfighter may have to accept F-35 aircraft that are less reliable and more costly than originally expected. As we have reported, the F-35 program tried to encourage the aircraft’s manufacturer to improve reliability through an incentive fee in sustainment contracts. These contracts, for sustainment services, included incentives for meeting aircraft availability. Reliability of parts is one of the factors that influences aircraft availability, because broken parts prevent aircraft from flying. Program officials told us they hoped the incentive fee in the sustainment contract would incentivize the contractor to invest in and implement additional reliability activities, which would help improve aircraft availability, but according to the program office, the incentive has not been effective. Program officials told us the contractor has not pursued the incentive fee in the sustainment contract through efforts to improve aircraft reliability because it would have to invest significant resources to design and incorporate changes into production aircraft in order to do so. F-35 aircraft, especially early production aircraft, continue to face challenges related to parts that are failing more often than planned and are in short supply. For example, we have previously reported that DOD found the special coating on the F-35 canopy that helps maintain the aircraft’s stealth failed more frequently than expected and that the manufacturer could not produce enough canopies to meet demand, ultimately degrading system capability. According to program officials, to ensure that reliability growth was on track, the AMPV program offered an incentive fee of up to $16 million if the contractor could demonstrate at least 80 percent of the system’s reliability before low rate production. But officials stated that the AMPV contractor did not achieve the goal. The AMPV was a derivative system of the Army’s Bradley Fighting Vehicle with an accelerated development schedule, and officials stated that for this reason the contractor assumed the government would accept much of the Bradley’s initial design and changes to the AMPV’s performance resulting from legacy reliability issues. As a result of these expectations, officials stated that the contractor did not put enough resources, including a robust reliability team, toward the work that was eventually needed to improve reliability, and the contractor understaffed in this area. Five of the Seven Selected Programs Deferred Key Reliability Engineering Activities until Later in Development The AMPV, EFV, F-22, F-35, and V-22 programs deferred key reliability engineering activities, intended to improve system designs, until later in development. As a result, they missed opportunities to identify, understand, and mitigate reliability issues early in the development process. After realizing reliability shortfalls late in development, some programs initiated expensive redesign efforts that continued well into production and deployment, while others accepted degraded performance. Based on our prior reporting, we found the EFV program did not implement a proactive reliability approach, which would include identifying challenges early and designing reliability into the system in a cost- effective manner. Instead, the program used a test-fix-test approach that relied on identifying failure modes after the system-integration phase. Early in the acquisition process, officials noted in program documentation that the program had conducted little reliability growth planning before starting development, and officials stated that the EFV program did not plan for or conduct dedicated reliability testing. Then, the program prematurely conducted its critical design review, a key review during the development phase which confirms the system’s design is stable and is expected to meet system performance requirements, before the EFV prototype’s system-integration work was complete. The program did not have the time necessary to demonstrate design maturity as scheduled and officials stated that they did not schedule long enough corrective action periods to allow for proper failure mitigation. As a result, during a 2006 operational assessment, the EFV demonstrated very low reliability and failed to complete amphibious, gunnery, and land mobility tests. F-22 program officials stated that many of the aircraft’s components and subsystems had to be tested as part of an integrated system. This limited the discovery of reliability issues early in the development phase. DOD reliability experts told us programs should not use integrated system testing to demonstrate individual component reliability, and should instead use it to focus on how components work together and identify more complex system failure modes. F-22 officials also stated the program office frequently continued with development and other testing before implementing corrective actions for critical reliability issues. As we have previously reported, the F-22 program started a program to improve its reliability in 2005, near the start of full rate production, to mitigate hundreds of known reliability issues deferred from earlier in development. Nonetheless, we reported in 2012—nearly 3 years after DOD announced the end of F-22 production—that reliability deficiencies had increased support costs, and continued to prevent the aircraft from meeting its reliability requirement. According to program officials, the Army selected a derivative of the Bradley Fighting Vehicle to meet the AMPV requirements, even though that vehicle’s transmission had known reliability problems. According to AMPV program officials, the Army selected this vehicle because it had prioritized controlling costs and accelerating schedule. Program officials stated that the focus on cost and schedule caused the contractor to underestimate the necessary reliability work at the start of development and led to a backlog of test incident reports and deferred corrective actions. According to 2018 program documentation we reviewed, the AMPV’s reliability growth did not track to targets during development and the vehicle did not achieve its pre-production reliability goal. Moreover, some of the AMPV’s deferred work may need to be addressed during a future corrective action period that could continue through fiscal year 2021. DOD Acquisition Policy and Guidance Documents Identify, but Do Not Emphasize, Key Reliability Practices Although there are differences between the DOD and commercial sector stemming from the statutory and regulatory structures that govern DOD’s acquisition processes, DOD has had long-established policy and guidance at both the department and service level that recognize the four key reliability practices we found in the commercial sector. For example, the Defense Acquisition Guidebook encourages acquisition programs to involve reliability engineers early and often, and DOD Instruction 5000.02 identifies the need for establishing realistic reliability requirements. Additionally, the 2005 DOD Guide for Achieving Reliability, Availability, and Maintainability addresses the importance of emphasizing reliability with contractors, and the service-level policies at all three military departments establish the importance of reliability engineering activities. However, most of these documents cover a wide range of acquisition issues or many aspects of reliability engineering, and they do not specifically emphasize the four key practices we identified in our review of the commercial sector. For example, the DOD Instruction 5000.02 is an overarching policy document covering the entire acquisition life cycle at a high level, from concept development to live fire test and evaluation, and only one section provides significant detail and direction on reliability. The service level instructions and Defense Acquisition Guidebook similarly cover the entire acquisition life cycle, and reliability is one of dozens of characteristics addressed in each document. The DOD Guide for Achieving Reliability, Availability, and Maintainability is largely focused on achieving reliability, but the reliability proponents at OSD, the Army, and the Navy said the guide is not consistently used throughout DOD, noting that it was issued in 2005 and has not been updated since. DOD policy provides decision makers flexibility to tailor regulatory activities that acquisition programs perform when developing weapon systems. The process is inherently complex, and these decision makers must balance many factors when overseeing and executing the programs. In the absence of an emphasis on the key reliability practices we identified, we found decision makers for the programs we reviewed prioritized other activities intended to have positive acquisition schedule and cost impacts. For example, AMPV program officials told us the program eliminated 7,500 miles of contractor reliability testing in order to proceed to the next development phase more quickly, believing that there would be sufficient time later to complete corrective actions. Recently, DOD has begun employing the Middle Tier Acquisition pathway—an alternative acquisition pathway with an objective of beginning production within 6 months and completing fielding within 5 years. This emphasis may encourage decision makers to prioritize activities that promise to reduce schedule. We found that for the programs we reviewed, however, such an approach can come at the expense of other activities, such as implementing effective reliability practices. DOD has recently taken steps that could introduce more balance when decision makers consider trade-offs between schedule and reliability. Specifically, DOD has highlighted the importance of one of the four key reliability practices we identified: emphasizing reliability with contractors, and Congress has passed legislation related to reliability. The NDAA for fiscal year 2018 included a provision mandating DOD program managers to include certain reliability requirements in weapon system engineering and manufacturing development and production contracts. In January 2019, the USD(A&S) implemented the NDAA by issuing a policy memorandum to Service Acquisition Executives and other DOD Directors echoing this key practice. However, USD(A&S) has not similarly emphasized the three other key reliability practices we identified in the commercial sector, nor have the Secretaries of the Air Force, Army, and Navy, who now have ultimate responsibility for most of DOD’s major acquisition programs. Specifically, these senior leaders have not emphasized the value of leveraging reliability engineers early and often, establishing realistic reliability requirements, and employing reliability engineering activities to improve a system’s design throughout development. As a result, it is less likely that acquisition programs will take the actions necessary to recognize and address potential reliability problems early in the development process. Without senior leadership emphasis on a broader range of key reliability practices, DOD runs the risk of delivering less reliable systems than promised to the warfighter and spending more than anticipated on rework and maintenance of major weapon systems. This risk is exacerbated in an environment where decision makers are striving to deliver systems in an accelerated manner. Conclusions The best opportunity to influence the reliability of a weapon system is early on during the design of the system. Decisions and tradeoffs made at that time can increase the weapon system’s reliability, help warfighters execute their missions, and decrease operating costs for years to come. However, these decisions and tradeoffs are not easy, as acquisition decision makers are tasked with managing competing priorities such as cost, schedule, and performance. Many of the DOD acquisition program examples in this report illustrate what can happen when reliability is not prioritized. The programs often approached reliability in a reactive manner, discovered problems late in the development process, and then tried to fix them through costly and time-consuming rework. The programs did not consistently adhere to key practices we identified in the commercial sector: reliability engineers were not leveraged early in the development process, reliability requirements were not realistic, reliability was not emphasized with contractors, and reliability engineering activities were not utilized throughout design and development. Recent DOD actions have highlighted the importance of emphasizing reliability with contractors. DOD senior leaders can help improve reliability by highlighting the importance of the three other key reliability practices we identified in the commercial sector. In light of the current focus on accelerating the acquisition process, balancing the desire for speed with reliability considerations is critical. Given the delegation of acquisition decision authority to the military services, the Secretaries of the Air Force, Army, and Navy are in the best position to do so. Recommendations for Executive Action We are making a total of three recommendations: one each to the Air Force, the Army, and the Navy. We recommend the Secretary of the Air Force issue policy emphasizing the following three key reliability practices when planning and executing acquisition programs: leveraging reliability engineers early and often, establishing realistic reliability requirements, and employing reliability engineering activities to improve a system’s design throughout development. (Recommendation 1) We recommend the Secretary of the Army issue policy emphasizing the following three key reliability practices when planning and executing acquisition programs: leveraging reliability engineers early and often, establishing realistic reliability requirements, and employing reliability engineering activities to improve a system’s design throughout development. (Recommendation 2) We recommend the Secretary of the Navy issue policy emphasizing the following three key reliability practices when planning and executing acquisition programs: leveraging reliability engineers early and often, establishing realistic reliability requirements, and employing reliability engineering activities to improve a system’s design throughout development. (Recommendation 3) Agency Comments and Our Evaluation We provided a draft of this report to DOD for review and comment. DOD’s written comments are reprinted in appendix II. DOD stated that the Air Force, Army, and Navy concur with our recommendations to their respective Departments. The comments also state that the Air Force and Navy plan to update their policies in response to our recommendations. As for the Army, the comments state that the Army Acquisition Executive will issue direction emphasizing the three key reliability practices and highlight an existing Army regulation focused on reliability engineering. In addition to the responses to our recommendations, DOD’s written comments included technical comments that we addressed as appropriate. For example, we provided additional detail on an existing DOD policy, and clarified how a program engaged with a contractor. We are sending copies of this report to the appropriate congressional committees and the Secretary of Defense. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or mackinm@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. Appendix I: Key Characteristics of Selected Major Defense Acquisition Programs’ Approach to Reliability This appendix summarizes key characteristics of seven selected major defense acquisition programs’ approach to reliability. The four key characteristics are categorized as: did not leverage government reliability engineers in decision making initially pursued unrealistic operational requirements for reliability; did not effectively emphasize reliability with contractors; and, deferred key reliability engineering activities until later in development. These summaries do not address all the reliability actions taken by each program; rather they focus on key characteristics we identified in our review of commercial companies and associated deficiencies. See figure 6, which notes a distinction between commercial companies’ suppliers and DOD contractors. Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Nathan Tranquilli (Assistant Director), Julie A. Clark (Analyst-in-Charge), Lori Fields, Laura Greifner, Brendan K. Orino, LeAnna Parkey, Christine Pecora, Andrew N. Powell, Timothy Saunders, and Michael J. Sullivan made key contributions to this report.

DOD invests tens of billions of dollars each year in major defense acquisition programs, designing and developing technologically advanced weapon systems that warfighters expect will meet specific performance requirements, including reliability requirements. Systems that are not reliable make it more difficult for warfighters to perform their missions. GAO was asked to examine DOD weapon system reliability. This report addresses (1) how selected companies in the commercial sector address reliability, (2) how selected DOD acquisition programs addressed reliability, and (3) the extent to which DOD leadership has highlighted key reliability practices. GAO collected information on leading commercial practices at the 2019 Reliability and Maintainability Symposium and from four commercial companies known for delivering reliable products. GAO also assessed how seven DOD acquisition programs—both older and newer, and representing all the military services—addressed reliability; reviewed key documents and interviewed knowledgeable officials; and reviewed reliability-related guidance and policy from senior DOD leaders. The commercial companies GAO reviewed proactively address reliability. They strive to identify reliability issues at the component level early in the development process to avoid expensive rework after producing an entire system. GAO found these companies focus on the following key practices: 1. Leveraging reliability engineers early and often 2. Establishing realistic reliability requirements 3. Emphasizing reliability with their suppliers 4. Employing reliability engineering activities to improve a system's design throughout development GAO found that the seven Department of Defense (DOD) acquisition programs it reviewed did not consistently adhere to these key practices (see figure). These programs often prioritized schedule and cost over incorporating the key reliability practices, and these systems generally were not as reliable as promised. In 2019, DOD highlighted in a policy memorandum the importance of emphasizing reliability with contractors. However, the other three key practices have not been similarly highlighted. DOD has taken steps to accelerate weapon system development, and decision-making authority has been delegated to the military services. In an environment emphasizing speed, without senior leadership focus on a broader range of key reliability practices, DOD runs the risk of delivering less reliable systems than promised to the warfighter and spending more than anticipated on rework and maintenance of major weapon systems.

GAO_GAO-20-39

Background TRICARE T-2017 Contracts and Transition Process Under T-2017, DHA reduced the number of TRICARE regions by merging the North and South regions to form the East region, which has approximately 6 million beneficiaries, while the West region remained the same with approximately 3.4 million beneficiaries (see figure 1). In July 2016, DHA awarded the East region contract to Humana Government Business, the incumbent South region contractor, and the West region contract to Health Net Federal Services, the incumbent North region contractor. The T-2017 contracts include five 1-year performance periods and are scheduled to expire on December 31, 2022. As a result of the changes in regional structure, the T-2017 contract transition included a transition from Health Net Federal Services (North region) and Humana Government Business (South region) to Humana Government Business in the East region as well as a transition from UnitedHealth Military & Veterans to Health Net Federal Services in the West Region. The start of the T-2017 transition was initially planned for August 2016, with a health care delivery start date of August 2017. However, due to bid protests filed against each contract, the transition start date was pushed out to January 1, 2017 with a health care delivery start date of October 1, 2017. To manage the T-2017 transition, DHA assigned individuals to lead the transition in each region, who were responsible for coordinating all major transition activities. The transition leads were supported by other staff, including contracting officers, contracting officer representatives, and subject matter experts. In addition, DHA established an organizational structure comprised of several groups to oversee the T-2017 transition from day-to-day oversight to leadership updates. The TRICARE Operations Manual, which is part of the managed care support contract, establishes transition guidance that includes requirements for both the incoming and outgoing contractors. The T- 2017 transition guidance focused on the incoming contractors’ readiness to perform in seven critical areas: (1) provider network, (2) referral management, (3) enrollment, (4) medical management, (5) claims processing, (6) customer service, and (7) management. For the T-2017 transition, DHA introduced two new oversight methods to ensure contractors’ readiness in the seven critical areas prior to the start of health care delivery. These methods and other guidance are outlined in the TRICARE Operations Manual and T-2017 contracts. The performance readiness validation (PRV) and performance readiness assessment and verification (PRAV)—referred to as PRV/PRAV—tested contractors’ functionality in the seven critical areas outlined in the TRICARE Operations Manual. For the PRV, contractors validated their own readiness for specific requirements within each area. For example, the contractor had to validate that it had a complete provider directory online and operational 60 days prior to the start of health care delivery at a 95 percent accuracy rate. The number of requirements varied by critical area. For the PRAV, DHA subsequently assessed and verified contractors’ validation prior to the start of health care delivery. DHA also established financial penalties—referred to as transition performance guarantees—for five of the seven critical areas. The T- 2017 contracts specify that if a contractor does not meet a transition- in requirement in any one of these five areas, DHA will assess a financial penalty (see table 1). In December 2016—prior to the start of the transition—DHA held transition specification meetings with the incoming and outgoing contractors to begin planning critical T-2017 transition activities. The incoming contractors were also required to provide DHA with an integrated master plan and an integrated master schedule outlining processes and specific steps for the transition as well as a risk management plan that identified risks to the successful execution of the contractor’s schedule. Contractors were required to provide weekly updates to DHA on the status of their transition schedule progress. In April 2018—several months after the transition had ended—DHA produced an “after action” report to identify best practices, lessons learned, and recommendations to improve future TRICARE contract transitions. DHA is currently in the process of developing its fifth generation of contracts, referred to as the T-5 contracts. TRICARE Select As required by the NDAA 2017, DHA established a new preferred provider benefit option called TRICARE Select and terminated the TRICARE Standard and Extra benefit options by January 1, 2018. Prior to 2018, beneficiaries primarily had a choice between three basic options— TRICARE Prime (a managed care option), TRICARE Standard (a fee-for- service option), or TRICARE Extra (a preferred provider organization option). The TRICARE Standard and Extra options did not require beneficiaries to enroll. However, beneficiaries who choose the TRICARE Select option must enroll during an annual open enrollment period or within 90 days of experiencing a qualifying life event. Beneficiary cost sharing responsibilities were also modified for the new benefit option. DHA Delayed Time Frames for Key Transition Activities to Implement TRICARE Select The implementation of TRICARE Select delayed timeframes for the T- 2017 transition and was the primary challenge of the T-2017 transition, according to DHA and contractor officials. Because the T-2017 contracts were awarded prior to the enactment of the NDAA 2017, DHA had to incorporate TRICARE Select requirements into the ongoing T-2017 transition process, including developing updated guidance for contractors. As a result of the time needed to plan for and implement a new benefit, DHA delayed timeframes for the following key transition activities. DHA postponed the start of health care delivery by 3 months. DHA moved the start of health care delivery from October 1, 2017 to January 1, 2018 (see fig. 2). According to DHA officials, DHA made this change to align the start of health care delivery with the implementation of TRICARE Select to minimize the impact that two, successive changes could have had on the continuity of care for beneficiaries. On March 30, 2017—three months into the transition— DHA sent a letter to the contractors informing them of this decision. DHA also directed its incoming contractors to submit modified transition schedules and risk management plans. DHA had to delay the start of a planned enrollment freeze and lengthen its duration. According to DHA officials, in a typical transition, DMDC requires 3 to 4 days to make adjustments to beneficiaries’ records in the Defense Enrollment Eligibility Reporting System, including assigning beneficiaries to incoming contractors and regions for the T-2017 contracts. During this time, which is referred to as an enrollment freeze, contractors cannot access this system to process any enrollments. For the T-2017 transition, DHA and DMDC officials stated that, given the termination of two benefit options and the new enrollment requirements for TRICARE Select, DMDC needed additional time to adjust every beneficiary enrollment record (over 9 million). Therefore, DHA delayed the start of the T-2017 enrollment freeze from August to December 2017 and increased its duration from 3 to 4 days to 19 days—December 1-19, 2017 (see fig. 2). Contractors had less time to process enrollments and make other system changes. Once an enrollment freeze has ended, incoming and outgoing contractors have a designated period of time, referred to as a dual operations period, to process beneficiaries’ enrollments and make other systems changes, such as assigning Prime beneficiaries to a primary care manager (PCM). Due to the extended enrollment freeze, contractors had a shorter dual operations period—less than 2 weeks in December 2017 rather than 6 to 8 weeks beginning in August 2017 (see fig. 2). According to contractors, the shorter dual operations period for T-2017 transition contributed to a backlog of enrollment requests and PCM assignments that they were unable to process prior to the start of health care delivery. To mitigate the financial effect on beneficiaries, DHA issued point of service waivers and waived referral requirements for TRICARE Prime enrollees for both regions and provided an enrollment grace period for beneficiaries so they did not have to pay higher copayments for receiving care from non-network providers or care that was not referred by a PCM. DHA’s communications to TRICARE beneficiaries were delayed. TRICARE Select complicated and delayed DHA’s communications to beneficiaries about TRICARE program changes, which led to customer service problems after the start of health care delivery. DHA engaged in various efforts to inform beneficiaries of the new changes, such as through website updates, blog posts, and direct mailings. However, DHA’s “after action” report acknowledged that on multiple occasions its communication division posted incorrect information on its website because of changing policy language. In addition, DHA planned to send a direct mailing to beneficiaries to inform them of TRICARE program changes in October 2017. However, DHA and DMDC officials told us that this date was delayed due to the additional time needed to prepare for TRICARE Select. As a result, DHA mailed information to beneficiaries starting in December 2017, and some beneficiaries did not receive this mailing until after the start of health care delivery, according to DHA. An organization representing TRICARE beneficiaries told us that some beneficiaries were unaware of the various benefit changes that went into effect on January 1, 2018 because of inadequate communication from DHA. Contractors also told us that the delayed communication to beneficiaries contributed to the high volume of customer service calls they received after the start of health care delivery. DHA officials told us that they took several steps to minimize the risks these delays and the implementation of TRICARE Select created, including the use of various transition oversight meetings to discuss and track related challenges. For example, the regional transition management staff participated in a monthly Risk Review Board meeting to discuss concerns related to the schedule of transition activities, such as the impact of TRICARE Select on the time needed for performance testing in critical areas. DHA also discussed transition risks related to TRICARE Select during weekly meetings with contractors throughout the transition. Furthermore, in August 2017, DHA hosted an Enrollment Summit for all stakeholders involved with the transition and implementation of TRICARE Select, where they discussed the schedule of transition steps and the coordination needed to implement the interrelated T-2017 and NDAA 2017 requirements. In addition, DHA kept contractors informed about TRICARE Select as they developed the related policies. Beginning in June 2017, DHA provided contractors with draft guidance on the new benefit to keep them informed of potential changes and obtain their feedback. According to DHA, this also allowed contractors to plan for and begin implementing the program changes they would be required to make once the policies were finalized. DHA issued the final TRICARE Select policies to its contractors in late October 2017, which left contractors with less than 3 months to implement the finalized changes prior to the start of health care delivery on January 1, 2018. According to DHA officials and contractors, contractors ideally would have had the final TRICARE policies at the start of the 9-to-12 month transition period. Challenges Experienced during the T-2017 Transition Process Reflect Weaknesses in DHA’s Guidance and Oversight Lack of Specificity and Accuracy in DHA’s Guidance Contributed to Disagreements between Contractors, Which DHA Failed to Resolve in a Timely Manner During the T-2017 transition, outgoing and incoming contractors had disagreements over data transfers. According to DHA officials and contractors, DHA’s transition guidance to contractors was not always specific or accurate regarding the amount and type of data to be shared, as well as how these data should be transferred. Furthermore, according to contractors, DHA did not always resolve contractors’ guidance-related disagreements in a timely manner. Contractors said this contributed to delays in implementing some transition steps and problems after the start of health care delivery. DHA faced challenges related to the following data transfer issues: Referral and authorization data. The contractors in the West region disagreed on how many years of historical referral and authorization data the outgoing contractor would provide the incoming contractor because this was not specified in the guidance, according to the contractors and DHA’s contracting officers. While the contractors in the East region mutually agreed on the years of data to transfer, the West region contractors did not. As a result, the incoming West region contractor reached out to DHA for resolution on August 2, 2017 by letter, and continued to discuss it with DHA officials during weekly meetings, as documented in meeting minutes we reviewed. However, DHA did not address the issue until December 12, 2017, at which point DHA rejected the incoming contractor’s request for additional historical data because the outgoing contractor would not have enough time to provide it by the start of health care delivery on January 1, 2018. The incoming contractor reported that not receiving the anticipated historical referral information contributed to several problems related to referrals after the start of health care delivery. First, it contributed to delays in processing referrals within timeliness standards. Second, the lack of data made it difficult for contractors to help MTFs address customer referral inquiries, which negatively affected the contractor’s relationship with MTFs. Finally, the contractor had limited ability to resolve beneficiaries’ customer service questions related to referrals and had to reissue authorizations for some referrals. Claims data. The incoming and outgoing West region contractors also disagreed on which elements of claims data needed to be transferred. For example, the incoming contractor requested information from the claims notes section, which the outgoing contractor stated contained some proprietary information. According to the incoming contractor, this section typically contains information important for claims processing, such as medical necessity reviews— medical record reviews to determine that health care services are appropriate for payment. When the outgoing contractor refused to provide the claims notes, the incoming contractor raised the issue several times to DHA during weekly meetings and through letters, as documented in meeting minutes and correspondence we reviewed. However, DHA determined that the outgoing contractor did not need to provide the information requested, as the non-proprietary information was available in other claims data sections. According to the incoming contractor, without access to more detailed historical information from the claims notes, there were instances in which they were unable to adjust payment determinations for certain claims paid prior to transition, which resulted in provider and beneficiary dissatisfaction. Beneficiary payment information. The incoming contractors faced challenges obtaining payment information for TRICARE beneficiaries who paid their health insurance premiums using credit cards or electronic funds transfers. According to a contracting officer, DHA initially directed the outgoing contractor to transfer beneficiary payment data to the incoming contractor. However, the outgoing contractors told us that they were unable to transfer this data due to banking laws and proprietary information security standards. DHA agreed that the outgoing contractors could not legally transfer this information and resolved the problem by requiring incoming contractors to reach out directly to beneficiaries to obtain the payment information. According to incoming contractor officials, this created additional, unanticipated effort, since they had to contact beneficiaries for this information directly, which diverted transition resources, such as enrollment staff, away from ongoing transition activities. In addition, contractors reported that this put certain TRICARE plan beneficiaries at risk since those who did not resubmit their payment information risked disenrollment and gaps in health care coverage. The contractors and DHA made attempts to notify affected beneficiaries that they needed to contact the contractor to reestablish their automated premium payments. However, approximately 224,000 beneficiaries’ credit card or electronic funds transfer enrollments for premium payments did not continue after January 1, 2018. To give beneficiaries more time to provide this information, DHA provided a 150-day grace period for premium payments. Still, certain beneficiaries were disenrolled from TRICARE plans for failure to establish a recurring form of payment. For example, more than 15,000 beneficiaries were disenrolled in the East region. In its “after action” report, DHA acknowledged that it did not always provide specific and accurate requirements for data transfers in its transition guidance and that this should be addressed for the next transition. However, the report did not address the difficulties related to resolving contractors’ questions and disagreements on these issues. For example, DHA officials told us that they followed an informal process for tracking and handling issues raised by contractors during the transition, which was explained in the initial transition specifications meeting in December 2016. However, the outgoing and incoming contractors in the West region expressed concerns about this process, explaining that it was difficult to resolve issues, particularly with the amount of time it took for DHA to provide a response, such as with the referral and authorization disagreement. Federal standards for internal control note that an agency should implement control activities through policies, such as by providing guidance with greater specificity for data transfers. These standards also indicate that agencies should remediate deficiencies in a timely manner, such as the prompt resolution of contractors’ guidance-related disputes so as to not disrupt the transition schedule. Without more specific guidance and a process that ensures timely dispute resolution, DHA risks disagreements and delays for future contract transitions, which could hinder health care delivery. Some of DHA’s Requirements for Determining Contractors’ Readiness for Health Care Delivery Were Not Feasible or Effective DHA experienced challenges executing its new T-2017 transition oversight methods—PRV/PRAV and performance guarantees—as planned because of fundamental problems with how some requirements were written and the implementation of TRICARE Select. As a result, some of the requirements were not feasible or effective in assessing contractors’ readiness for health care delivery. 1. Certain PRV/PRAV requirements were not feasible as originally written or were not aligned with the corresponding performance guarantee, according to DHA officials. For example, one of the PRV requirements in the critical area of medical management focused on testing the contractors’ web-based systems for exchanging information electronically with the government and providers, but this was not always possible as some information continues to be transferred in hard copy, such as by fax. In addition, the performance guarantee related to provider network development did not align with the corresponding PRV/PRAV requirements. A DHA official told us that aligning the performance guarantee and PRV/PRAV requirements would have resulted in a higher financial penalty for one of the contractors. 2. Contractors noted that some PRV/PRAV requirements were not complete or effective measures of readiness. For example, contractors told us that requirements for claims and referrals did not effectively test the actual volume of administrative tasks that they would have to process after the start of health care delivery. According to the West region contractor, one of the referral PRAV tests required contractors to demonstrate that they could process 300 referrals during DHA’s onsite review, whereas they typically need to process 9,000 referrals a day after the start of health care delivery. 3. The original PRV/PRAV requirements did not account for TRICARE Select, since the contracts were awarded prior to the enactment of the NDAA 2017. Furthermore, due to the delayed and extended enrollment freeze that ended on December 19, 2017, DHA determined that contractors could not demonstrate a fully operational enrollment system sixty days prior to the start of health care delivery as originally required. Additionally, the contractors had limited access to DHA’s information technology systems for testing scenarios that included TRICARE Select. As a result, contractors had to test the majority of the critical areas (claims, enrollment, customer service, and referral management) with information technology systems that did not include TRICARE Select, which was not a true test of their readiness. To address issues with feasibility and TRICARE Select, DHA modified the PRV requirements for four of the seven critical areas during transition. Specifically, DHA modified all of the PRV requirements for enrollment, referral management, and claims processing as well as one PRV requirement for medical management. DHA also waived the corresponding performance guarantees for the three of these critical areas that had such guarantees (enrollment, referral management, and claims processing). As a result, the contractors were not subjected to financial penalties for not meeting the requirements for these critical areas. According to DHA officials, the problems with the PRV/PRAV requirements experienced during the T-2017 transition occurred in part because DHA subject matter experts did not review the requirements prior to the release of the final request for proposal. As a result, officials said that it was not until after the contracts were awarded that subject matter experts determined that some of the requirements could not be performed as written. Nonetheless, DHA officials and contractors agreed that the PRV/PRAV processes are good conceptual measures, and should continue to be used for the next transition with improvements to their feasibility and effectiveness. Having subject matter experts review contractors’ readiness requirements for feasibility and contract alignment could help ensure that these requirements are appropriate measures of contractor readiness. In addition, DHA’s “after action” report included feedback and lessons learned from officials and contractors on the PRV/PRAV requirements, which DHA could incorporate for future transitions. Federal standards for internal control state that an agency should internally communicate quality information to enable personnel to perform key roles in achieving objectives. By considering lessons learned from this transition and having subject matter experts review the requirements, DHA would be able to better ensure their metrics are appropriate to prepare contractors for health care delivery. DHA Required Contractors to Develop Corrective Action Plans to Address Problems after the Start of Health Care Delivery DHA reported that the T-2017 contractors had overall better performance meeting contract requirements after the start of health care delivery than the two previous generations of TRICARE contracts. Nonetheless, DHA has acknowledged that both T-2017 contractors did experience some problems meeting certain contract requirements. DHA addressed most of these problems through the issuance of corrective action requests, which require the contractors to submit and implement a corrective action plan (see table 2). One exception where DHA did not issue formal corrective action requests was for problems both contractors experienced with processing enrollment backlogs after the start of health care delivery due to the extended TRICARE Select enrollment freeze during transition. Although most of the problems have been resolved, some problems have persisted into the second year of health care delivery, which DHA and contractors reported they are continuing to address. Provider directory accuracy. Both contractors have continued to fall short of the requirement for 95 percent accuracy of their online provider directories—problems they also experienced during the transition. As of June 2019, the West region contractor’s directory was 76 percent accurate and the East region’s was 64 percent accurate, according to DHA officials. Both contractors expressed concern about the methodology used to assess their performance against this requirement and stated that the 95 percent standard is too high. DHA officials acknowledged that the 95 percent standard is high and that the provider directory corrective action requests may remain open indefinitely because of the high standard, though they continue to monitor the corrective action requests. Claims processing timeliness and accuracy. The East region contractor has struggled to meet timeliness and accuracy standards for processing claims. The contract requires contractors to process 98 percent of claims within 30 calendar days of receipt and 100 percent of claims within 90 days with a 98 percent accuracy rate. As of June 2019, the contractor was meeting the 30 day timeliness requirement and was close to meeting the 90 day timeliness requirement (99.99 percent within 90 days). However, the contractor continued to miss the performance standard for claims processing accuracy, according to DHA officials. DHA officials told us that the department had completed multiple on-site reviews and continues to monitor this issue to ensure the contractor improves its ability to meet claims processing standards. Contractor officials acknowledged that they needed to improve their oversight of claims functions and improve training and job aids with their claims processing subcontractor, which was a new partner for their T-2017 contract. Conclusions A smooth transition of health care delivery between outgoing and incoming managed care support contractors helps ensure continuity of care for TRICARE beneficiaries. In the most recent transition, the need to concurrently implement a new benefit option—TRICARE Select— presented some unique challenges that delayed the transition timeline and limited DHA’s ability to ensure contractors’ readiness in certain areas. While the implementation of a new benefit option during the T-2017 contract transition was a one-time occurrence, our review highlighted weaknesses in DHA’s transition guidance and oversight that could pose challenges to future contract transitions. By improving the specificity of its transition guidance, revising its process for resolving contractors’ issues, and ensuring review of PRV/PRAV requirements for feasibility and effectiveness, DOD could mitigate these challenges and thus improve future transitions. Recommendations for Executive Action We are making the following three recommendations to DHA: The Director of DHA should define data sharing requirements with more specificity in its transition guidance for outgoing and incoming contractors, including the time period covered and the types of data that must be shared. (Recommendation 1) The Director of DHA should revise the process the agency has in place for resolving issues raised between contractors during transition to ensure such issues are resolved within time frames that will not adversely affect the transition schedule. (Recommendation 2) The Director of DHA should incorporate lessons learned from this transition and ensure that subject matter experts review PRV/PRAV requirements and performance guarantees prior to the issuance of the request for proposal for the next transition. These requirements should be reviewed to ensure their feasibility and effectiveness for assessing contractor readiness. (Recommendation 3) Agency Comments We provided a draft of this report to DOD for comment. In its written comments, reproduced in appendix I, DOD generally agreed with our findings and concurred with our recommendations. DOD outlined steps the department will take to improve the next TRICARE contract transition, including revising the TRICARE Operations Manual to better define data sharing requirements, developing a process to ensure that all contractor questions are answered appropriately and in a timely manner, and ensuring SMEs are involved in writing the PRV/PRAV requirements. DOD also provided technical comments, which we incorporated as appropriate We are sending copies of this report to the Secretary of Defense and appropriate congressional committees. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Office of Congressional Relations and Office of Public Affairs can be found on the last page of this report. Other major contributors to this report are listed in appendix II. Appendix I: Comments from the Department of Defense Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Bonnie Anderson, Assistant Director; Rebecca Abela, Analyst-in-Charge; Cathleen Hamann; Jacquelyn Hamilton; Rianna Jansen; and Vikki Porter made contributions to this report.

DOD contracts with private sector companies—referred to as managed care support contractors—to deliver health care services to its TRICARE program beneficiaries through networks of civilian providers. In July 2016, DOD awarded its fourth generation of TRICARE contracts, referred to as T-2017, for management of civilian providers in its two regions (East and West). For new TRICARE contracts, DOD provides a transition period—usually 9 to 12 months—for the incoming and outgoing contractors. During this time, the incoming contractors must take specific steps to prepare for health care delivery. The John S. McCain National Defense Authorization Act for Fiscal Year 2019 included a provision for GAO to review the T-2017 transition. This report examines (1) how the requirement to implement TRICARE Select affected the transition, (2) challenges DOD experienced executing the T-2017 transition process, and (3) how DOD addressed problems after the start of health care delivery. GAO reviewed and analyzed DOD guidance, contract requirements, and other relevant documentation, and interviewed DOD officials, TRICARE contractors, and other stakeholders. The implementation of a required new health care benefit option delayed aspects of the transition to the Department of Defense's (DOD) fourth generation of TRICARE managed care support contracts (T-2017). The National Defense Authorization Act for Fiscal Year 2017 required DOD to implement TRICARE Select, a new preferred provider benefit option. As a result, DOD delayed the start of health care delivery—the date the incoming T-2017 contractors would assume responsibility for managing health care—from October 1, 2017, to January 1, 2018, to align with the mandated implementation date for TRICARE Select. DOD also delayed and lengthened a planned period for the department to make changes to beneficiary information in TRICARE's eligibility system. According to DOD and its contractors, this delay contributed to problems with enrollment processing backlogs that were not addressed until several months after health care delivery began. DOD experienced challenges during the T-2017 transition that resulted from weaknesses with its transition guidance and oversight. Specifically, DOD's guidance does not always specify the amount and types of data outgoing contractors have to share with incoming contractors. This led to contractor disagreements over data transfers, which DOD did not always resolve in a timely manner. Contractors reported that these issues contributed to problems after health care delivery began for the T-2017 contracts, such as with processing referrals. DHA also determined that some of DHA's oversight requirements, such as for specialty care referrals, were not feasible or effective, which limited some testing of contractors' readiness for health care delivery. This occurred in part because DOD's relevant subject matter experts did not review the requirements. DOD addressed most of the problems that occurred after health care delivery began by requiring the contractors to develop and implement corrective action plans. DOD and contractors are addressing some problems that have persisted, including problems with the contractors' provider directory accuracy in both regions and claims processing in one region. DOD has an opportunity to avoid similar problems in the future by improving the specificity of its transition guidance and effectiveness of its oversight requirements.

GAO_GAO-20-68

Background History of NASA Human Spaceflight Plans NASA’s human spaceflight plans have changed focus three times over the last 15 years. These plans have shifted back and forth between conducting a human lunar landing in order to inform the longer-term goal of human exploration of Mars and a mission that sends astronauts to an asteroid boulder in orbit around the Moon but does not include a lunar landing. Figure 1 highlights key events in NASA’s human spaceflight plans from 2005 to 2019. We have found that NASA has faced challenges developing systems capable of transporting humans to space over the past two decades. These include development efforts under NASA’s prior human spaceflight program—the Constellation program—which was canceled in the face of acquisition problems and funding-related issues. More recently, we have found that NASA has struggled to complete its current human spaceflight programs—Orion, SLS, and Exploration Ground Systems—within their established cost and schedule baselines. Establishing a sound business case to ensure resources align with requirements includes following best practices for product development and creating cost estimates and schedules. NASA’s prior human spaceflight programs highlight challenges created when programs do not establish a sound business case. For example: In 2009, we found that NASA had not developed a solid business case—including firm requirements, mature technologies, a realistic cost estimate, and sufficient funding and time—needed to justify moving the Constellation program forward into the implementation phase. We found that the program had not developed a solid business case because the program had a poorly phased funding plan that increased the risk of funding shortfalls, among other reasons. This resulted in the program not completing planned work to support schedules and milestones, and ultimately the program was canceled. Over the past 5 years, we have issued several reports assessing the progress of NASA’s Orion, SLS, and Exploration Ground Systems programs relative to their agency baseline commitments and on technical challenges facing the programs. In 2018, we found that all three programs have been at risk of cost and schedule growth since NASA approved their baselines, and have since experienced cost growth and schedule delays. This was in part because NASA did not follow best practices for establishing cost and schedule baselines for these programs, including not updating cost and schedule analyses to reflect new risks. As a result, NASA overpromised what it could deliver from a cost and schedule perspective. Further, in 2019 we found that NASA should enhance contract management and oversight to improve SLS and Orion program outcomes. NASA’s past approach in this area has left it ill-positioned to identify early warning signs of impending schedule delays and cost growth or reap the benefits of competition. We have made 20 recommendations in prior reports to strengthen NASA’s acquisition management of SLS, Orion, and Exploration Ground Systems. NASA generally agreed with GAO’s recommendations, and has implemented eight of the recommendations. Further action is needed to fully implement the remaining recommendations. For example, in 2019, we recommended that NASA direct the SLS and Orion programs to reevaluate their strategies for incentivizing contractors and determine whether they could more effectively incentivize contractors to achieve the outcomes intended as part of ongoing and planned contract negotiations. NASA agreed with the intent of this recommendation and stated that the SLS and Orion program offices will reevaluate their strategies for incentivizing contract performance as part of contracting activities including contract restructures, contract baseline adjustments, and new contract actions. We will continue to follow up on the actions the agency is taking to address this recommendation. NASA Acquisition Life Cycle NASA initiates space flight programs and projects to accomplish its scientific or exploration goals. A NASA program has a dedicated funding profile and defined management structure, and may or may not include several projects. Projects are specific investments under a program that have defined requirements, life-cycle costs, schedules, and their own management structure. NASA uses the term “tightly coupled program” to refer to a program that is composed of multiple projects that work together to complete the program’s mission. NASA policy states that programs and projects shall follow their appropriate life cycle. The life cycle for programs and projects consists of two phases: 1. formulation, which takes a program or project from concept to 2. implementation, which includes building, launching, and operating the system, among other activities. Senior NASA officials must approve programs and projects at milestone reviews, known as key decision points (KDP), before they can enter each new phase. The life cycle for a single program closely resembles the life cycle for a spaceflight project. For example, the SLS program follows the project acquisition life cycle because it is not composed of multiple projects. Figure 2 depicts a notional NASA life cycle for a tightly coupled program and for a project. The formulation phase culminates in a review at KDP I for tightly coupled programs and KDP C for projects. This decision point is also known as confirmation, at which cost and schedule baselines are established and documented in a decision memorandum. The decision memorandum outlines the management agreement and the agency baseline commitment. The management agreement can be viewed as a contract between the agency and the program or project manager. The program or project manager has the authority to manage the program or project within the parameters outlined in the agreement. The agency baseline commitment includes the cost and schedule baselines against which the agency’s performance on a program or project may be measured. To inform the management agreement and the agency baseline commitment, each program and project with a life-cycle cost estimated to be greater than $250 million must also develop a joint cost and schedule confidence level (JCL). A JCL produces a point-in-time estimate that includes, among other things, all cost and schedule elements from the start of formulation through launch, and incorporates and quantifies known risks, assesses the effects of cost and schedule to date on the estimate, and addresses available annual resources. The results of a JCL indicate the probability of a program or project’s success of meeting cost and schedule targets. Key Elements of NASA’s Planned Return to the Moon NASA has initiated multiple programs to help the agency achieve its Artemis III mission and longer-term lunar exploration goals. These programs include a platform in the lunar orbit, a landing system to put humans on the surface of the Moon, and robotic lunar landing services. Gateway. The Gateway program aims to build a sustainable platform in lunar orbit to support human lunar exploration and scientific experiments by NASA and its commercial and international partners. NASA is planning for Gateway to maneuver to different orbits around the Moon, which will allow access to a variety of locations on the lunar surface. The Gateway program is the first program NASA has designated as a tightly coupled program. The program is composed of multiple projects, which are responsible for executing portions of the Gateway mission. Individual teams manage the projects and each project will have its own cost estimate and launch readiness date. Gateway program management is responsible for ensuring the overall integration of all the individual projects. See figure 3 for a description of the three Gateway projects that NASA has initiated. In addition to Gateway, NASA initiated several other programs: Human Landing System. The Human Landing System, or lunar landers, is to provide crew transportation from Gateway to the lunar surface and back and demonstrate capabilities required for deep space missions. NASA anticipates that there will be three stages to the landers—a descent, ascent, and transfer stage—but the number of stages may vary depending on the contractors that NASA selects to develop the system. NASA is planning for the descent stage to serve as a crew and cargo lander; the ascent stage to bring crew back to Gateway from the lunar surface; and the transfer stage to transfer the ascent and descent stages from Gateway orbit to a lower lunar orbit for the landing. Space Suits. NASA plans to update the design of its space suits, which supply life support, including oxygen and water, among other things, to astronauts. The updates include additional protection from extreme temperatures and hazards in the lunar environment, such as dust; increased mobility; and extended service life for lunar surface operations. Commercial Lunar Payload Services. Under Commercial Lunar Payload Services, commercial partners provide end-to-end commercial payload delivery services to the surface of the Moon. The services include integrating payloads onto a robotic lander, launching the lander, and operating the lander and payloads. The payloads include science instruments and technology demonstrations that will characterize the lunar environment and inform the development of future landers and other exploration systems needed for humans to return to the lunar surface. Volatiles Investigating Polar Exploration Rover. NASA plans to develop a robotic lunar rover for long duration operations to investigate volatiles—which include water, carbon dioxide, and other chemicals that boil at low temperatures—at the lunar South Pole that could be used to support sustained human presence on the Lunar surface. NASA plans to utilize landers from the Commercial Lunar Payload Services to deliver the rover to the lunar surface. Orion and SLS. Orion is the crew capsule to transport humans from the Earth to Gateway and beyond. SLS is the vehicle NASA will use to launch the Orion crew capsule and cargo beyond low-Earth orbit, including to Gateway. Figure 4 shows a notional configuration of Gateway, the first integrated Human Landing System, and the Orion crew capsule. In this configuration, the Human Landing System ascent stage, Gateway Logistics and Power and Propulsion Element (PPE), and Orion crew capsule are designed to dock with the Gateway Habitation and Logistics Outpost. The Advanced Exploration Systems organization is responsible for overseeing the Gateway and Human Landing System programs and reports to NASA’s Associate Administrator for Human Exploration and Operations Mission Directorate (HEOMD). Another organization within HEOMD—Exploration Systems Development—is responsible for the development of the Orion crew capsule. The Office of the Chief Engineer and Office of the Chief Financial Officer are responsible for NASA policies and guidance related to the development of these systems. NASA Adjusted Its Acquisition Plans to Support 2024 Lunar Landing After the March 2019 announcement to accelerate the human lunar landing to 2024, NASA acknowledged that it could not complete all of its original plans under the new time frame. The original plans for a human lunar landing in 2028 included an expanded Gateway and uncrewed demonstrations of components of the Human Landing System. In response to the new direction, NASA decided to execute its lunar plans in two phases. Phase 1 focuses on systems NASA identified to support the Artemis III mission in 2024. Phase 2 builds upon Phase 1 efforts and focuses on establishing a long-term presence on the lunar surface through future Artemis missions, and is not currently the focus of NASA’s efforts (see figure 5). NASA made several changes to its prior lunar plans to increase the speed of developing the systems needed to meet the aggressive timeline for the Artemis III mission. For example: NASA reduced the scope of the Gateway program for Phase 1 by deferring or eliminating components, and changing its configuration. NASA removed a component that an international partner had planned to contribute and deferred work on a habitation component and other potential international contributions to Phase 2. Acknowledging that some elements of Gateway had to be deferred or eliminated for the first phase is a positive step NASA has taken to try to achieve an aggressive schedule. In some cases, NASA changed the acquisition strategy to increase the speed of development work. For example, NASA had planned to build the Habitation and Logistics Outpost in-house, but due to the 2024 acceleration announcement, now plans to award a contract for its development. In addition, NASA changed its plans to acquire the Human Landing System as an integrated system instead of by stage to meet the accelerated timeline. NASA developed a broad agency announcement for the Human Landing System with the goal of awarding contracts by the end of January 2020. NASA released a draft broad agency announcement for the integrated system in July 2019, about 4 months after receiving direction to land humans on the Moon by 2024. Human Landing System program officials raised concerns about the program’s ability to meet the 2024 timeline, but said they are trying to mitigate this risk by incorporating input from prior studies and feedback from industry into the program’s draft broad agency announcement. See table 1 for the status of NASA’s lunar programs, including changes NASA made to prior plans and timelines to meet the 2024 lunar landing goal. NASA is still considering the extent to which competition will be part of its acquisition plans to meet the accelerated 2024 landing. Competition may be a critical tool for achieving the best possible return on investment for taxpayers, and can help improve contractor performance. In addition, in 2014, we found there were competition opportunities for future SLS development work that may promote long-term affordability. We recommended that NASA assess the extent to which the agency could competitively procure development and production of future elements of the SLS to promote affordability. NASA agreed with this recommendation. However, NASA’s progress implementing it has been limited. For example, NASA awarded a sole-source contract for the upper stage engine, which further limits an opportunity for competition for the program. For Gateway Logistics Services and the Human Landing System, NASA officials stated that they are considering awarding multiple initial contracts. If NASA does award multiple contracts, NASA officials stated they would then be able to have the contractors compete for further development of the components and possibly for specific missions. Conversely, NASA does not plan to competitively award a contract for the Gateway Habitation and Logistics Outpost, citing the aggressive Artemis III schedule as a factor for this decision. NASA Risks Integration Challenges Because Lunar Mission Requirements Have Not Yet Been Established NASA has identified the components of its lunar architecture—such as Gateway and lunar landers—but it has not fully defined a system architecture or established requirements for its lunar mission. A system architecture, among other things, defines the dependencies and interfaces between the components. The NASA systems engineering handbook states that defining the system architecture early enables NASA to develop components separately from each other while ensuring that they work together effectively to achieve top-level requirements. For example, a system architecture for the Artemis III mission would describe the relationships and interfaces between Gateway and the Human Landing System, ensuring that after the two programs are completed, they will work together properly to execute the mission. Figure 6 is an illustration of how specific program and project requirements flow down from NASA’s strategic goals and objectives. NASA officials told us they started with defining individual program and project requirements, and then plan to define the system architecture in an architecture definition document and the lunar system requirements in six separate HEOMD documents. These documents are in various stages of completion. HEOMD officials said they expect to finalize the overall architecture definition document at the end of 2019. They plan for this document to include a description of the integrated architecture, including the architecture’s components and high-level interfaces required for initial human lunar surface missions. In addition, HEOMD has six other documents that establish requirements for human space exploration missions, among other things. Three of these documents are currently outdated because they do not address lunar landings. HEOMD officials stated that they do not expect the documents to be updated before the end of 2019. NASA officials told us that they did not start with these higher-level architecture and all of the requirements documents because they thought it was important to first establish requirements for individual programs and review what contractors proposed for Gateway and the Human Landing System, and incorporate industry input on what requirements are feasible. The Human Landing System draft request for proposals contained a notional architecture that has three stages, but the agency is open to selecting contractors that do not follow this notional architecture. In our work to develop a framework for assessing and improving enterprise architecture management, we found that a mature architecture should ensure that components of the architecture align their plans with enterprise-level plans. Establishing such alignment is essential to achieving goals and supporting solutions that are appropriately integrated and compatible. NASA’s approach of defining the lunar architecture and associated requirements concurrently with programs setting their own requirements presents the risk of mismatches of requirements across and within programs. Such mismatches increase the risk of technical problems, schedule delays, and cost overruns. For example, the Gateway program is tracking the potential misalignment of requirements as a risk because the PPE project finalized its requirements before the Gateway program finalized corresponding requirements at the program level. PPE officials stated they finalized their requirements first because they had started work under a prior project and, as a result, moved quickly through early development activities. The Gateway program and PPE project officials said that when they reviewed the PPE requirements with Gateway’s requirements, they found two possible gaps. For example, NASA officials explained that there is a difference in the amount of power the PPE contractor is required to deliver for the PPE and Gateway’s requirements for power. The program is working with the PPE project office and contractor to study the potential gaps and determine how to resolve them if needed. The Gateway program officials said they would continue to assess gaps and risks related to requirements alignment for all projects. HEOMD officials agreed that there is a risk of discovering integration challenges across programs. NASA officials have taken action on one strategy to minimize this risk, and are considering two other potential mitigation strategies. To help ensure that the components of the lunar architecture can work together, NASA included international interoperability standards in its requests for proposals for the lunar programs. For example, there are standards for how the components will dock with each other. NASA officials said that including these standards would help mitigate integration challenges. The two other potential mitigation strategies are the following: Establish a Lunar Exploration Control Board. NASA is in the process of establishing a board that would act as an architecture configuration management body. Configuration management is a process used to control changes to top-level requirements. In our prior work on developing and maintaining systems or networks, we found that effective configuration management is a key means for ensuring that additions, deletions, or other changes to a system do not compromise the system’s ability to perform as intended. The board could serve as a body to make decisions that affect multiple lunar programs and ensure that changes to components of the lunar architecture do not affect NASA’s ability to accomplish a successful lunar landing. Hold cross-program synchronization or integration reviews. To help ensure that requirements are aligned across programs, a senior HEOMD official said NASA plans to hold cross-program synchronization or integration reviews. However, the official said NASA has not defined at what level those reviews would occur, when those reviews would occur, or what specific contractor data would be reviewed. Ensuring the Lunar Exploration Control Board is involved in these reviews will help the board in its role as a configuration management body and inform decisions that affect multiple lunar programs. NASA’s system engineering handbook states that activities to integrate systems throughout a system life cycle help to make sure that integrated system functions properly. These activities include conducting analysis to define and understand integration between systems. NASA is moving quickly to develop individual programs and projects that must work together as part of the broader lunar architecture. Delaying decisions about how and when NASA plans to hold synchronization or integration reviews risks discovery of changes late in the acquisition process. As stated in NASA’s system engineering guidance, the later in the development process changes occur, the more expensive they become. NASA’s Initial Decisions for Cost and Schedule Estimating Include Benefits, but Limit Some Information for Decision Makers NASA has taken positive steps to increase the visibility into the cost and schedule performance of the Gateway program’s projects, but decisions on analyses to support program-level cost and schedule are still pending. In addition, the NASA Administrator has stated that Artemis III may cost between $20 billion to $30 billion, but NASA officials stated that the agency does not plan to establish an official cost estimate. Gateway Structure Provides Increased Visibility for Project Cost and Schedule Performance, but Decisions on Program Reviews and Analysis Are Pending Gateway Costs As of October 2019, NASA was still defining its approach for developing cost and schedule estimates for all programs and projects in the lunar architecture, but we found NASA has made some decisions related to the structure of the Gateway program that will provide visibility into cost and schedule performance. In particular, NASA’s decision to structure the Gateway program as a tightly coupled program means that the projects that compose the Gateway—Power and Propulsion, Habitation and Logistics Outpost, and Logistics—are to develop individual project cost and schedule baselines by which performance will be measured. NASA officials stated that they expect this will provide accountability for each project to adhere to its cost and schedule baseline. This structure is a positive step for NASA to improve management of large, complex programs, and could have been beneficial to previous human spaceflight programs. For example, cost and schedule baselines for key hardware elements of the Space Launch System program—such as the core stage—might have provided earlier warning signs of development challenges affecting cost and schedule performance. NASA policy requires tightly coupled programs with a life cycle cost estimate greater than $250 million to conduct a program-level joint cost and schedule confidence level (JCL) to inform an agency baseline commitment. A JCL is a calculation that NASA uses to estimate the probability of success of a program or project meeting its cost and schedule baselines. However, NASA decided to remove the requirement for the Gateway program to establish an agency baseline commitment, and instead, require the program to document its cost and schedule estimates for phase 1 in a program commitment agreement. NASA officials explained that the agency viewed requiring the Gateway program to conduct a JCL to inform cost and schedule baselines as duplicative of analysis the projects are required to conduct to inform their project level baselines. In October 2019, Gateway program officials stated they have reconsidered this direction and now plan to conduct a program-level JCL. However, given that NASA officials previously determined they would not require the Gateway program to establish a baseline that is informed by a program-level JCL, the decision to conduct a JCL is subject to change again. NASA’s commitment to the program’s October 2019 decision to conduct a program-level JCL would enhance oversight and management for Gateway. NASA’s cost estimating handbook states that a JCL can serve as a valuable management tool that helps enforce some best practices of program planning and control, and potentially enhance vital communication to various stakeholders. Having a program-level JCL could help the program identify additional cost and schedule risks associated with integration of, or dependencies across, Gateway components that individual projects may not identify. As a tightly coupled program, Gateway has project schedules that are dependent on one another. For example, PPE provides power to subsequent Gateway components, such as the Habitation and Logistics Outpost, and must be launched and in lunar orbit for the outpost to dock with PPE. A program- level JCL would be able to quantify risk of delay across all dependent activities, regardless of which individual project experiences the delay. It would also provide NASA decision-makers and external stakeholders, such as Congress, with the probability of the program meeting both its cost and schedule commitments to support the Artemis III mission. Gateway Schedule The Gateway program is also the program in the lunar architecture that is the furthest along in developing a schedule aside from the SLS, Orion, and Exploration Ground Systems programs. The program expects to have an integrated master schedule in late 2019, but in the meantime has developed a high-level notional schedule. We identified two challenges with the Gateway program’s schedule that stem from decisions to meet the program’s rapid pace of development. Program and project technical reviews do not align. The NASA program management handbook states that lower-level technical reviews, such as project preliminary design reviews, are typically conducted prior to the program-level reviews. In addition, GAO’s Schedule Assessment Guide states that lower-level project schedules should be consistent with upper-level program review milestones. This creates consistency between program and project schedules, which enables different teams to work to the same schedule expectations and ensures the proper sequencing of activities. The Gateway program obtained approval from the NASA Associate Administrator to tailor its review schedule. This includes the replacement of traditional reviews with program sync reviews informed by project-level technical reviews. The program has some of the project-level technical reviews for its projects—PPE, Habitation and Logistics Outpost, and Logistics—occurring after equivalent Gateway program-level reviews. The Gateway program-level reviews are referred to as sync reviews, during which information is assessed across all projects. For example, the Logistics project plans to hold its preliminary design review after the Gateway program preliminary design-informed sync review. Figure 7 shows the preliminary Gateway program schedule and identifies reviews that differ from the notional tightly coupled program schedule found in NASA guidance. Without the results of project-level reviews, program officials may have limited information to assess progress at program-level reviews. This opens up the possibility of costly re-designs at later stages of the program life cycle. Gateway program officials said as the program progresses, they plan to assess the risk of holding a project-level review after a program-level review against the risk of delaying a program-level review to hold all the project-level reviews first. Officials added that they are still reviewing their approach for the timing of the reviews. We will continue to follow up through future work on the Gateway program’s risk assessments related to the timing of the technical reviews. Scheduling of key program milestone reviews after 2021 deferred. The Gateway Program does not yet have key milestone reviews—known as key decision points (KDP)—scheduled after 2021 (see figure 7). Currently, the final key decision point scheduled for the program is KDP I in 2021, which evaluates the completeness of the preliminary design, including for projects, and determines the program’s readiness to begin the detailed design phase. However, NASA policy requires the program to conduct two other key decision points that the Gateway program has not yet scheduled. Program officials told us that they want to determine the need for subsequent decision points after the systems have matured further in their development. During the period between 2021 and 2024, the Gateway program plans to launch and assemble its three components—PPE, Habitation and Logistics Outpost, and the first logistics vehicle—and integrate with the Human Landing System and Orion. It may be appropriate not to schedule a KDP III—a decision point that evaluates the readiness of the program, including its projects, for launch and early operations—for the Gateway program since the projects will launch separately and conduct operations on different timelines. However, not having a KDP II—a decision point that evaluates the program’s readiness for assembly, integration, and testing, prior to a system integration review—will limit information available to senior leaders for decision-making. Without scheduling a KDP II, NASA risks not having a formal mechanism to ensure that NASA has identified and sufficiently addressed any integration issues across the three projects. NASA Does Not Plan to Develop a Lunar Mission Cost Estimate The NASA Administrator made a public statement that the Artemis III mission may cost between $20 billion and $30 billion, but NASA officials told us they do not plan to develop an official cost estimate for the Artemis III mission. A senior HEOMD official said that the agency developed a cost estimate that included costs for the lunar mission to 2028 to support budget submissions. However, the official said this life-cycle cost estimate included costs outside of the Artemis III mission, such as for missions later than Artemis III, and may not include integration and overall management costs. NASA officials told us that it is complicated to separate out costs for each mission and, as a result, do not plan to develop an Artemis III cost estimate. In addition, senior NASA officials stated that many of the programs needed to execute the mission are currently in the early stages of acquisition, and therefore NASA has limited cost information. Meanwhile, NASA requested an additional $1.6 billion in fiscal year 2020 above its initial budget request to support the Artemis III mission. Cost estimates provide management with critical cost-risk information to improve the control of resources in the present and future. GAO’s Cost Estimating and Assessment Guide states that a life-cycle cost estimate enhances decision-making, especially in early planning of an acquisition. Individual program cost estimates would not capture the integration costs across programs. Without an Artemis III cost estimate, NASA will not be able to effectively monitor total mission costs and Congress would have limited insight into mission or program affordability when making decisions about each year’s budget request. NASA Conducted Studies to Inform Lunar Plans, but Did Not Fully Assess Alternatives Given the breadth of activity and funding required for NASA to achieve a human lunar landing, a number of stakeholders have advocated for NASA to carry out this mission in a different way than NASA is pursuing. For example, one advocate proposed alternative lunar architectures that do not include the use of Orion, SLS, or Gateway, and instead rely on the use of commercial vehicles, and a former NASA associate administrator has promoted increased use of NASA’s current programs, including SLS. Agencies can use the process of assessing alternatives to justify their decisions and demonstrate careful planning. While NASA policy does not require programs to analyze alternatives before starting work, GAO best practices state that analyzing alternatives provides a framework to help ensure that entities consistently and reliably select the alternative that best meets the mission need based on selection criteria, such as safety, cost, or schedule. Similarly, the Department of Defense, an agency that also invests billions of dollars in acquisitions, considers an analysis of alternatives a key input to defining a system’s capabilities and assessing affordability. We previously found that analyzing alternatives is a key element in establishing a sound business case for a new architecture or program. Having a strong business case, including a formal assessment of alternatives, would help NASA effectively communicate its decisions to various stakeholders and facilitate a better understanding of its current lunar plans. NASA officials told us that they arrived at the current architecture and the designs of its lunar programs by conducting numerous studies and analyses over multiple decades. These studies looked at aspects of the various lunar missions NASA has planned over time, including the prior Constellation program and Journey to Mars effort. A HEOMD official responsible for mission directorate analyses said that the studies ranged from quick turn-around analyses to long-term, thorough studies. NASA officials identified 12 studies completed since the conclusion of the Constellation program in 2010 that informed their decision to build Gateway and other aspects of the lunar architecture. The studies varied in focus, ranging from a study on the overall framework for a mission to Mars to a study exclusively on the human lunar landers. We reviewed these 12 studies to determine the extent to which NASA analyzed alternatives to inform its current lunar architecture. We found that some of the studies contained detailed analyses, but had a narrow scope. For example: NASA conducted a study on the design of its human lunar landers that identified several alternative designs for the lander configuration, including two- and three-stage landers. The study provided an analysis on each alternative in order to compare those alternatives, given the physical constraints of SLS and commercial launch vehicles. HEOMD reviewed prior studies on a cislunar habitation facility conducted by internal and external partners that informed an Assessment of Alternatives for the Gateway program. At the time the mission directorate conducted this assessment, the concept was focused on the Journey to Mars effort, and mentioned lunar landers only as a potential secondary mission. The assessment analyzed various alternative configurations that Gateway might use and selected one of them based feasibility and schedule. NASA conducted studies on the best orbit in which to place Gateway. While these studies were robust, they did not more broadly analyze whether Gateway was the best solution to meet the mission need based on selection criteria. The following are examples of topics that NASA could have addressed if they had analyzed alternatives with a broader scope: Assessing commercial alternatives to SLS and Orion for a human landing on the Moon. Each of the studies assumes the use of SLS and the Orion capsule in order to conduct the required mission. A HEOMD official told us that they did not assess commercial alternatives to SLS and Orion because commercial alternatives are not available. If commercial technology to replace SLS and Orion becomes available, the official said NASA can on- ramp those options if SLS and Orion are not delivered on time. Assessing how a more capable SLS could have affected the lunar architecture. NASA did not assess whether refocusing investment on more capable versions of its current programs, including SLS, might affect risk, cost, and schedule for a lunar landing mission. For example, developing a more capable SLS earlier may have enabled NASA to propose a different lunar lander design or to launch components of the architecture in fewer launches. In the study on the design of its human lunar landers, NASA assumed that a more capable version of SLS would not be available until at least 2028, and therefore did not assess using it as a part of its architecture. Further, at the time of the study in 2018, NASA was unsure it would have enough SLS core stages available to utilize them for any components of the architecture other than to transport crew. Identifying alternatives to a lunar landing without using Gateway. All of the studies assumed the use of Gateway or similar capability as opposed to a capability that would take astronauts directly to the lunar surface. A HEOMD official told us that NASA did not assess architectures without Gateway because they planned to utilize SLS and Orion, and NASA did not design the Orion capsule for a direct-to- moon landing. However, a HEOMD official provided us with a quick turn-around analysis that NASA conducted in 2019, after NASA initiated the Gateway program, in response to questions about alternative lunar architectures. This analysis compared a lunar landing from Gateway to a landing without Gateway and found that NASA would have to upgrade the Orion Capsule to have a direct-to-moon landing, which would increase the cost and development time of the program. As a result, the analysis concluded that a lunar landing using Gateway was the superior option. Additionally, officials said Gateway helped develop an architecture that was sustainable and could contribute to a mission to Mars. In addition, only one of the studies focused on a lunar landing mission because NASA completed most of the studies prior to the December 2017 Space Policy Directive-1. NASA officials stated that this is because they were told not to analyze a lunar landing during the previous administration. As a result, none of these studies represents a comprehensive assessment for NASA’s current plans to return to the Moon and are, in total, missing information on potential alternatives. While conducting a formal analysis of alternatives for the lunar architecture is no longer viable given NASA’s schedule, by not having such an analysis NASA is ill-equipped to consider other alternatives as off-ramps if the current lunar architecture plans run into delays. Further, none of the studies contained a life-cycle cost estimate and without this, NASA does not know the costs of its architecture or of potential alternatives. In October 2019, NASA officials stated they had begun to develop an Architecture Campaign Document, which would provide a summary of the studies and analyses that have informed NASA’s lunar architecture. However, this document was still in draft form at the time of our review and officials did not commit to a completion date. Until NASA completes this summary, it will not have a cohesive document outlining the rationale for how it selected its current lunar architecture and lunar programs. Lastly, the practice of formally assessing alternatives is a beneficial practice for future architectures and programs. However, NASA policy and guidance describe an analysis of alternatives as a tool, but does not require officials to analyze alternatives prior to starting work to develop a system architecture or initiating directed missions. NASA may analyze alternatives for an architecture, program, project, or specific design or capability, but conducting a formal analysis of alternatives is optional. Without a requirement to conduct an analysis of alternatives prior to NASA authorizing the initial planning of a program, NASA could miss opportunities to move forward with a more viable architecture or program to meet mission needs in the future. For a new architecture or large programs that require a lot of investment, such as future exploration efforts including Mars, conducting an analysis of alternatives would better position NASA to build a sound business case, justify and document its decisions, and advocate for its plans. Conclusions Effectively executing the Artemis III mission will require extensive coordination within NASA and its commercial partners, and for each individual program to meet aggressive development time frames. As NASA continues to develop its architecture and program schedules, it will be important that the agency use program management tools and practices to set these new programs up for success. Ensuring that NASA identifies points in time to conduct synchronization reviews, that the role of the proposed Lunar Exploration Control Board in these reviews is understood, and that programs are prepared with the necessary information to make the reviews successful will help NASA mitigate the risk of discovering integration challenges across the lunar programs. The reviews could be a helpful checkpoint on the agency’s progress towards meeting the aggressive timeline of the Artemis III mission. Further, ensuring that the Gateway program has an integrated schedule early on will help the program plan work to meet critical deadlines and avoid unnecessary rework due to the misalignment of requirements or design changes. To date, NASA has provided decision makers with limited cost information to inform decisions on the overall lunar investment. Without an overall cost estimate for the Artemis III mission, NASA is asking Congress to appropriate additional funding to meet a 2024 lunar deadline without having information available on how much it will cost in total to support such plans. Further, NASA senior leadership made a decision that resulted in limiting information regarding the probability of the Gateway program meeting cost and schedule estimates to support the 2024 lunar landing. Requiring the program to conduct a joint cost and schedule confidence level analysis would help to determine whether NASA can meet its lunar goal and whether it has resources to be able to do so. NASA will continue to have many stakeholders interested in its human space exploration plans, which requires NASA to establish a lunar architecture and programs that the agency can defend over time and to demonstrate that it has a solid business case. However, NASA is ill- positioned to explain how it arrived at its current lunar architecture without a comprehensive assessment that documents how NASA decided that its current plans are the best way to meet the agency’s long-term lunar exploration goals. NASA has taken a positive step by planning to create a summary of the studies and analyses that informed its lunar architecture, but has not committed to a date to finalize it. Finally, ensuring that NASA conducts a formal analysis of alternatives for future strategic missions and architectures, including as it further develops its plans for a human mission to Mars, will better position the agency to consistently and reliably select alternatives that best meet the mission need. Recommendations for Executive Action We are making the following six recommendations to NASA. The NASA Administrator should ensure that the NASA Associate Administrator for Human Exploration and Operations directs the Advanced Exploration Systems division to define and determine a schedule for synchronization reviews, including the role of the proposed Lunar Exploration Control Board, to help ensure that requirements between mission and program levels are reconciled. (Recommendation 1) The NASA Administrator should ensure that the NASA Associate Administrator for Human Exploration and Operations directs the Gateway program to conduct a joint cost and schedule confidence level at the program level for the Artemis III mission. (Recommendation 2) The NASA Administrator should ensure that the NASA Associate Administrator for Human Exploration and Operations directs the Gateway program to update its overall schedule for 2024 to add a KDP II to occur before system integration. (Recommendation 3) The NASA Administrator should ensure that the NASA Associate Administrator for Human Exploration and Operations creates a life-cycle cost estimate for the Artemis III mission. (Recommendation 4) The NASA Administrator should ensure that the NASA Associate Administrator for Human Exploration and Operations directs the Advanced Exploration Systems division to commit to a completion date and finalize a cohesive document outlining the rationale for selecting its current lunar architecture and lunar programs. (Recommendation 5) The NASA Administrator should ensure that the Office of the Chief Engineer determines under what conditions it is appropriate to complete an analysis of alternatives, particularly when there are multiple pathways—including architectures or programs—that NASA could pursue in the future, and document the justification for not completing an analysis. (Recommendation 6) Agency Comments and Our Evaluation We provided a draft of this report to NASA for comment. In written comments, NASA agreed with our six recommendations. NASA provided estimated dates of completion for all of the recommendations ranging from April 2020 to September 2021. The comments are reprinted in appendix I. NASA also provided technical comments, which have been addressed in the report, as appropriate. We are sending copies of this report to the NASA Administrator and interested congressional committees. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or chaplainc@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 major contributions to this report are listed in appendix II. Appendix I: Comments from the National Aeronautics and Space Administration Appendix II: GAO Contact and Staff Acknowledgments Cristina T. Chaplain, (202) 512-4841 or chaplainc@gao.gov. Staff Acknowledgments In addition to the contact named above, Molly Traci, Assistant Director; Katie Bassion; Lorraine Ettaro; Laura Greifner; Anna Irvine, Erin Kennedy; Jason Lee, Assistant Director; Jennifer Leotta, Assistant Director; Ryan Lester; Dennis Mayo; Sylvia Schatz; Roxanna Sun; Jay Tallon, Assistant Director; Alyssa Weir; and Tonya Woodbury made significant contributions to this report.

In March 2019, the White House directed NASA to accelerate its plans to return humans to the moon by 4 years, to 2024. To accomplish a lunar landing, NASA is developing programs including a small platform in lunar orbit, known as Gateway, and a lunar lander. NASA plans to use the Space Launch System and Orion crew capsule—two programs with a history of cost growth and schedule delays—to launch and transport crew to Gateway. The House Committee on Appropriations included a provision in its 2018 report for GAO to review NASA's proposed lunar-focused programs, including the Gateway program. GAO's report assesses (1) how NASA updated its lunar plans to support the accelerated 2024 landing timeline; (2) the extent to which NASA has made initial decisions about requirements, cost, and schedule for its lunar mission and programs; and (3) the extent to which NASA analyzed alternatives for its lunar plans, including the Gateway program. GAO analyzed NASA lunar mission and program documents, assessed NASA studies that informed NASA's lunar plans, and interviewed NASA officials. To support accelerated plans to land astronauts on the moon by 2024—four years earlier than planned—the National Aeronautics and Space Administration (NASA) quickly refocused its acquisition plans. In particular, NASA separated its lunar plans into two phases, with the first phase focused on the systems NASA identified to support the new timeline (see figure). One system, Gateway, includes three components—power and propulsion, habitation, and logistics—to form a small platform in lunar orbit. NASA has begun making decisions related to requirements, cost, and schedule for programs, but is behind in taking these steps for the whole lunar mission: NASA risks the discovery of integration challenges and needed changes late in the development process because it established some requirements for individual lunar programs before finalizing requirements for the overall lunar mission. NASA plans to take steps to mitigate this risk, such as by holding reviews to ensure that requirements align across programs, but has not yet defined these reviews or determined when they would occur. NASA has made some decisions that will increase visibility into the costs and schedules for individual lunar programs, but does not plan to develop a cost estimate for the first mission. Cost estimates provide management with critical cost-risk information to improve control of resources. Without a cost estimate for this mission, Congress will not have insight into affordability and NASA will not have insight into monitoring total mission costs. NASA conducted studies to inform its lunar plans, but did not fully assess a range of alternatives to these plans. GAO best practices state that analyzing alternatives provides a framework to help ensure that entities consistently and reliably select the alternative that best meets the mission need and justify agency decisions. Given NASA's schedule, conducting this analysis is no longer viable. Instead, NASA intends to create a summary of the studies that informed its lunar plans. However, it has not committed to a completion date. Without a documented rationale, NASA is ill-positioned to effectively communicate its decisions to stakeholders and facilitate a better understanding of its plans.

CRS_R46142

U nder long-standing Supreme Court precedent, Congress has "plenary power" to regulate immigration. This power, according to the Court, is the most complete that Congress possesses. It allows Congress to make laws concerning non-U.S. nationals (aliens) that would be unconstitutional if applied to citizens. And while the immigration power has proven less than absolute when directed at aliens already physically present within the United States, the Supreme Court has interpreted the power to apply with most force to the admission and exclusion of nonresident aliens. The Court has upheld or shown approval of laws excluding aliens on the basis of ethnicity, gender and legitimacy, and political belief. It has also upheld an executive exclusion policy that was premised on a broad statutory delegation of authority, even though some evidence considered by the Court tended to show that religious hostility may have prompted the policy. Outside of the immigration context, in contrast, laws and policies that discriminate on such bases are almost always struck down as unconstitutional. To date, the only judicially recognized limit on Congress's power to exclude aliens concerns lawful permanent residents (LPRs): they, unlike nonresident aliens, generally cannot be denied entry without a fair hearing as to their admissibility. The plenary power doctrine has roots in the Chinese Exclusion Case of 1889, which upheld a federal statute that provided for the exclusion of Chinese laborers. Some jurists and commentators have criticized the Chinese Exclusion Case for indulging antiquated notions of race. More generally, many legal scholars contend that the plenary power doctrine lacks a coherent rationale and that it is an anachronism that predates modern individual rights jurisprudence. Yet the Supreme Court continues to employ the doctrine. Some commentators have argued that the Court is in the process of narrowing the parameters of the doctrine's applicability, but they find support for this argument mainly in cases outside the exclusion context. In the exclusion context, the Court's 2018 decision in Trump v. Hawaii reaffirms the exceptional scope of the plenary power doctrine. Congress's plenary power to regulate the entry of aliens rests at least in part on implied constitutional authority. The Constitution itself does not mention immigration. It does not expressly confer upon any of the three branches of government the power to control the flow of foreign nationals into the United States or to regulate their presence once here. To be sure, parts of the Constitution address related subjects. The Supreme Court has sometimes relied upon Congress's enumerated powers over naturalization and foreign commerce, and to a lesser extent upon the Executive's implied Article II foreign affairs power, as sources of federal immigration power. Significantly, however, the Court has also consistently attributed the immigration power to the federal government's inherent sovereign authority to control its borders and its relations with foreign nations. It is this inherent sovereign power, according to the Court, that gives Congress essentially unfettered authority to restrict the entry of nonresident aliens. The Court has determined that the executive branch, by extension, possesses unusually broad authority to enforce laws pertaining to alien entry, and to do so under a level of judicial review much more limited than that which would apply outside of the exclusion context. Recent events have generated congressional interest in the constitutional division of responsibilities between Congress and the Executive in establishing and enforcing policies for the exclusion of aliens. Through three iterative executive actions in 2017, commonly known as the "Travel Ban," the President provided for the exclusion of broad categories of nationals of specified countries, most of which were predominantly Muslim. These executive actions relied primarily upon a delegation of authority in the Immigration and Nationality Act (INA) allowing the President, by way of proclamation, to exclude "any aliens" or "any class of aliens" whose entry he determines would be "detrimental to the interests of the United States." In June 2018, the Supreme Court upheld the third iteration of the Travel Ban as likely lawful, rejecting claims that it was motivated by unconstitutional religious discrimination and that it exceeded the President's authority under the INA. Since that decision, some Members of Congress have proposed curtailing executive authority to craft exclusion policy or subjecting executive exclusion decisions and policies to more stringent judicial review. This report provides an overview of the legislative and executive powers to exclude aliens. First, the report discusses a gatekeeping legal principle that frames those powers: nonresident aliens outside the United States cannot challenge their exclusion from the country in federal court because Congress has not expressly authorized such challenges. But aliens at the threshold of entry have more access to judicial review of exclusion decisions, compared to aliens abroad, because of statutory provisions and other considerations. Next, the report analyzes the extent to which the constitutional and statutory rights of U.S. citizens limit the exclusion power. Specifically, the report examines a line of Supreme Court precedent, starting with Kleindienst v. Mandel and ending with Trump v. Hawaii , that makes a highly curtailed form of judicial review available to U.S. citizens who claim that the exclusion of one or more aliens abroad violates the U.S. citizens' constitutional rights. The report concludes by analyzing the implications of these cases for the scope of the congressional power to legislate for the exclusion of aliens and, separately, for the scope of the executive power to take action to exclude aliens. Knauff and the General Rule Against Judicial Review of Exclusion Decisions As discussed later, Supreme Court case law on the exclusion of aliens has come to focus upon whether the rights of U.S. citizens limit the government's power to exclude. The case law arrived at this issue, however, only after the Supreme Court developed an underlying principle: nonresident aliens outside the United States do not have constitutional rights with respect to entry. Further, any statutory provisions that govern the admission of nonresident aliens do not permit judicial review unless Congress "expressly authorize[s]" such review, something that federal courts generally conclude Congress has not done. Put differently, Congress's plenary power over immigration includes not merely the power to set rules as to which aliens may enter the country and under what conditions, but also the power to have such rules "enforced exclusively through executive officers, without judicial intervention" unless Congress provides otherwise. Because Congress has not provided otherwise, judicial review of decisions to exclude aliens abroad is generally unavailable. The Supreme Court developed these general principles against judicial review of exclusion decisions in a series of cases between the late 19th and mid-20th centuries about aliens denied admission after arriving by sea. In one illustrative early case, the 1895 decision Lem Moon Sing v. United States , a Chinese national contended that immigration officers improperly denied him admission under the Chinese exclusion laws. Those laws barred the entry of Chinese laborers, but the Chinese national described himself as a merchant and argued that the laws therefore did not apply to him. As a consequence of his exclusion, he was detained by the steamship company. The Supreme Court recognized that the professed merchant could challenge the legality of his detention through a petition for habeas corpus. This procedural right ultimately proved hollow, however, because the Court held that it could not review the immigration officials' determination that the petitioner fell within the scope of the provision excluding Chinese laborers. The Court explained that Congress had precluded such review by providing in statute that the decisions of immigration officers to deny admission to aliens under the Chinese exclusion acts "shall be final, unless reversed on appeal to the secretary of the treasury." In other words, the statute allowed only the Secretary of the Treasury to review exclusion decisions under the acts. Accordingly, the Court limited its consideration of the habeas petition to the narrow question of whether the immigration officers who excluded the professed merchant had authority to make exclusion and admission decisions under the statutes (in other words, whether the officers had jurisdiction). Determining that the immigration officers did have such statutory authority, the Court rejected the habeas petition without reviewing the petitioner's contention that he was in fact a merchant, not a laborer. To review that contention, the Court reasoned, would "defeat the manifest purpose of congress in committing to subordinate immigration officers . . . exclusive authority to determine whether a particular alien seeking admission into this country belongs to the class entitled by some law or treaty to come into the country." The Court saw no constitutional problem in Congress's assignment of final authority over exclusion decisions to executive officials. The Court considered it a settled proposition that, because aliens lack constitutional rights with respect to entry, exclusion decisions "could be constitutionally committed for final determination to subordinate immigration or other executive officers . . . thereby excluding judicial interference so long as such officers acted within the authority conferred upon them by congress." Two major Supreme Court decisions from the 1950s appeared to transform the principle from Lem Moon Sing and earlier cases—that Congress may bar judicial review of exclusion decisions affirmatively—into a presumption that judicial review of exclusion decisions is barred unless Congress expressly provides otherwise. First, in the 1950 case United States ex rel. Knauff v. Shaughnessy , the Court declared itself powerless to review an executive branch decision to exclude the German bride of a U.S. World War II veteran, even though executive officials failed to explain the exclusion beyond stating that the woman's entry would have been "prejudicial." The Court reiterated that aliens do not have constitutional rights with respect to entry and reasoned that, as a consequence, "[w]hatever the procedure authorized by Congress is, it is due process as far as an alien denied entry is concerned." In what would become an oft-cited sentence, the Court also announced the presumption against judicial review of exclusion decisions: "it is not within the province of any court, unless expressly authorized by law , to review the determination of the political branch of the Government to exclude a given alien." Next, in the 1953 case Shaughnessy v. Mezei , the Court refused to question the Executive's undisclosed reasons for denying entry to an essentially stateless alien returning to the United States after a prior period of residence, even though the exclusion relegated the stateless alien to potentially indefinite detention on Ellis Island. The Mezei Court cited Knauff for the proposition that federal courts may not review exclusion decisions "unless expressly authorized by law," and the Court held that the Attorney General's decision to exclude Mezei and detain him as a consequence of that exclusion was "final and conclusive." The issue of detention complicated the Knauff and Mezei cases. Because the aliens in both cases suffered detention as a result of their exclusion, they filed petitions for habeas corpus challenging the legality of their detention. And in both cases, in accord with Lem Moon Sing and other early precedents, and notwithstanding the Court's declaration in Knauff and Mezei that judicial review of the exclusion decisions was unavailable, the Court conducted a limited inquiry into whether the governing statutes empowered the Attorney General to exclude the aliens without a hearing. As explained further below, in the immigration context, the Supreme Court does not construe a general bar on judicial review to preclude habeas corpus review, although the proper scope of habeas review in cases concerning the exclusion of arriving aliens remains unclear. In any event, even though the Knauff and Mezei Courts conducted a limited habeas inquiry into the Attorney General's statutory authority to exclude aliens without a hearing, federal courts often cite the cases (and especially Knauff ) for the proposition that courts may not review exclusion decisions unless Congress expressly provides otherwise. Many scholars criticize Knauff and Mezei as incorrectly decided. The aspect of Mezei that upholds as constitutional the indefinite detention of an arriving alien, in particular, is controversial and has been limited by some lower federal courts to apply only in cases that implicate national security. The Supreme Court, however, has cited Knauff and earlier exclusion cases for the proposition that excluded nonresident aliens do not have grounds to challenge their exclusion in federal court. Under current law, this proposition forms the basis for the doctrine of consular nonreviewability, which bars judicial review in almost all circumstances of the denial of visas to aliens abroad. The general principle against judicial review of exclusion decisions applies with less force to executive decisions to exclude aliens arriving in the United States, even though the rule arose from cases about such aliens. The general principles that govern reviewability of both of these two categories of exclusion decisions—(1) visa denials and other exclusion decisions concerning aliens located abroad; and (2) decisions to deny entry to aliens arriving at U.S. borders or ports of entry—are discussed below. Nonresident Aliens Located Abroad: Consular Nonreviewability The doctrine of consular nonreviewability precludes judicial review of challenges brought by nonresident aliens located abroad against visa denials and also possibly against other actions by executive branch officials to deny them admission. Under the doctrine, the millions of nonresident aliens denied visas each year at U.S. consulates abroad cannot themselves challenge their visa denials in federal court on statutory or constitutional grounds. The doctrine may also bar U.S. citizens, LPRs, and U.S. entities from challenging the exclusion of a nonresident alien abroad on statutory grounds (as opposed to constitutional grounds), although the Supreme Court has not decided this issue. The general unavailability of judicial review of visa denials under the doctrine means that U.S. consular officers (the officials who adjudicate visas abroad) have considerable power to make final decisions about visa applications. Table 1 provides an overview of the types of claims to which the doctrine of consular nonreviewability applies. Legal Basis for Consular Nonreviewability Much controversy surrounds the doctrine of consular nonreviewability. Some scholars argue that it lacks a compelling foundation in law. No statute speaks expressly to the issue of whether visa decisions should be subject to judicial review. Even so, lower federal courts recognize the doctrine with apparent uniformity (although some have recognized exceptions to it, as discussed in the next subsection). As authority for the doctrine, courts often cite Knauff and the other Supreme Court cases referenced above concerning the denial of admission to aliens arriving by sea. In particular, the consular nonreviewability cases cite these Supreme Court precedents for the proposition that Congress's plenary immigration power includes the power to have statutes governing the admission of aliens "enforced exclusively through executive officers, without judicial intervention" and that "it is not within the province of any court, unless expressly authorized by law, to review the determination of the political branch of the Government to exclude a given alien." Thus, the reasoning that supports lower court applications of the doctrine appears to be that Congress has not expressly authorized judicial review of visa denials. Because the doctrine has its basis in Knauff and the presumption against judicial review of exclusion decisions, it does not apply to the decisions of domestic immigration authorities to deny immigration benefits, unless perhaps those decisions underlie eventual visa denials or otherwise work to exclude aliens located abroad. Some federal courts have sought to reconcile the doctrine of consular nonreviewability with the provisions governing judicial review of final agency action set forth in the Administrative Procedure Act (APA). The APA establishes a "strong presumption" that the actions of federal agencies—including the Department of State—are subject to judicial review. Yet, according to these courts, Congress enacted the APA against the backdrop of already-existing consular nonreviewability jurisprudence and without expressly overruling that jurisprudence by providing for review of consular decisions. On this basis, these courts have concluded that the doctrine of consular nonreviewability constitutes a preexisting limitation on judicial review that the APA preserves through its stipulation, in 5 U.S.C. § 702(1), that nothing in the statute "affects other limitations on judicial review." In other words, the APA preserves consular nonreviewability as an exception to the general rule that judicial review is available for agency action. Although the doctrine of consular nonreviewability is well established, it remains true that no statute expressly bars judicial review of visa denials abroad. For this reason, courts generally hold that the doctrine "supplies a rule of decision, not a constraint on the subject matter jurisdiction of the federal courts." The legislative history of the original Immigration and Nationality Act of 1952 indicates that Congress considered and rejected the idea of creating within the Department of State a system of administrative appeals for visa denials, and the current version of the INA bars the Secretary of State from overturning visa decisions. But Congress has not legislated affirmatively to shield visa decisions from judicial review. The doctrine of consular nonreviewability is therefore premised upon the absence of any specific statutory authorization for the review of visa denials, not upon an explicit statutory prohibition on such review. Exceptions to Consular Nonreviewability Supreme Court case law qualifies the doctrine of consular nonreviewability in one important respect discussed at length later in this report: if a U.S. citizen challenges the exclusion of a nonresident alien abroad on the ground that the exclusion violates the citizen's constitutional rights, then, under the rule of Kleindienst v. Mandel and later cases, courts "engage[] in a circumscribed judicial inquiry" of the constitutional claim. Mandel recognized that U.S. citizens may have constitutional rights that bear upon the entry of nonresident aliens, even though nonresident aliens themselves do not have such rights. As such, the case law of multiple federal circuit courts of appeals establishes that "a U.S. citizen raising a constitutional challenge to the denial of a visa is entitled to a limited judicial inquiry regarding the reason for the decision." This is the only exception to consular nonreviewability that federal courts have recognized uniformly. As explained later in the section on the Mandel line of cases, it allows challengers only exceedingly slim prospects of obtaining relief from a visa denial. Lower federal courts have split over whether U.S. citizens may also challenge visa denials on statutory grounds. Some lower federal courts have recognized other exceptions to consular nonreviewability's bar on judicial review of decisions to exclude aliens abroad. For instance, at least one federal circuit court decision extends the Mandel principle to allow a limited level of judicial review of a constitutional challenge brought directly by an excluded nonresident alien (rather than a U.S. citizen) against the denial of a visa. This extension, however, seems at odds with Mandel itself, which concluded that a nonresident alien who was denied the statutory waivers needed to secure a visa "had no constitutional right of entry," and that limited judicial review was therefore available only because of constitutional claims brought by U.S. citizens against the alien's exclusion. Other federal appellate court decisions make clear that review of visa denials under Mandel is available only for claims brought by U.S. citizens. In another non-uniformly recognized exception, a line of decisions by the U.S. Court of Appeals for the Ninth Circuit allows nonresident aliens to challenge a consular officer's failure to act upon a visa application (as opposed to the denial of an application). The supporting rationale is that the Mandamus Act supplies a basis for judicial review where an official fails to take a legally required action, such as the adjudication of a visa application, even if the APA does not. This exception to the rule of consular nonreviewability is not as well established as the exception allowing for limited review of constitutional claims brought against visa denials by U.S. citizens. Federal district courts outside the Ninth Circuit have split over whether to recognize the exception. However, as discussed in the next section, in cases not specifically concerning the adjudication of visas, other courts have recognized that the Mandamus Act creates an exception to the presumption against judicial review of decisions to exclude aliens abroad. Other federal district court opinions may suggest further exceptions to consular nonreviewability that have yet to gain uniform recognition, such as an exception allowing visa applicants to challenge the validity of generally applicable statutes, regulations, or policies that govern their applications. Nonetheless, the review available under Mandel for constitutional challenges brought by U.S. citizens remains the only exception to consular nonreviewability grounded in Supreme Court case law and universally recognized by lower federal courts. Nonresident Aliens Abroad Who Seek Entry to Remedy Prior Violations of Constitutional or Statutory Rights Other cases concerning aliens abroad that implicate the presumption against judicial review of exclusion decisions and the doctrine of consular nonreviewability address the following question: may a federal court order the executive branch to grant entry to a nonresident alien located abroad in order to remedy violations of constitutional or statutory rights that the alien suffered while in the United States or while detained by the United States? The Seventh and Ninth Circuits have both answered in the affirmative. The D.C. Circuit, however, has held that Knauff bars courts from ordering the executive branch to grant entry to an alien unless a statutory provision authorizes courts to do so. The Ninth Circuit held that a federal district court has authority to order the executive branch to parole aliens whom it removed in violation of due process back into the country to attend fair removal proceedings. "Without a provision requiring the government to admit individual [aliens] into the United States so that they may attend the hearings to which they are entitled," the court reasoned, the determination that their removal proceedings violated due process "would be virtually meaningless." In other words, the only way to remedy the constitutional violation was to order the government to grant the aliens reentry. In a recent district court case that relied on the Ninth Circuit decision, the district court reasoned that ordering the government to grant reentry to aliens who were removed in violation of law did not contravene the political branches' broad authority over exclusion decisions because the remedy formed part of the review that Congress authorized courts to conduct of removal orders under the INA. The Seventh Circuit reached a broader holding in a different context. The case, Samirah v. Holder , concerned an alien who had overstayed his nonimmigrant visa but who had applied for LPR status (through a process called "adjustment of status"). When his mother fell ill in Jordan, the alien received a grant of advance parole from the Department of Homeland Security (DHS) so that he could visit her without abandoning his application for adjustment and with some assurance that he would be able to return to the United States to pursue the application. But while the alien was abroad, DHS revoked his advance parole and did not allow him to board a connecting flight back to the United States. Reviewing the alien's application for a writ of mandamus ordering executive branch officials to grant him reentry, the Seventh Circuit reasoned that DHS had used the advance parole as "a trap—a device for luring a nonlawful resident out of the United States so that he can be permanently excluded from this country." The circuit court held that DHS's parole regulation unambiguously granted the plaintiff a right to reenter the country to continue pursuing his pending application for adjustment of status and that the court could enforce that right through mandamus. Further, the circuit court reasoned that the Supreme Court's holding in Knauff —that "it is not within the province of any court, unless expressly authorized by law ,  to review the determination of the political branch of the Government to exclude a given alien"—does not apply in instances where a statute or regulation grants an excluded alien a right to physical presence in the United States. Put differently, where a nonresident alien abroad "has a right, conferred by a regulation the validity of which is conceded all around, to be in this country," Knauff and the doctrine of consular nonreviewability do not bar a court from ordering executive branch officials to grant the alien entry. The Court did not clarify, however, whether the alien's right to be in the United States under the parole regulation also constituted an "express[] authoriz[ation]" of judicial review , within the meaning of Knauff , of the alien's exclusion. The Supreme Court, for its part, has held at least once that the potential existence of a right to entry does not give rise to judicial review of an alien's exclusion. A D.C. Circuit decision stands in tension with the Seventh and Ninth Circuit cases. In Kiyemba v. Obama , the D.C. Circuit held that it did not possess authority to order executive branch officials to grant entry into the United States to seventeen Chinese nationals detained without sufficient evidence as enemy combatants in Guantanamo Bay. The aliens feared that they would face persecution in China and requested entry and release into the United States, at least until authorities could locate an appropriate third country to accept them, but executive branch officials denied their request and continued to hold the aliens at Guantanamo Bay while pursuing resettlement options through diplomacy. Although the illegality of the aliens' detention was undisputed, the D.C. Circuit held that it could not order the government to release the aliens into the United States. The circuit court cited Knauff , Mezei , and other exclusion cases for the principle that the political branches have "exclusive power . . . to decide which aliens may, and which aliens may not, enter the United States," and reasoned that this principle barred it from granting the requested relief. The "critical question" under Knauff , the circuit court reasoned, was whether any law "expressly authorized" courts "to set aside the decision of the Executive Branch and to order the[] aliens brought to the United States." The Court concluded that the aliens did not have due process rights and that no other "statute or treaty" authorized it to override the executive branch's decision not to grant the aliens entry to the United States. As such, the rule that "in the United States, who can come in and on what terms is the exclusive province of the political branches" foreclosed the aliens' claims for relief. In conclusion, the Seventh and Ninth Circuit cases suggest that the doctrine of consular nonreviewability does not bar federal courts from ordering executive branch officials to grant entry to nonresident aliens abroad for the purpose of remedying constitutional, statutory, or regulatory violations that the aliens suffered in the United States. However, the cases may not fully explain how such judicial authority to order a nonresident alien's entry comports with Knauff and the principles underlying the doctrine of consular nonreviewability. The D.C. Circuit opinion, in contrast, appears to stand for the proposition that Knauff allows federal courts no authority to order the entry of a nonresident alien located outside the United States, unless a statute expressly authorizes such relief. Aliens Excluded at the Border or Port of Entry Under current law, the general rule against challenges to denials of entry appears less relevant in the context of arriving aliens at the threshold of entry, notwithstanding the rule's provenance in Knauff and other cases about such aliens. Unlike in the visa context, it is not rare for federal courts to review and even strike down executive exclusion decisions and policies concerning aliens arriving at the border. At least three interrelated considerations contribute to the diminished relevance of the rule against challenges to exclusion decisions in arriving alien cases. Detention and Other Consequences of Exclusion First, decisions to exclude arriving aliens, unlike decisions to exclude aliens abroad, typically result in detention. Although nonresident aliens do not have constitutional rights with respect to entry , they may enjoy some protection from burdensome enforcement measures, such as prolonged detention, that sometimes flow from denial of entry. Recall, for example, the 1953 Mezei case mentioned above, where the Supreme Court denied relief to a stateless alien whose exclusion left him detained on Ellis Island without prospects for release. Unlike cases about aliens denied visas abroad, Mezei raised not only the question of whether the alien had grounds to challenge his exclusion from the United States, but also whether the government could keep him in detention on Ellis Island as a consequence of the exclusion decision. The majority answered this second question in the affirmative, reasoning that Mezei's lack of constitutional rights with respect to entry, and Congress's decision not to provide him with any judicially enforceable statutory rights to entry, foreclosed his challenge to the detention that resulted from his exclusion. In dissent, Justice Jackson made a famous retort: Because the respondent has no right of entry, does it follow that he has no rights at all? Does the power to exclude mean that exclusion may be continued or effectuated by any means which happen to seem appropriate to the authorities? It would effectuate [an alien's] exclusion to eject him bodily into the sea or set him adrift in a rowboat. In more recent cases, the Supreme Court has hesitated to rely on Mezei for the proposition that the federal government has the constitutional power to subject arriving aliens to prolonged detention in order to carry out their exclusion. Some lower courts have gone further and held that arriving aliens have due process rights that offer some protection against unreasonably prolonged detention, reasoning that Mezei applies only in cases that implicate specific national security concerns. The Supreme Court has yet to resolve the issue. As such, the extent to which aliens arriving at the border enjoy constitutional protections against prolonged detention or other enforcement measures connected to the denial of entry is a disputed issue. And while the law remains clear on the point that arriving nonresident aliens do not have constitutional rights with respect to entry itself, the proposition that they may have constitutional rights against detention or other enforcement measures that implicate fundamental rights often leads to judicial review of issues arising from their exclusion. Habeas Corpus Review Second, also because of the detention issue, arriving alien cases may trigger some level of habeas corpus review. Knauff and Mezei establish that no judicial review is available for exclusion decisions unless a statute expressly authorizes such review. But at the same time, the cases confirm an arguably countervailing proposition: that arriving aliens who suffer detention as a consequence of exclusion may challenge their exclusion in habeas corpus proceedings. Thus, in Knauff , the Court disavowed judicial review but still considered and rejected the excluded alien's argument that the applicable statutes required the Attorney General to conduct a hearing on her admissibility and that an executive branch regulation providing to the contrary was "unreasonable." Similarly, in Mezei , the Court's habeas review included an assessment that the exclusion of the stateless alien in that case without a hearing conformed to the procedural requirements of the immigration statutes. As the Court has noted elsewhere, "[i]n the immigration context, 'judicial review' and 'habeas corpus' have historically distinct meanings." The Court has held in the deportation context that the preclusion of judicial review does not bar habeas corpus proceedings. Knauff , Mezei , and earlier exclusion cases suggest that the same principle applies in the exclusion context: the cases declare that judicial review is unavailable for challenges to exclusion decisions, but they nonetheless engage in some review of executive jurisdiction and procedure under the rubric of habeas corpus. The scope of federal court review in habeas corpus proceedings of a decision to exclude an alien appears extremely limited, although its exact contours remain unclear (as does the question whether such proceedings are constitutionally required). The habeas review that the Court conducted in Knauff and Mezei did not reach the merits of the exclusion decisions. In Knauff , the Court declined to review the Attorney General's determination that the German war bride's entry would be "prejudicial." Similarly, in Mezei , the Court held that it could not review the Attorney General's undisclosed reasons for excluding the stateless alien. As such, one might read Knauff and Mezei to mean that courts reviewing exclusion decisions in habeas proceedings (1) may review pure questions of law, such as whether immigration officials had jurisdiction to enforce the relevant exclusion statutes and whether the statute authorized them to forgo a hearing, but (2) may not review the basis for the officials' determination that the statutes require the aliens' exclusion. Other cases complicate this picture, however. In at least one early habeas case that the Supreme Court has not overruled, the Court reviewed and reversed the determination of immigration officers that a group of arriving aliens was subject to exclusion under the immigration statutes. One federal circuit court has interpreted Supreme Court case law to suggest that "the Suspension Clause requires review of legal and mixed questions of law and fact related to removal orders, including expedited removal orders." The proper reach of a habeas court's review of the exclusion of an arriving alien thus remains unsettled, although the Supreme Court is scheduled to consider this issue in 2020. Regardless, the availability of any level of habeas review in arriving alien cases means that, in practice, the general rule against judicial review of exclusion decisions applies with less force in this context than in the context of visa denials or other decisions to exclude aliens located abroad , where the lack of detention makes habeas unavailable. INA Framework for Judicial Review of Removal Orders Third and finally, Congress has established a limited framework in the INA for the review of orders of removal against arriving nonresident aliens. The INA sets forth two primary procedures by which DHS officials may remove aliens arriving in the United States. These procedures are expedited removal, a streamlined process that contemplates removal without a hearing before an immigration judge, and formal removal, a more traditional proceeding in which an immigration judge determines whether to order the alien's removal. The INA specifies the limited circumstances in which an alien ordered removed under these procedures may obtain judicial review. The INA also expressly bars or limits judicial review of a range of executive branch actions and determinations connected to the removal process. This INA scheme of limitations on judicial review purports to bar review of expedited removal orders in most circumstances, but it may not bar review of some executive branch exclusion policies that bear upon the expedited removal process (such as, for example, executive policies that restrict asylum eligibility for some aliens arriving at the border who are subject to expedited removal procedures). These INA provisions concerning the reviewability of removal orders appear to have replaced the Knauff presumption—that judicial review of exclusion decisions is unavailable "unless expressly authorized by law"—as the touchstone for whether executive decisions or policies for the exclusion of arriving nonresident aliens are subject to judicial review. When the INA expressly authorizes judicial review of orders or policies for the removal of arriving aliens, federal courts engage in such review. More broadly, however, federal courts have also shown a willingness to review statutory challenges to exclusion decisions or policies concerning aliens at the threshold of entry so long as the INA does not expressly bar such review (even if it does not expressly authorize review). This situation typically arises in cases where arriving aliens or their advocates challenge an executive branch exclusion policy under the APA. How judicial review in such exclusion cases—where the INA neither expressly authorizes nor bars review—comports with the Knauff presumption remains largely unexplained in the case law. Yet the Supreme Court has on at least one occasion allowed for judicial review of inadmissibility determinations of arriving aliens on the ground that Congress had not expressly barred such review: in the 1956 case Brownwell v. We Shung , the Court held that arriving aliens could challenge inadmissibility determinations through declaratory judgment actions because the relevant statute—a prior version of the INA that Congress later amended in disapproval of the Supreme Court decision—did not bar such actions. This decision appeared to disregard the presumption against judicial review of exclusion determinations established in Knauff and earlier exclusion cases, although the We Shung Court did not address this point. The underlying implication of We Shung , and of the more recent lower court decisions reviewing statutory challenges to executive branch policies concerning the exclusion of arriving aliens, may be that the INA's judicial review framework for orders of removal occupies the territory that the Knauff presumption against judicial review once occupied and therefore replaces the Knauff presumption as the law governing the availability of judicial review in arriving alien exclusion cases. To recap: the current case law generally provides that statutory challenges to the exclusion of arriving aliens are reviewable unless a statute expressly bars such judicial review. However, the case law does not thoroughly reconcile this approach with the Knauff presumption that there should be no review of an exclusion determination unless the review is expressly authorized in statute. Conclusion Concerning General Rule Against Judicial Review of Exclusion Decisions The line of Supreme Court exclusion jurisprudence culminating in Knauff and Mezei establishes that courts may not review challenges to the exclusion of nonresident aliens unless Congress expressly provides for such review. In the context of aliens located abroad, this jurisprudence has developed into the rule of consular nonreviewability, which bars judicial review in most circumstances of visa refusals and other decisions to exclude nonresident aliens abroad. In the context of arriving aliens, however, the Knauff presumption against judicial review of exclusion decisions appears to have been mostly overshadowed by constitutional issues concerning enforcement measures related to the denial of entry, the potential availability of some level of habeas review, and the framework of INA provisions governing judicial review of removal orders. Claims by U.S. Citizens Against an Alien's Exclusion Even as applied to aliens abroad, the rule against nonresident alien challenges to denials of entry has a major limitation: the rule only clearly forecloses challenges brought by nonresident aliens themselves. Thus, if a U.S. citizen claims that the exclusion of an alien violated the U.S. citizen's constitutional rights, the rule against alien challenges does not apply with its full force. Cases that invoke this limitation account for the entirety of the Supreme Court's modern exclusion jurisprudence. The Court has not considered a nonresident alien's own challenge to a denial of entry in decades. The question about the extent to which U.S. citizens can challenge an alien's exclusion, on the other hand, has occupied the Court in four important cases since 1972: Kleindienst v. Mandel , Fiallo v. Bell , the splintered Kerry v. Din , and Trump v. Hawaii . Under the rule that these cases establish, the government need satisfy only a "highly constrained" judicial inquiry into whether the exclusion "had a justification independent of unconstitutional grounds" in order to prevail against an American citizen's claim that the exclusion violated his or her constitutional rights. This is an extremely limited level of judicial review under which the government has always prevailed before the Supreme Court. Mandel and the Narrow Review of Exclusion Decisions In 1972, the Court confronted a case in which a group of American professors claimed that the exclusion of a Belgian intellectual, Ernest Mandel, violated the American professors'—and not Mandel's—First Amendment rights. The professors had invited Mandel to speak at their universities. A provision of the INA rendered him ineligible for a visa because of his communist political beliefs. A separate provision authorized the Attorney General to waive Mandel's ineligibility upon a recommendation from the Department of State, but the Attorney General declined to do so. The case produced a standard of review for claims that the exclusion of an alien violates an American citizen's constitutional rights: [P]lenary congressional power to make policies and rules for exclusion of aliens has long been firmly established . . . . We hold that when the Executive exercises [a delegation of this power] negatively on the basis of a facially legitimate and bona fide reason , the courts will neither look behind the exercise of that discretion, nor test it by balancing its justification against the First Amendment interests of those who seek personal communication with the applicant. Applying this "facially legitimate and bona fide" test, the Court upheld Mandel's exclusion on the basis of the government's explanation that it denied the waiver because Mandel had abused visas in the past. The American professors and two dissenting Justices pointed to indications of pretext and argued that Mandel had actually been excluded because of his communist ideas. Nonetheless, the majority refused to "look behind" the government's justification to determine whether any evidence supported it. In other words, the Court accepted at face value the government's explanation for why it denied Mandel permission to enter. The "facially legitimate and bona fide" standard resolved what the Court saw as the major dilemma that the dispute over Mandel's visa posed for the bedrock principles of its immigration jurisprudence. Unlike Mandel himself and the unadmitted aliens from prior exclusion cases, the American professors stated a compelling First Amendment claim based on their "right to receive information" from the Belgian intellectual. But for the Court to grant relief on that claim, or even to grant full consideration of the claim, would have undermined Congress's plenary power to exclude aliens by interjecting the courts into the exclusion process. After all, many other exclusions of aliens for communist ideology could also have implicated the rights of U.S. citizens who sought to "meet and speak with" the excluded aliens. The "facially legitimate" standard protected the plenary power against dilution by limiting the reach of the American professors' claim. Under the standard, the professors were not entitled to balance their First Amendment rights against the government's exclusion power; they were entitled only to a constitutionally valid statement as to why the government exercised the exclusion power. Significantly, the Court left open the question whether the American professors' rights entitled them to even that much. Although the government proffered a "facially legitimate and bona fide" justification for Mandel's exclusion, the Court declined to say whether the government would have prevailed even if it had offered "no justification whatsoever." Subsequent Applications of Mandel: Fiallo, Din, and Trump v. Hawaii The Court has followed Mandel in three subsequent exclusion cases. The first of these cases, Fiallo v. Bell , concerned the constitutionality of a statute; the second, Kerry v. Din , concerned the Executive's application of a statute in an individual visa case; and the third, Trump v. Hawaii , concerned the Executive's invocation of statutory authority to exclude a broad class of aliens by presidential proclamation. All three cases reinforce the notion of the government's plenary power to exclude aliens even in the face of constitutional challenges brought by U.S. citizens. The second and third cases, however, indicate that a different standard of review than Mandel 's "facially legitimate and bona fide" test may apply when challengers present extrinsic evidence of an unconstitutional justification for an executive exclusion decision or policy. The Supreme Court has assumed without definitively holding that, in such cases, reviewing courts may consider the extrinsic evidence to determine whether the exclusion decision or policy "can reasonably be understood to result from a justification independent of unconstitutional grounds." Fiallo v. Bell In Fiallo v. Bell , the Court upheld a provision of the INA that classified people by gender and legitimacy. The statute granted special immigration preferences to the children and parents of U.S. citizens and LPRs, unless the parent-child relationship at issue was that of a father and his illegitimate child. Two U.S. citizens and two LPRs claimed that the restriction violated their equal protection rights by disqualifying their children or fathers from the preferences. Despite the "double-barreled discrimination" on the face of the statute, the Court upheld it as a valid exercise of Congress's "exceptionally broad power to determine which classes of aliens may lawfully enter the country." Although it relied on Mandel , the Fiallo Court did not identify a concrete "facially legitimate or bona fide" justification for the statute. Instead, the Court surmised that a desire to combat visa fraud or to emphasize close family ties may have motivated Congress to impose the gender and legitimacy restrictions. Similar to the analysis in Mandel , the Fiallo Court justified its limited review of the facially discriminatory statute as a way to prevent the assertion of U.S. citizen rights from undermining the sovereign prerogative to exclude aliens. Kerry v. Din In Kerry v. Din , the Court considered a U.S. citizen's claim that the Department of State violated her due process rights by denying her husband's visa application without sufficient explanation. The Department indicated that it denied the visa under a terrorism-related ineligibility but did not disclose the factual basis of its decision. The Court rejected the claim by a vote of 5 to 4 and without a majority opinion. Justice Scalia, writing for a plurality of three Justices, did not reach the Mandel analysis because he concluded that Din did not have a protected liberty interest under the Due Process Clause in her husband's ability to immigrate. But Justice Kennedy, in a concurring opinion for himself and Justice Alito, which some lower courts view as the controlling opinion in the case, assumed without deciding that the visa denial implicated due process rights but rejected the claim under the "facially legitimate and bona fide reason" test. Justice Kennedy's concurring opinion made two significant statements about how Mandel works in application. First, the government may satisfy the "facially legitimate and bona fide reason" standard by citing the statutory provision under which it has excluded the alien. Such a citation fulfills the "facially legitimate" prong by grounding the exclusion decision in legislative criteria enacted under Congress's "plenary power" to restrict the entry of aliens, and the citation also, by itself, suffices to "indicate[] [that the government] relied upon a bona fide factual basis" for the exclusion. Thus, because the government stated that it denied Din's husband's visa application under the terrorism-related ineligibility, it provided an adequate justification under Mandel even though it did not disclose the factual findings that triggered the ineligibility. Pointing to the statute suffices. Second, however, Justice Kennedy indicated that his interpretation of the "bona fide" prong might be susceptible to a caveat in some cases: Absent an affirmative showing of bad faith on the part of the consular officer who denied Berashk [Din's husband] a visa—which Din has not plausibly alleged with sufficient particularity— Mandel instructs us not to "look behind" the Government's exclusion of Berashk for additional factual details beyond what its express reliance on [the terrorism-related ineligibility] encompassed. In other words, under Justice Kennedy's reading of the Mandel standard, courts will assume that the government has a valid basis for excluding an alien under a given statute— unless an affirmative showing suggests otherwise. In Din , the facts did not suggest bad faith, because Din's own complaint revealed a connection between the statutory ineligibility and her husband's case. Justice Kennedy therefore had no occasion to apply the caveat, and the opinion did not clarify what kind of "affirmative showing" would trigger it. Nonetheless, Justice Kennedy's concept of a bad faith exception to Mandel 's rule against judicial scrutiny of the government's underlying factual basis for an exclusion decision became a prominent issue in the Supreme Court's most recent exclusion case, Trump v. Hawaii . Trump v. Hawaii Most recently, in Trump v. Hawaii , the Court rejected a challenge brought by U.S. citizens, the state of Hawaii, and other U.S.-based plaintiffs against a presidential proclamation that provided for the indefinite exclusion of broad categories of nonresident aliens from seven countries, subject to some waivers and exemptions. Five of the seven countries covered by the proclamation were Muslim-majority countries. The proclamation, like two earlier executive orders that imposed entry restrictions of a similar nature, became known colloquially as the "Travel Ban" or "Muslim Ban." As statutory authority for the proclamation, the President relied primarily upon INA § 212(f). That statute grants the President power "to suspend the entry of all aliens or any class of aliens" whose entry he "finds . . . would be detrimental to the interests of the United States." In the proclamation, the President concluded that the entry of the specified categories of nationals from the seven countries would have been "detrimental" to the United States because, based on the results of a multiagency review, the countries did not adequately facilitate the vetting of their nationals for security threats or because conditions in the countries posed particular risks to national security. Thus, the stated purpose of the proclamation was to protect national security by excluding aliens who could not be properly vetted due to the practices of their governments or the conditions in their countries. The challengers contended, however, that the actual purpose of the proclamation was to exclude Muslims from the United States. They based this argument primarily upon extrinsic evidence—that is, evidence outside of the four corners of the proclamation—including statements that the President had made as a candidate calling for a "total and complete shutdown of Muslims entering the United States." The challengers argued that the proclamation was illegal on statutory and constitutional grounds. With respect to statute, the challengers contended that INA § 212(f) conferred upon the President only a "residual power to temporarily halt the entry of a discrete group of aliens engaged in harmful conduct" and therefore did not authorize the proclamation's indefinite exclusion of nationals of seven countries. The challengers also made other statutory arguments, including that the proclamation did not make sufficient findings that the entry of the excluded aliens would be "detrimental to the interests of the United States," as the language of § 212(f) requires. With respect to the constitutional ground, the challengers argued that the proclamation violated the Establishment Clause because, based on the extrinsic evidence, the President issued the proclamation for the actual purpose of excluding Muslims from the United States. As such, according to plaintiffs, the proclamation ran afoul of the "clearest command" of the Establishment Clause: "that one religious denomination cannot be officially preferred over another." A five-Justice majority of the Supreme Court rejected all of these challenges in an opinion by Chief Justice Roberts that generally reaffirmed the unique breadth of the political branches' power to admit or exclude aliens. On the statutory claims, the Court declined to decide whether the doctrine of consular nonreviewability barred judicial review of the U.S. plaintiffs' arguments that the proclamation violated § 212(f) and other provisions of the INA. The Court instead held that the proclamation did not violate the INA because § 212(f) "exudes deference to the President" and grants him "'ample power' to impose entry restrictions in addition to those elsewhere enumerated in the INA," even restrictions as broad as those in the proclamation. The Court also reasoned that the "deference traditionally accorded the President" in national security and immigration matters means that courts must not conduct a "searching inquiry" into the basis of the President's determination under § 212(f) that the entry of certain aliens would be "detrimental to the interests of the United States." The Court suggested that such a presidential determination might not be subject to judicial review at all—calling the premise for such review "questionable"—but ultimately held that, "even assuming some form of review [was] appropriate," the findings in the proclamation about the results of the multiagency review of vetting practices satisfied § 212(f)'s requirements. In short, although the Court reviewed the statutory claims against the proclamation, it rejected those claims by holding that Congress has delegated extraordinary power to the President to exclude aliens and that the President's decisions to employ this power warrant deference. On the constitutional issue, the Court reiterated the holdings in Mandel and Fiallo that matters concerning the admission or exclusion of aliens are "'largely immune from judicial control'" and are subject only to "highly constrained" judicial inquiry when exclusion "allegedly burdens the constitutional rights of a U.S. citizen." Interestingly, however, the Court did not decide whether the limitations on the scope of this inquiry barred consideration of extrinsic evidence of the proclamation's purpose. Much of the litigation in the lower courts had turned on this issue. A majority of judges on the U.S. Court of Appeals for the Fourth Circuit, citing Justice Kennedy's concurrence in Din , had relied on the campaign statements and other extrinsic evidence of anti-Muslim animus to hold that the proclamation likely violated the First Amendment. Dissenting Fourth Circuit judges had reasoned that Mandel and the other exclusion cases prohibited consideration of the extrinsic evidence. The Supreme Court, instead of resolving this disagreement, assumed without deciding that consideration of the extrinsic evidence was appropriate in connection with a rational basis inquiry: A conventional application of . . . [the] facially legitimate and bona fide [test] would put an end to our review. But the Government has suggested that it may be appropriate here for the inquiry to extend beyond the facial neutrality of the order. For our purposes today, we assume that we may look behind the face of the Proclamation to the extent of applying rational basis review. That standard of review considers whether the entry policy is plausibly related to the Government's stated objective to protect the country and improve vetting processes. As a result, we may consider plaintiffs' extrinsic evidence, but will uphold the policy so long as it can reasonably be understood to result from a justification independent of unconstitutional grounds. In other words, the Court concluded that, even if plaintiffs' evidence of anti-Muslim animus warranted expansion of the scope of judicial review beyond the four corners of the proclamation itself, the appropriate inquiry remained extremely limited: whether the proclamation was rationally related to the national security concerns it articulated. And that rational basis inquiry, the Court explained, is one that the government "hardly ever" loses unless the laws at issue lack any purpose other than a "'bare . . . desire to harm a politically unpopular group.'" Applying this forgiving standard, the Court held that the proclamation satisfied it mainly because agency findings about deficient information-sharing by the governments of the seven covered countries established a "legitimate grounding in national security concerns, quite apart from any religious hostility." In the principal dissent, Justice Sotomayor argued that the majority failed to provide "explanation or precedential support" for limiting its analysis to rational basis review after deciding to go beyond the "facially legitimate and bona fide reason" inquiry. In Justice Sotomayor's view, the Court's Establishment Clause jurisprudence required the Court to strike down the proclamation because a "reasonable observer" familiar with the evidence would have concluded that the proclamation sought to exclude Muslims. She also reasoned that, even if rational basis review were the correct standard, the proclamation failed to satisfy it because the President's statements were "overwhelming . . . evidence of anti-Muslim animus" that made it impossible to conclude that the proclamation had a legitimate basis in national security concerns. Finally, Justice Sotomayor criticized the majority for, in her view, tolerating invidious religious discrimination "in the name of a superficial claim of national security." She compared the majority decision to Korematsu v. United States , a case that upheld as constitutional the compulsory internment of all persons of Japanese ancestry in the United States (including U.S. citizens) in concentration camps during World War II. (The majority responded that unlike the exclusion order in Korematsu the proclamation did not engage in express, invidious discrimination against U.S. citizens and that, as such, " Korematsu has nothing to do with this case." The majority also took the occasion to overrule Korematsu —which had long been considered bad law but which the Supreme Court had never expressly overruled—calling it "gravely wrong the day it was decided." ) In conclusion, Trump v. Hawaii leaves some questions unresolved about how the Mandel test works in practice, but Trump v. Hawaii leaves no uncertainty on one point: Mandel and its progeny permit courts to conduct only a vanishingly limited review of executive decisions to exclude aliens abroad. The Court did not decide whether U.S. citizens may challenge exclusion decisions on statutory grounds or whether, and in what circumstances, courts may consider extrinsic evidence of the government's purpose for an exclusion decision or policy. Yet the majority opinion reaffirms that the standard of review that applies to constitutional claims brought by U.S. citizens against the exclusion of aliens abroad is a "highly constrained" one that favors the government heavily, even when extrinsic evidence suggests that the Executive may have acted for an unconstitutional purpose. Implications of Supreme Court Jurisprudence for the Scope of Congressional Power The Mandel line of cases embraces the broad view of congressional power over the admission and exclusion of aliens that the Supreme Court established in Knauff and earlier precedent, although the cases do leave some uncertainty about the outer edges of the congressional power. Mandel and Din appeared to take the absoluteness of Congress's exclusion power as a given. In Din , Justice Kennedy grounded his conclusion—that a visa denial withstands constitutional attack so long as the government ties the exclusion to a statutory provision—on the premise that Congress can impose whatever limitations it sees fit on alien entry. In other words, because Congress's limitations are valid per se , executive enforcement of those limitations is also valid. Mandel makes the same point, albeit mainly through omission. Recall that the case concerned application of an INA provision that rendered the Belgian academic ineligible for a visa because he held communist political beliefs. The Court acknowledged that the statute triggered First Amendment concerns by limiting, based on political belief, U.S. citizens' audience with foreign nationals. But the Court did not assess whether the statute violated the First Amendment. Rather, the Court accepted without significant analysis that Congress had the power to impose such an idea-based entry limitation. As a result, the Mandel decision considered only the First Amendment implications of the Attorney General's refusal to waive Mandel's communism-based ineligibility, not the statutory premise of the ineligibility. The untested assumption underlying Mandel and Din —that Congress's immigration power encompasses the power to exclude based on any criteria whatsoever, including political belief—raises a fundamental question about the nature of the plenary power. Often, the Supreme Court has described the power as one that triggers judicial deference , meaning that courts may conduct only a limited inquiry when considering the constitutionality of an exercise of the immigration power. But the plenary power doctrine, as some scholars have noted, can be understood another way, one that perhaps makes more sense of Mandel : the "plenary" refers to the scope of the power itself, in substance, and not to its immunity from judicial review. The congressional power to admit or exclude aliens is so complete, this theory goes, as to override the constitutional limitations that typically constrain legislative action. For example, the power overrides the First Amendment principles that would invalidate legislation that expressly provides for unfavorable treatment based on political belief in almost any other context. Aspects of Fiallo , however, arguably do not support this concept of a substantively limitless congressional power to regulate alien entry. Unlike Mandel and Din , which examined the Executive's application and implementation of authority delegated by statute, Fiallo squarely considered the constitutionality of a statute itself. And while Fiallo 's outcome (upholding an immigration law that discriminated by gender and legitimacy) aligns with the concept of an unbridled legislative power, the Court's reasoning wavered between statements suggesting that the legislative power might have limits and statements describing the power as absolute. The lack of clarity in the opinion seemed to stem from the awkwardness of applying Mandel —which fashioned a rule for review of executive action (the "facially legitimate and bona fide" test)—in a case reviewing legislative action. Ultimately, the Fiallo Court cited the Mandel test as an analogue but did not actually apply the test. Rather, the Court upheld the statute at issue under something that looked like a version of rational basis review, one in which a hypothetical justification suffices to sustain the statute. While extremely deferential, this version of rational basis review implies an underlying constitutional limitation against legislative unreasonableness, at least in theory. In other words, an even-handed reading of Fiallo suggests that statutes regulating the admission of aliens must at least be reasonable. Some scholars have argued that Fiallo was incorrectly decided and that stricter constitutional scrutiny should apply to admission and exclusion laws that classify aliens by factors such as race, religion, and gender. To date, this argument does not find support in Supreme Court precedent, particularly not after the Court relied on Fiallo in Trump v. Hawaii to describe the breadth of the political branches' exclusion power. To be sure, the Supreme Court has made clear that Congress cannot deny certain rights to aliens subject to criminal or deportation proceedings within the United States, and that the federal government cannot deny some procedural protections to LPRs returning from brief trips from abroad. But the Court has never suggested that laws regulating the admission of non-LPR aliens trigger anything more than the deferential rational basis review that it applied to the gender-based immigration preferences statute at issue in Fiallo . In other words, the Court has never called Fiallo into question. In one recent case, Sessions v. Morales-Santana , the Supreme Court applied heightened constitutional scrutiny to strike down a derivative citizenship statute that, much like the statute in Fiallo , used gender classifications. However, the Morales-Santana Court distinguished Fiallo and the plenary power doctrine by noting that the statute before it concerned citizenship, not immigration. Accordingly, Morales-Santana does not appear to portend imminent reconsideration of Fiallo . The term after Morales-Santana , the Court applied rational basis review in Trump v. Hawaii to an executive exclusion policy that was based on a statutory delegation of authority, suggesting that nothing more than rational basis review could apply to an exclusion statute itself. To summarize, dicta in two of the exclusion cases that decided challenges to executive action, Mandel and Din , give the impression of a substantively absolute congressional power to control the entry of aliens. But courts have generally interpreted Fiallo , which concerned a direct challenge to a law regulating alien admission and exclusion, to mean that such laws must at least survive a review for reasonableness. To date, the Supreme Court has not heeded calls by some scholars and litigants for more exacting review of laws regulating alien entry. Implications of Supreme Court Jurisprudence for the Scope of Executive Power Mandel , Din , and Trump v. Hawaii trace the contours of the Executive's exclusion power. As described above, Mandel 's "facially legitimate and bona fide reason" test governs claims that an exclusion decision or policy violates a U.S. citizen's constitutional rights. The Executive satisfies the test by identifying the statutory basis for the exclusion. Where the U.S. citizen challenger proffers extrinsic evidence that the Executive acted with an unconstitutional purpose, it might be proper for a reviewing court to consider that evidence, but only as part of a rational basis inquiry under which the exclusion decision or policy must be upheld if "it can reasonably be understood to result from a justification independent of unconstitutional grounds." However, the cases do not resolve definitively at least three issues about the executive power. These issues, discussed below, are (1) whether the Executive possesses inherent exclusion power, as opposed to solely statutory-based power; (2) the extent to which U.S. persons or entities may challenge an alien's exclusion on statutory grounds; and (3) the extent to which the Constitution limits the Executive's application of broad delegations of congressional power to make exclusion determinations. Source of Executive Power The Supreme Court's exclusion cases generally indicate that the authority to exclude aliens reaches the Executive through congressional delegation. The cases generally assign the constitutional power to regulate immigration to Congress and imply that an executive exclusion decision or policy must have a basis in statute. Mandel , Din , and Trump v. Hawaii illustrate this implied point: even though all three cases considered the constitutionality of executive action, the Court focused its analysis in each case on a statutory source of authority for the executive action. For instance, in Trump v. Hawaii , the Court analyzed whether the "Travel Ban" order fit within the President's authority under INA § 212(f) to "suspend the entry of all aliens or any class of aliens." Trump v. Hawaii and the Court's other exclusion cases proceed on the assumption that executive action to exclude aliens requires statutory authorization. An opposing view held by at least one current Supreme Court Justice posits that the Executive has " inherent authority to exclude aliens from the country." Under this view, Congress does not have authority to constrain executive exclusion decisions. This view arguably finds some support in Supreme Court immigration jurisprudence. Many of the cases, for example, do not distinguish between Congress and the Executive when discussing the constitutional power to regulate immigration, suggesting that the two branches could share the power. Furthermore, at least one pre- Mandel Supreme Court decision states expressly that the Executive possesses inherent authority to exclude aliens. The case makes this statement, however, only to rebuff a challenge to the constitutionality of congressional delegations of immigration authority to executive agencies. In other words, the case states that the Executive has inherent exclusion authority only to explain why Congress may delegate exclusion authority to the Executive, not to establish that the Executive may exclude aliens absent statutory authority. The case goes on to acknowledge that, notwithstanding any inherent executive authority, in immigration matters the Executive typically acts upon congressional direction. The text of the Constitution itself does not resolve whether the Executive has a constitutional power to exclude aliens that is independent of statutory authorization. Because the federal government's immigration power rests at least in part upon an "inherent power as a sovereign" not enumerated in the Constitution, courts cannot determine who owns the power by reading Article I or Article II. Neither does Supreme Court precedent resolve the issue definitively. In one 1915 case, Gegiow v. Uhl , the Court held that an executive exclusion decision violated the governing statute. That holding implies that legislative restrictions on such decisions are constitutionally valid. But that brief decision did not discuss the concept of inherent executive authority over immigration, and more recent exclusion cases have not decided the issue because they have resolved statutory challenges by holding that the executive action at issue complied with the relevant statutes. On balance, the weight of authority favors the view that the power to exclude aliens belongs primarily to Congress, at least in the first instance. The idea that the Executive could exclude aliens in contravention of a statute—or, to a lesser extent, without statutory authorization—would challenge separation of powers principles and does not find support even in the one Supreme Court opinion that expressly endorses the concept of an inherent executive immigration power. The idea of an extra-statutory executive exclusion power would also undermine basic features of the Court's exclusion jurisprudence, such as the long-standing rule that a court reviewing the exclusion of an arriving alien in habeas corpus proceedings must ascertain whether immigration officers had statutory authorization to make the exclusion determination. The point remains, however, that the Court has not established clearly that the Executive may not exclude aliens in contravention of a statute or without statutory authorization. This lack of definitive precedent on the issue may result from Congress's extremely broad delegation of exclusion authority to the Executive, most notably in INA § 212(f), and from the limited judicial review available for executive enforcement of exclusion statutes. Finally, a specific aside about the field of diplomacy: because the Reception Clause of the Constitution grants the President the exclusive power to "receive Ambassadors and other public Ministers," it seems more than plausible that a President could override a statute at least when making decisions about the admission or exclusion of foreign diplomats. Statutory Challenges to Executive Decisions to Exclude Aliens Because executive exclusion power appears to derive primarily from statute, executive exclusion decisions or policies are susceptible in theory to attack on the ground that they violate the governing statutes. In Trump v. Hawaii , for instance, the Supreme Court analyzed and rejected arguments that the "Travel Ban" exclusion policy violated provisions of the INA. But the Court declined to resolve a threshold question about such challenges: whether they are barred by the doctrine of consular nonreviewability, which, as discussed above, forms part of the general rule against judicial review of exclusion decisions. Specifically, consular nonreviewability prohibits judicial review of a visa denial unless the denial burdens the constitutional rights of a U.S. citizen, in which case the deferential standard of review under the Mandel line of cases applies to the constitutional claim. The Mandel Court, in recognizing for the first time that U.S. citizens could challenge exclusion decisions despite the bar against such suits when brought by aliens, spoke narrowly of constitutional claims by U.S. citizens. Trump v. Hawaii reasoned that the statutory claims at issue there failed on the merits even if they were subject to judicial review, and the Court therefore declined to answer whether the Mandel exception also encompasses statutory claims brought by U.S. citizens against the exclusion of aliens abroad. At least two federal circuit courts have held that the doctrine of consular nonreviewability bars U.S. citizen challenges to visa denials on statutory grounds, at least when the citizen does not also state constitutional claims. These courts reasoned that permitting review of purely statutory claims would "convert[] consular nonreviewability into consular reviewability" and "eclipse the Mandel exception" by subjecting statutory claims to a more exacting level of review under the APA than constitutional claims receive under the "highly constrained" review that applies under the Mandel line of cases. On the other hand, in two other cases involving a combination of statutory and constitutional claims brought by U.S. citizens against visa denials, courts in the First Circuit and D.C. Circuit reviewed the statutory claims and rejected or called into question the visa denials on statutory grounds. One of these decisions concluded that the statutory claims were reviewable because, among other rationales, the canon of constitutional avoidance required the court to construe the relevant statutes before considering whether the Executive's application of the statutes violated the Constitution. In both cases, the courts analyzed the statutory claims without deferring to the government's determination that the INA required the denial of the visa applications at issue. As a result, the cases scrutinized the government's justifications for excluding aliens much more closely than the Supreme Court analyzed the constitutional claims in Trump v. Hawaii , Mandel , and Din . It was the Ninth Circuit's disagreement with this framework endorsed by the First and D.C. Circuits—that statutory challenges to visa denials should draw stricter review than constitutional challenges—that led it, among other reasons, to hold in a pure statutory case that consular nonreviewability bars statutory claims. The Supreme Court has on at least two occasions rejected statutory challenges brought by U.S. citizens or organizations against the exclusion of aliens abroad without deciding whether such challenges are subject to judicial review. As already mentioned, in Trump v. Hawaii , the Court acknowledged but did not decide the reviewability question in a case that involved a combination of statutory and constitutional claims brought by U.S. citizens and other U.S. parties. In the 1993 case Sale v. Haitian Centers Council , the Court considered and ultimately rejected statutory challenges to the U.S. Coast Guard's interdiction and forced return of Haitian migrants trying to reach the United States by sea. Specifically, the Court analyzed and rejected the argument that the interdictions violated an INA provision requiring immigration authorities to determine whether aliens would suffer persecution in a particular country before returning them to that country. The Sale Court did not address the consular nonreviewability issue, even though the government argued it, but instead seemed to assume without discussion that the statutory challenges to the interdictions and forced returns were reviewable. The only clear holding about consular nonreviewability that arises from Hawaii and Sale is that the doctrine does not deprive federal courts of subject matter jurisdiction over statutory challenges brought by U.S. citizens against the exclusion of aliens abroad, even though the doctrine might supply a rule of decision requiring courts to reject such statutory challenges without reviewing their merits. In summary, federal appellate courts have held that the doctrine of consular nonreviewability bars exclusively statutory challenges brought by U.S. citizens against the executive branch decisions to exclude aliens abroad, but not where the citizens also press constitutional challenges. The Supreme Court has not resolved the issue, but the Court reviewed statutory challenges that were combined with constitutional challenges in Trump v. Hawaii and reviewed exclusively statutory challenges in Sale . Exclusions Based on Broad Delegations of Congressional Power Justice Kennedy concluded in Din that the plenary nature of Congress's power to exclude aliens means that an executive exclusion decision for a statutory reason is facially legitimate and bona fide. But what about where Congress transfers its exclusion power to the Executive with few limiting criteria? What constitutional restrictions does the Executive face in that scenario? Trump v. Hawaii indicates that the Executive, at least in theory, must comply with constitutional guarantees when exercising power delegated from Congress to create exclusion policies. Even though the Court in that case engaged in only a "highly constrained" level of judicial review, it stated that the purpose of the review was to determine whether the challenged exclusion policy could "reasonably be understood to result from a justification independent of unconstitutional grounds." Presumably, if the Court had concluded that the "Travel Ban" proclamation was "'inexplicable by anything other than [anti-Muslim] animus,'" it would have struck down the proclamation for violating the Establishment Clause. Although the proposition that constitutional guarantees restrict executive exercises of exclusion authority may seem unremarkable, the Court actually avoided deciding this issue in Mandel . The relevant statute in that case gave the Attorney General broad discretion to waive the communism-based ground for exclusion. The parties and the Court assumed that Congress had the authority to exclude communists based on their political ideas. The executive branch argued that it, too, could exercise congressionally delegated exclusion authority to deny entry based on political belief or for "any reason or no reason." The Mandel Court, in adopting the "facially legitimate and bona fide" standard, avoided addressing this contention. The Court reasoned that it did not have to decide whether the government could deny an inadmissibility waiver for "any reason or no reason" because the government had in fact supplied a reason for denying Mandel's waiver—his alleged prior visa abuse—"and that reason was facially legitimate and bona fide." Thus, Mandel left open the possibility that the First Amendment could limit the executive branch's, but not Congress's, power to exclude based on political belief, but the Court did not decide the issue. After Trump v. Hawaii , however, it seems relatively clear that executive exclusion policies must find support in justifications that are "independent of unconstitutional grounds," even though courts will apply only a "narrow standard of review" to assess those justifications. In other words, constitutional guarantees might not restrict Congress's exercise of the exclusion power, but they apparently do restrict the Executive's exercise of exclusion power delegated to it by Congress. Conclusion The Supreme Court has consistently reaffirmed that legislative and executive decisions to exclude aliens abroad are "'largely immune from judicial control.'" The doctrine of consular nonreviewability bars judicial review of decisions to exclude aliens abroad in most circumstances. And even where such decisions burden the constitutional rights of U.S. citizens, the Mandel line of cases stands for the proposition that federal courts must grant the decisions a level of deference so substantial that it mostly assures government victory over any challenges. Notably, however, Supreme Court precedent mainly describes the deference due to executive exclusion decisions as an issue within Congress's control. The doctrine of consular nonreviewability and the Mandel line of cases take their cue from legislative inaction: because Congress has not said that courts may review executive decisions to exclude aliens abroad, courts mostly do not conduct such review or (where constitutional claims of U.S. citizens are at stake) conduct only an extremely limited form of review. Ultimately, the cases indicate that Congress has authority to expand review through affirmative legislation.

Supreme Court precedent establishes that inherent principles of sovereignty give Congress "plenary power" to regulate immigration. The core of this power—the part that has proven most impervious to judicial review—is the authority to determine which non-U.S. nationals (aliens) may enter the United States and under what conditions. The Court has also established that the executive branch, when enforcing the laws concerning alien entry, has broad authority to do so mostly free from judicial oversight. Two principles frame the scope of the political branches' power to exclude aliens. First, nonresident aliens abroad generally cannot challenge exclusion decisions because they do not have constitutional rights with respect to entry and cannot obtain judicial review of the statutory basis for their exclusion unless Congress provides otherwise. Second, even when the exclusion of a nonresident alien burdens the constitutional rights of a U.S. citizen, the government need only satisfy a "highly constrained" judicial inquiry to prevail against the citizen's constitutional challenge. The Supreme Court developed the first principle—that nonresident aliens generally cannot challenge exclusion decisions—in a line of late 19th to mid-20th century exclusion cases. These cases culminated in the 1950 decision United States ex rel. Knauff v. Shaughnessy , in which the Court declared that "it is not within the province of any court, unless expressly authorized by law, to review the determination of the political branch of the Government to exclude a given alien." This rule forms the basis of the doctrine of consular nonreviewability, which in almost all circumstances bars nonresident aliens abroad from challenging visa denials by U.S. consular officers. But the rule set forth in Knauff applies with less force to decisions to exclude aliens arriving at the border. Aliens at the cusp of entry into the United States may be detained by immigration authorities pending their removal. Their cases can trigger habeas corpus proceedings for that reason and may also implicate complex statutory frameworks on judicial review. The second principle, concerning exclusion decisions that burden the rights of U.S. citizens, has been the primary subject of the Supreme Court's modern exclusion jurisprudence. In four cases since 1972— Kleindienst v. Mandel , Fiallo v. Bell , the splintered Kerry v. Din , and Trump v. Hawaii —the Court has recognized that U.S. citizens who claim that the exclusion of aliens violated the citizens' constitutional rights may obtain judicial review of the exclusion decisions. Yet the standard of review that the Court applies to such claims is so deferential to the government as to all but foreclose U.S. citizens' constitutional challenges. In the most recent case, Trump v. Hawaii , the Court applied a "highly constrained" level of review to uphold a broad executive exclusion policy notwithstanding some evidence that the purpose of the policy was to exclude Muslims. The Mandel line of cases reaffirms the unique scope of Congress's power to legislate for the exclusion of aliens. Exclusion statutes draw minimal judicial scrutiny even when they classify people by disfavored criteria, such as gender or legitimacy. With respect to the executive power, the cases reaffirm generally that, in the absence of statutory provisions to the contrary, courts play almost no role in overseeing the application of admission and exclusion laws to nonresident aliens abroad. However, the cases leave some questions about executive exclusion power unresolved, including whether the Executive has inherent, constitutional power to exclude aliens and whether U.S. citizens may bring statutory challenges against executive decisions to exclude aliens abroad.

GAO_GAO-19-616

Background ESSA Provisions Related to the Educational Stability of Youth in Foster Care Enacted in December 2015, ESSA’s amendments to Title I, Part A (Title I) of the ESEA included a number of requirements for SEAs and school districts to ensure the educational stability of children in foster care. For the purposes of this report, we refer to these requirements collectively as the “ESSA educational stability provisions.” Specifically, SEAs are required to describe in their Title I state plans the steps they will take to ensure collaboration with the state child welfare agency to ensure the educational stability of children in foster care, including assurances that: Such children enroll or remain in their school of origin, unless a determination is made that it is not in the child’s best interest to attend the school of origin. This decision shall be based on all factors relating to the child’s best interest, including consideration of the appropriateness of the current educational setting and the proximity to the school in which the child is enrolled at the time of placement. When a determination is made that it is not in a child’s best interest to remain in the school of origin, the child is immediately enrolled in a new school, even if the child is unable to produce records normally required for enrollment. The enrolling school shall immediately contact the school last attended by the child to obtain relevant academic and other records. The SEA will designate an employee to serve as a point of contact for child welfare agencies and to oversee implementation of the above provisions. LEAs are required to provide in their Title I LEA plans assurances that they will collaborate with the state or local child welfare agency to: designate a point of contact, if the corresponding child welfare agency notifies the LEA in writing that the child welfare agency has designated a point of contact for the LEA; and develop and implement clear written procedures governing how transportation to maintain children in foster care in their school of origin when in their best interest will be provided, arranged, and funded for the duration of the time in foster care. The ESSA requirements described above were generally required to be implemented by December 10, 2016. In addition, SEAs and school districts are required to publicly report on the academic achievement and graduation rates of youth in foster care on their annual report cards. States and localities also have some flexibility in implementing the ESSA educational stability provisions. For example, ESSA does not prescribe a specific process for determining whether it is in a child’s best interest to remain in their school of origin. In making this determination, state and local agencies have flexibility in determining which factors should be considered when evaluating the appropriateness of a child’s current educational setting, as well as any additional factors that pertain to a child’s best interest. Similarly, school districts and child welfare agencies generally determine the transportation procedures to use, provided they meet the minimum statutory requirements. In addition, SEAs may choose various approaches to help LEAs implement the ESSA educational stability provisions. For example, SEAs may decide to independently, or with their state child welfare agency, issue policies or guidance, disseminate question and answer documents, or hold informational meetings and webinars. Federal Technical Assistance and Oversight Education and HHS collaborated to provide states with joint non- regulatory guidance specific to the ESSA educational stability provisions. In addition to this written guidance, Education provides technical assistance to states, such as through the State Support Network, one of its technical assistance providers. Each state also has a point of contact at Education for questions, according to Education officials. Education’s Office of School Support and Accountability oversees state implementation of Title I, Part A of the ESEA, including the amendments made by ESSA. Education’s oversight of SEAs includes reviewing state Title I plans that describe how states will follow a variety of federal requirements outlined in Title I, and periodic reviews of how each state is implementing Title I. These reviews occur every few years. HHS’s Children’s Bureau oversees state child welfare agencies’ implementation of Title IV-E, including the provisions in the Fostering Connections Act, and also provides related technical assistance. State and Local Officials Reported Several Challenges Related to Implementing the ESSA Educational Stability Provisions State and local officials reported facing several challenges related to implementing the ESSA educational stability provisions. Specifically, officials reported challenges with (1) turnover among local child welfare and educational agency staff, (2) obtaining school district input during the process for determining whether it is in a youth’s best interest to remain in their school of origin (referred to as best interest determinations), (3) providing and funding transportation, (4) ensuring accurate identification of youth in foster care, and (5) monitoring how school districts implement these provisions. In addition, while we did not ask on our survey about the requirement to immediately enroll youth in a new school if it is determined that remaining in the school of origin is not in their best interest, or about the requirement for the enrolling school to immediately contact the last school attended to obtain relevant records, education and child welfare officials we interviewed said they experienced challenges with immediate enrollment and records transfer for special populations of youth. Turnover among Local Child Welfare and Educational Agency Staff Turnover of local educational and child welfare agency officials was reported as a significant challenge that affects how many states and localities implement the ESSA educational stability provisions, according to our survey and interviews. Specifically, in our survey, 43 of 51 SEAs reported turnover of local child welfare agency points of contact as at least somewhat challenging. A similar number of respondents (39) reported facing challenges with turnover of school district points of contact (see fig. 1). During our discussion group, state child welfare agency officials highlighted turnover of local child welfare agency and school district staff as one of the most significant challenges their states face in ensuring educational stability for youth in foster care. In addition to turnover itself being a challenge, several other challenges reported by SEAs are related to staff turnover, according to officials we spoke with from four state and local educational and child welfare agencies. Specifically: Thirty-two SEA survey respondents identified maintaining an accurate list of school district foster care points of contact for their state as challenging, and officials from four state and local educational and child welfare agencies we spoke with stated turnover makes it difficult to keep these lists updated. One SEA point of contact said that when she sends emails to school district points of contact, she receives numerous responses each time from school district staff saying they are no longer the point of contact. Officials we interviewed at one school district noted that they tried to identify a new point of contact at another school district, but the list on the state website had not been updated. Thirty-eight SEAs reported on our survey that ensuring that school district points of contact are aware of their responsibilities is a challenge. Eight state and local educational and child welfare agency officials we interviewed echoed this observation and cited staff turnover as leading to a lack of awareness of responsibilities or protocols related to the ESSA educational stability provisions. Local staff being unaware of their responsibilities under ESSA can lead to conflicts, according to officials from two state and three local agencies we interviewed, and resolving conflicts between school districts and local child welfare agencies was a challenge reported by three-quarters (38) of SEA survey respondents. For example, officials at one local child welfare agency said they encountered school district officials who did not believe a youth in foster care could attend their current school, since their foster parent lived outside the school district. To resolve the conflict, the school district point of contact discussed the provisions with the school officials. To alleviate challenges related to turnover, SEA points of contact we surveyed and interviewed explained that they regularly provide information to local school district and child welfare agency officials on the ESSA educational stability provisions. To inform and remind local officials about the provisions, a few of these officials said they send emails to school district points of contact or provide training on the provisions at orientation for new staff at child welfare agencies. In all three states we visited, the SEAs and/or state child welfare agencies said they held joint presentations for both school districts and local child welfare agencies, and SEA officials in Georgia said they are considering holding regional collaborative meetings every four to six months. In addition, most SEAs reported on our survey that they work with their state child welfare agencies to provide or develop assistance, guidance, and sample documents or templates to facilitate implementation of the ESSA educational stability provisions at the local level. (See tables 1 and 2 in appendix II for more information on this assistance.) School District Input for Best Interest Determinations On our survey, 34 of 50 SEAs reported that ensuring school districts participate in best interest determinations is a challenge (see fig. 2). Two of five state child welfare agency officials in our discussion group also described challenges related to the lack of collaboration between child welfare agencies and schools on best interest determinations. While ESSA does not prescribe who should be involved in the best interest determination, the joint federal guidance encourages state and local child welfare and educational agencies, including school districts, to develop a process that involves all relevant parties. School district involvement, however, depends on child welfare agencies informing them when a child enters foster care or changes homes. Officials we interviewed at several child welfare agencies indicated they may not include school districts or schools in these determinations due to time constraints. Child welfare officials explained that removing a child from a home and placing them into foster care is a chaotic time and many steps need to be taken to quickly provide the child with a safe environment. During this time, caseworkers may lack the capacity to collaborate with school districts or schools. Child welfare agency officials at two local offices we visited explained that they prioritize a child’s health and safety when placing a child in a new foster home and that they place a greater focus on these issues than on educational stability. Some child welfare agency officials we spoke with said they do not always need school district input to make a best interest determination. For example, officials at two local child welfare agencies said that in some cases, the commute to a child’s current school may be so long that remaining there is clearly not in a child’s best interest. Officials from one state and two local child welfare agencies told us they assume it is in the best interest of the child to remain at their current school. Officials from the state child welfare agency said they do not believe they need to consult with school districts to make that decision. Officials at another local child welfare agency said it would not be helpful to collaborate with school districts on the best interest determination, since the child welfare officials do not believe where the child attends school is the highest priority. However, youth we spoke with in our discussion groups told us that changing schools can create several challenges (see text box). Officials from other state and local child welfare agencies told us they recognize the need to involve school districts and are taking steps to try to include them in best interest determinations. For example, one state child welfare agency we visited includes a line for the school district point of contact’s signature on the state’s best interest determination form; however, we heard from officials at a local child welfare agency that the school district point of contact may not be involved in making the best interest determination, and the form may not be consistently used. Officials at a local child welfare agency told us that they hold best interest determination meetings with the school district by phone because these meetings are faster to schedule than in-person meetings. Rather than speaking with school district staff, officials from four local child welfare agencies said they try to contact school staff that may be close to a child, such as a counselor or teacher, but officials from three of these agencies said they may not do so in every case. Thirty-seven of 50 SEAs reported on our survey that assisting school districts with identifying or arranging transportation is at least somewhat challenging (see fig. 3). To help school districts and local child welfare agencies identify transportation options, SEAs in two states we visited provide guidance or other documents to these agencies that describe potential transportation options. School district and local child welfare agency officials we spoke with reported using different approaches to transport youth, including having foster parents, school district or child welfare staff, or the youth drive to school; rerouting buses; hiring a taxi or other private transportation service; or using public transportation. Sometimes they reported combining these methods to transport youth to their current school. However, eight school district and local child welfare officials noted difficulties with their options, including limited options in rural areas and lack of appropriate transportation for younger youth and those with behavioral issues. For example, an Arizona local child welfare official explained that while they can use taxis to transport youth, they are not approved for use for children age 6 and younger. Foster parents and youth we spoke with shared challenges they have experienced with transportation to the school of origin (see text box). Experiences of Selected Foster Parents and Youth with Transportation to School of Origin Multiple foster parents in two states we visited shared that they were told by child welfare case workers that the foster parent(s) would have to transport children in their care to school for those children to remain in their current school. They told us that sometimes they could not drive the child due to distance or the needs of other youth in their care, and the child transferred to a new school. We also heard that other modes of transportation may be unreliable or cause difficulties for a child’s schedule. For example: One child in foster care in Arizona told us that she missed a week of school because the taxi provided by the child welfare agency failed to pick her up. A child in a foster care group home in Ohio said that despite being placed in a school which was in the same school district as her school of origin, her commute was long—she needed to take two public buses—and she sometimes missed dinner. On our survey, 30 of 50 SEAs reported that helping school districts determine how to fund the additional transportation costsdefined in the joint federal guidance as the difference between what a school district would otherwise spend transporting a student to their assigned school and the cost of transporting a child in foster care to their school of origin is also challenging. Among these 30 SEAs, 12 noted it was very or extremely challenging. Six school district and child welfare agency officials we interviewed also indicated that funding was a concern and some noted that transporting youth to their school of origin can result in extensive additional costs (see text box). Examples of Transportation Costs to Maintain Youth in Foster Care in Their School of Origin Over a school year, officials from a local child welfare agency said it spent $155,000 to transport students in one school district. According to officials at one school district, to transport one student, the school district had to hire a van at an estimated cost of up to $30,000 per year. In one month, another school district reported paying over $4,000 to transport five students. School district and child welfare officials said that they can rely on multiple funding streams—local, state, and/or federal—to cover these additional costs. Districts and local child welfare agencies reported that they sometimes split these costs, depending on their state’s policies. (See fig. 9 in appendix II for state-specific cost-sharing requirements reported in our survey.) For example, in Arizona, one agency transports the child to school and the other transports the child home and each pays for the cost of their one-way trip. To assist localities with funding additional transportation costs, nine SEAs said their state provides funding that partially or fully covers these costs. While educational and child welfare agencies may use federal funding through Title I or Title IV-E for the additional transportation costs, some SEA, school district, and child welfare agency officials we interviewed noted that they do not use these funds. Officials at a few school districts said they use Title I funding for other needs, while some child welfare agency officials explained their agency does not use Title IV-E funds because they did not have state “matching” funding, did not understand how to use the funds to reimburse schools for their costs, or had some youth who are not Title IV-E eligible. Ensuring Accurate Identification of Youth in Foster Care Thirty-two SEA survey respondents reported that ensuring school districts can accurately identify youth in foster care is at least somewhat challenging (see fig. 4). School district officials we spoke with expressed similar concerns. Officials we interviewed in nine of 10 districts stated they are not consistently aware of which students in their district are in foster care, and seven explained that there is no systematic way for school districts to be notified when a child enters or leaves care. Similarly, officials in four local child welfare agencies said they have no systematic way to inform schools when youth in foster care leave care or when their status in foster care changes. Officials from two school districts also stated their data systems have no way to indicate that a student is in foster care, so even if the child welfare agency notifies them of a youth’s status, they may not easily track the information. Officials from two school districts said not knowing the status of youth in foster care in their district impedes their ability to effectively implement the ESSA educational stability provisions. For example, one district official stated they would probably be transporting more youth to their school of origin if they knew which students were in foster care. In addition, two school district officials said that if they do not know which students are in foster care, they cannot provide additional supports that may be available to these youth, such as tutoring, financial assistance, or mental health services. The ability of school districts to accurately identify youth in foster care can also affect the accuracy of state and local report cards. Nine SEAs reported on our survey that they rely exclusively on school districts’ identification of youth in foster care for their state report cards. Of those nine, seven reported that ensuring that school districts accurately identify these youth is a challenge, which may affect the accuracy of the additional report card data required by ESSA. Some states and localities we visited had different ways to inform school districts when a youth’s foster care status changes, but officials noted varying degrees of consistency in notifying the districts of changes. Officials at two state child welfare agencies we visited told us they require the person enrolling the youth in school to present an official document that shows the youth is in state custody; however, they said schools are not informed when a child leaves foster care. One county and one state we visited had electronic data sharing agreements between child welfare and educational agencies for the purposes of updating school district records when a child enters and leaves foster care. Specifically, in that county, once a child enters foster care under the custody of the county child welfare agency, the school district’s database automatically receives pertinent information from the child welfare agency, according to officials. School and child welfare agency officials meet monthly to ensure data accuracy. In Georgia, officials from the state educational agency said they signed a data sharing agreement in spring 2018 with the state child welfare agency to allow information about youth in foster care to be provided to school districts. The previous data sharing agreement prevented the SEA from sharing the data with the school districts, according to officials. In Idaho (a state that participated in our discussion group), state officials said they ensure school districts are aware of youth in foster care by using an automated letter (see text box). Idaho’s iCARE System for Youth in Foster Care When a youth enters foster care or changes placements, Idaho’s iCARE system produces an automated letter that provides an initial communication from a child welfare social worker to the school district, SEA foster care points of contact, and the school principal. When the youth’s school of origin is entered into the system, the letter automatically populates the email addresses of the appropriate school district point of contact, SEA point of contact, and school principal. The letter contains the social worker’s initial best interest determination, and indicates if the student will need transportation to attend their school of origin, which the school district point of contact is responsible for coordinating. The school district point of contact has three days to provide input on the best interest determination when school is in session and 14 days during the summer months. The school district foster care point of contact and the child welfare social worker both must sign off on the plan identified within the electronic letter. Monitoring School Districts’ Efforts to Implement ESSA Educational Stability Provisions Under federal grant regulations, SEAs, which subgrant Title I funds to school districts, are required to conduct regular monitoring and oversight to ensure appropriate implementation of Title I by their school districts, and 43 SEA survey respondents reported that their states used one of the methods asked about in our survey to monitor how school districts implement at least one of the ESSA educational stability provisions. For example, over half (33) of SEAs reported that the Title I plans they receive from school districts include an assurance related to at least one of the ESSA educational stability provisions we asked about on the survey. More than two-thirds (36) of SEAs reported on our survey that effectively monitoring school districts’ implementation of the provisions is a challenge (see fig. 5). In their survey comments, eight SEA points of contact said limited state resources hinder their ability to ensure that the hundreds of school districts in their states properly execute the provisions. Officials we interviewed from all three SEAs in our site visits told us their states incorporate the educational stability provisions into their existing procedures for overseeing implementation of federal education programs. For example, SEA officials in Georgia told us that during one of their state reviews, they look for evidence of local agency collaboration, such as meeting agendas or emails. In Arizona, the SEA point of contact said he examines school district transportation procedures during on-site reviews. These on-site reviews occur for one- sixth of school districts in the state every year. (See table 3 in appendix II for more information on SEA monitoring of school districts.) Ensuring Immediate Enrollment and Obtaining Records While we did not ask on our survey about challenges related to immediate enrollment or obtaining records, seven state or local officials we spoke with noted difficulties with enrolling or obtaining records for students with disabilities who have individualized education programs, or students who previously attended juvenile justice or residential treatment facilities. Officials at a local child welfare agency and two school districts said that if an individualized education program is missing from a child’s records, they cannot know which services or classes a child might need and it may delay the child’s enrollment in the school or require switching classes again. Officials from Georgia’s SEA said they mitigate this challenge by providing school districts the option to share individualized education programs electronically, which enables other school districts that need the records to more easily obtain them. Education Could Take Steps to Improve Access to Technical Assistance and Plans to Begin Monitoring of the ESSA Educational Stability Provisions Education Provided Technical Assistance, At Times Collaborating with HHS, but Could Improve Access to Information Education has provided technical assistance to states, at times in collaboration with HHS, to help states implement the ESSA educational stability provisions. Education’s technical assistance included written guidance, webinars, and in-person meetings, according to Education officials. Written guidance: Education and HHS jointly issued non-regulatory guidance on June 23, 2016 to help state and local educational agencies meet their obligations related to educational stability for youth in foster care under ESSA. On the same day, Education and HHS also issued a joint letter to chief state school officers and state child welfare directors that provided an overview of the ESSA educational stability provisions. Education sent an additional letter to chief state school officers on December 5, 2016, that provided information about the timelines for implementing the provisions. The letter also requested states to provide Education with their state foster care point of contact. Webinars: Education and HHS hosted several webinars for state educational and child welfare agencies that addressed a number of issues related to implementation of the ESSA educational stability provisions. In late summer 2016, Education and HHS hosted four webinars on the roles and responsibilities of educational and child welfare agency points of contact; best interest determinations and immediate enrollment; transportation; and effective collaboration. These webinars described the related ESSA requirements and featured selected states’ approaches to implementing the provisions. The State Support Network, one of Education’s technical assistance providers, facilitated another series of webinars that were offered in summer 2018 to address areas of implementation that states reported to be particularly problematic. HHS staff also participated in the webinar series, and topics included collaboration with child welfare agencies, data systems, transportation, and roles and responsibilities of points of contact. In-person and other assistance: Education provided additional assistance to state educational agencies through an in-person meeting and continuously provides assistance upon request. Education and HHS jointly held a session on sharing data to support students in foster care during its Combined Federal Programs Meeting for SEA officials in December 2018 in Washington, DC. At this meeting, Education also facilitated a session during which foster care points of contact networked with each other and subject matter experts, shared resources, and discussed outstanding implementation challenges. In addition, Education officials told us that they assign each state a point of contact at Education, and states can request technical assistance at any time through their assigned contact. This contact can work with the appropriate offices within Education to provide information requested by states and can facilitate further technical assistance through the State Support Network. Education officials said they respond to questions from states generally asking about expectations and requirements for the ESSA educational stability provisions. Thirty-seven SEAs reported on our survey that they would like additional federal assistance as they continue to implement the ESSA educational stability provisions. Our survey showed that most SEAs were interested in receiving additional guidance related to transportation cost sharing, transportation funding options, and arranging transportation; data privacy; and state monitoring of school districts’ efforts to implement these provisions, among other topics (see fig. 6). (Also see fig.10 in appendix II for all survey responses on these topics.) With respect to transportation issues, several state officials commented that they would like more information on how other states and localities are arranging and funding transportation. Regarding data privacy, a few other officials commented that they could use more information regarding privacy laws and what information can be shared across agencies. A few SEA officials noted that guidance on how they could monitor school district implementation would be useful. A majority of SEAs reported that opportunities for in-person and virtual meetings with a federal point of contact and their SEA and state child welfare agency counterparts, and a federally supported clearinghouse of information with sample documents from other states, would be moderately to extremely helpful (see fig. 7). (Also see fig. 11 in appendix II for all survey responses on this topic.) State educational and child welfare officials we interviewed explained that in-person and virtual meetings are helpful because they allow them to ask the federal contact questions and share and discuss issues with each other. Similarly, SEA officials in our discussion sessions said they would like federal agencies to organize more collaborative opportunities for SEA points of contact to interact with their peers to help identify best practices they can adapt in their state. Some states suggested Education could adopt methods it uses for other programs, such as the Education for Homeless Children and Youth program, to provide assistance and support to foster care points of contact, such as facilitating regional phone calls and identifying a point of contact specific to foster care at the federal level. According to Education officials, in June 2019 the agency selected a staff person to serve as the federal point of contact to work directly with SEA foster care points of contact, and they told us Education maintains a designated mailbox for all foster care-related correspondence (FosterCare@ed.gov). Education officials informed us that they plan to develop a community of practice for a small group of SEA foster care points of contact who will meet regularly for several months, which may facilitate more peer to peer interaction for a select number of states. Education plans to work with the Legal Center for Foster Care and Education to convene and facilitate the community of practice. According to Education officials, the community of practice will provide networking opportunities for participants to ask questions and obtain answers from their peers, and may include discussions of promising practices at the state and local level, among other areas. Officials said they will solicit interest from all SEAs about the opportunity to participate in the community of practice. However, they will limit the number of participants, depending on the level of interest, to 10 to 12 SEAs to promote discussion and sharing among states. Officials noted that if more states are interested in participating in the community of practice than they can accommodate, they will consider additional ways to support and share information with those additional states. Education officials also noted that they are exploring other types of technical assistance to facilitate more interaction and information exchange among states, such as a web portal where states can upload and share documents. Although Education is planning to develop a community of practice and is exploring other types of technical assistance, it may not have effective methods to reach all SEA points of contact to inform them of this assistance. In the course of our follow up on our survey, we determined that 22 of the current SEA points of contact were missing from Education’s email list. Education primarily disseminates information pertaining to the ESSA educational stability requirements to states through email. Twenty-three SEAs reported on our survey that they were not aware of webinars that Education offered in summer 2018. We discussed the email list with Education officials in June 2019 and they told us they had not conducted outreach to states to update the email list since they initially identified the SEA points of contact in 2016. Rather, officials said the email list was updated on an ad hoc basis, and Education depended on states to inform them when they want someone added to the email list. Subsequent to that discussion, in response to a recommendation included in a draft of this report which Education reviewed, Education officials told us they updated the email list in July and August 2019, and planned to update it quarterly moving forward. Education officials also acknowledged it could be useful to publicize the email list on its website. Education does not maintain information about its technical assistance webinars or other relevant materials in a centralized online location. Information relevant to implementing the ESSA educational stability provisions is located on multiple Education web pages, and the materials from the most recent 2018 webinars, including the recorded session and related sample documents shared by a number of states, are only available on a third party website for which there is no link from Education’s website. In our survey, SEA points of contact reported that they are interested in receiving additional information from other states. Thirty-seven SEAs reported in our survey that a clearinghouse of information with sample documents from other states would be helpful, and 22 of these 37 reported that this would be extremely helpful. One SEA official commented that it would be useful to have a clearinghouse that could be shared with school districts and other relevant parties nationwide. Federal standards for internal control maintain that management should select appropriate methods of communication, such as providing hard copy or electronic documents or conducting face-to- face meetings, and should periodically evaluate the methods of communication in order to communicate quality information on a timely basis. Without creating and maintaining a centralized online location for SEAs to access all related information, Education cannot ensure that all SEAs have access to technical assistance and guidance that could help them implement the ESSA educational stability provisions. Education Plans to Begin Monitoring Implementation of the ESSA Educational Stability Provisions in Fall 2020 Education officials told us that in 2020, they expect to fully implement the monitoring protocols for reviewing how states are implementing the ESSA educational stability provisions. Education officials said they plan to test draft protocols as part of a pilot by fall 2019 to determine necessary revisions and expect the final protocols to be implemented by fall 2020. According to Education officials, once the protocols are implemented, they plan to use a risk assessment approach to determine which states to review each year, and anticipate reviewing approximately nine states each year, depending on staff and resources. As part of their reviews, Education officials told us they plan to visit two school districts in each state under review to assess how the selected states are implementing the ESSA requirements, and to determine whether districts are getting appropriate support from the states. According to the draft monitoring protocols, during its state reviews, Education plans to obtain information on the following areas related to educational stability: SEA collaboration with the child welfare agency, best interest determinations, immediate enrollment, SEA foster care point of contact, and school district points of contact and transportation procedures. Education reviewed states’ plans for implementing Title I, however, Education officials said that the plans contain little information about the ESSA educational stability provisions. To receive Title I funds, states are required to submit state plans to the Secretary of Education, and the Secretary is required to approve the state plans if they meet the requirements in the law. While state plans are required to describe the steps the SEA will take to ensure collaboration with the state child welfare agency to ensure the educational stability of children in foster care, including various assurances, Education did not include specific instructions for information states should include on these provisions in the state plan template it developed for states. Conclusions Youth in foster care face enormous challenges in their everyday lives and school can offer a stabilizing environment. Maintaining connections with teachers and friends, in addition to remaining in a familiar academic environment, can enhance the chances that a student is academically successful. However, many children in foster care are at higher risk of frequently changing schools, which can affect their academic achievement. ESSA made changes to the Title I program to help improve the educational stability of children in foster care. In the years since ESSA was enacted, SEAs and school districts have taken different approaches to implement its educational stability provisions, including collaborating with their child welfare agency counterparts. Most SEAs we surveyed reported common challenges with staff turnover and assisting districts with arranging transportation, among others, which can affect the successful implementation of the educational stability provisions. In addition, SEA officials are seeking more opportunities to understand how other states and localities have implemented the provisions and learn from their peers. Despite the assistance Education has provided to SEAs on a range of topics, the mechanisms Education uses to inform states of assistance are limited. The email list it uses to notify SEA foster care points of contact had not been systematically updated until July 2019, and resources on educational stability are not housed in one space. Without improvements in areas like these, states will not have access to all of the available resources that can help them improve the educational stability of youth in foster care, and ultimately, their academic success. Recommendation for Executive Action The Secretary of Education should develop an online clearinghouse of sample documents from states and localities who wish to share them, past webinar recordings and their related documents, and links to other relevant resources that all SEAs can access. (Recommendation 1) Agency Comments and Our Evaluation We provided a draft of this report to Education and HHS for review and comment. Education provided written comments, which are reproduced in appendix III, as well as technical comments, which we incorporated as appropriate. HHS did not have comments. We also provided relevant excerpts to states we visited and incorporated their technical comments as appropriate. In its written comments, Education agreed with our recommendation to develop an online clearinghouse and noted actions it plans to take to implement it. Specifically, Education said in fall 2019, its Office of Elementary and Secondary Education will restructure its entire website to better organize its information, and create a new web page to house all foster care-related information and resources. Additionally, Education said this office will launch a virtual portal through which SEA foster care points of contact may collaborate and share resources. In addition, in a draft report sent to Education in August 2019, we included a recommendation to Education to update its foster care point of contact email list, and develop a process to update it at regular intervals. Education noted in its comment letter that it had updated its email list and that it will solicit updates to the email list on a quarterly basis, so we subsequently removed this recommendation. 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 to the appropriate congressional committees, the Secretaries of Education and Health and Human Services, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at 617-788-0580 or nowickij@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of our report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Scope and Methodology This report examines (1) the challenges states and selected local educational agencies face implementing the requirements of the Every Student Succeeds Act (ESSA) related to educational stability for youth in foster care, and (2) how the Department of Education (Education) provided technical assistance and monitored states and localities to ensure compliance with these requirements, including collaborating with the Department of Health and Human Services (HHS). To address both objectives and obtain national information, we held three discussion groups with officials from state educational agencies and child welfare agencies and conducted a web-based survey of state educational agencies in the 50 states, the District of Columbia, and Puerto Rico. To obtain more in-depth information, we visited three states—Arizona, Georgia, and Ohio—where we interviewed officials from state and local educational agencies and child welfare agencies. We reviewed relevant federal laws and regulations, Education and HHS guidance to states, and other research publications. We also interviewed officials from Education and HHS’s Administration for Children and Families, and other organizations that carry out efforts related to education and child welfare, including the Legal Center for Foster Care and Education and Casey Family programs, regarding the provisions, federal requirements and guidance, and state and local implementation. State Educational and Child Welfare Agency Discussion Groups To learn about actions states have taken to implement the ESSA educational stability provisions and challenges they have encountered, we held three discussion groups, two with state educational agency (SEA) officials, and one with state child welfare agency officials, during a national meeting for SEA foster care points of contact and state child welfare agencies in Greensboro, North Carolina in October 2018. To solicit participants for these groups, we asked the meeting organizers to forward an invitation we drafted to all individuals who registered for the meeting to participate in our discussion groups, and also allowed individuals to sign up once they arrived at the conference. Meeting attendees self-selected to participate in the groups. Each of our discussion groups with SEA officials had seven participants, for a total of 14 state agency officials representing 14 states. Our discussion group of state child welfare agency officials had six participants representing five states. Discussion groups were guided by a GAO moderator using semi- structured interview protocols. These protocols included open-ended questions that encouraged participants to share their thoughts and experiences on implementing the ESSA educational stability provisions, including how they monitored local agencies, and whether any additional federal assistance is needed. To reach group consensus on the top challenges facing states as they implement the provisions, we used a nominal group technique. Officials from each state identified their state’s top three implementation challenges. The group then created a list from those named challenges and officials from each state used stickers to identify their top challenges from the list. Discussion groups are intended to generate in-depth information about the reasons for participants’ attitudes on specific topics and to offer insights into their concerns about and support for an issue. They are not designed to (1) demonstrate the extent of a problem or generalize results to a larger population, (2) develop a consensus to arrive at an agreed- upon plan or make decisions about what actions to take, or (3) provide statistically representative samples or reliable quantitative estimates. For these reasons, and because discussion group participants were self- selected volunteers, the results of our discussion groups are not generalizable. Survey of State Educational Agency Officials To learn about actions states have taken to implement the ESSA educational stability provisions and challenges they have encountered, we conducted a survey of SEA officials in the 50 states, the District of Columbia, and Puerto Rico. The survey was administered from January to March 2019 and we had a 98 percent response rate. The survey used a self-administered, web-based questionnaire, and state respondents received unique usernames and passwords. Our survey population was foster care points of contact at SEAs. We used multiple sources to create an initial list of points of contact, including a list provided by the Department of Education, SEA website pages related to foster care, and information from knowledgeable experts in the field. We reached out to each point of contact to ask them to confirm they were the foster care point of contact for their state or identify the appropriate point of contact. We instructed respondents to consult with others who were familiar with their state’s implementation of the provisions, if doing so would provide more accurate responses. Our survey included 20 fixed-choice and open-ended questions. We asked how SEAs collaborated with the state child welfare agency, how they assisted local educational and/or child welfare agencies, what challenges they encountered, and what assistance has been and would be helpful from the Department of Education in implementing the provisions. To draft the closed-ended questions and answer choices on the survey, we drew from recommended practices suggested in HHS and Education’s joint non-regulatory guidance to states, information shared during webinars sponsored by HHS and Education, and interviews with stakeholders, including our discussion groups with state educational and child welfare agencies. A draft of the survey questionnaire was reviewed by officials at Education, a knowledgeable stakeholder organization, and an independent GAO survey professional for completeness and accuracy. We made revisions based on their comments. We conducted three pretests—one by phone and two in-person—with SEA foster care points of contact from three different states to check that (1) the questions were clear and unambiguous, (2) terminology was used correctly, (3) the questionnaire did not place an undue burden on agency officials, (4) the information could feasibly be obtained, and (5) the survey was comprehensive and unbiased. To obtain our 98 percent response rate (51 out of 52 SEAs), we made multiple follow-up contacts by email and phone from January to March 2019 with points of contact who had not yet completed the survey. While 51 surveyed officials affirmatively checked “completed” at the end of the web-based survey, not all officials responded to every question or the sub-parts of every question. We conducted additional follow-up with a small number of respondents to verify key responses. Because this was not a sample survey, the survey has no sampling errors. However, the practical difficulties of conducting any survey may introduce errors, commonly referred to as non-sampling errors. For example, unwanted variability can result from differences in how a particular question is interpreted, the sources of information available to respondents, or how data from respondents are processed and analyzed. We tried to minimize these factors through our reviews, pre-tests, and follow-up efforts. In addition, the web-based survey allowed SEA foster care points of contact to enter their responses directly into an electronic instrument, which created an automatic record for each state in a data file. By using the electronic instrument, we eliminated the potential errors associated with a manual data entry process. Site Visits to Selected States To learn about actions states and localities have taken to implement the ESSA educational stability provisions and challenges they have encountered, we conducted site visits to three states to obtain information from state and local educational agency officials, state and local child welfare officials, foster parents, and current and former youth in foster care. We selected the three states—Arizona, Georgia, and Ohio—to represent a mix of factors, including type of child welfare agency (state or county administered), number of children in foster care, number of school districts, geographic dispersion, and variety in types of school districts (urban, suburban, rural). In each state we visited an urban, suburban, and rural school district, where we met with the school district officials responsible for implementing the ESSA educational stability provisions, and their primary child welfare agency counterparts. We also met with state educational and child welfare agency officials. We used a semi- structured interview protocol for these meetings. We held discussion groups with a total of 13 youth in foster care or formerly in foster care in three states, and in two states, we held discussion groups with a total of 14 foster parents, to obtain their perspectives on implementation of the provisions and educational stability generally. Although we cannot generalize our findings beyond these states and localities, these visits provided us with illustrative examples of how states and localities are implementing the ESSA educational stability requirements. We conducted this performance audit from June 2018 to September 2019 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. Appendix II: Additional Survey Data Appendix II: Additional Survey Data to the question: “How much of a challenge, if at all, is each of the following items in implementing the ESSA educational stability provisions?” The term “ESSA educational stability provisions” refers to the amendments made by the Every Student Succeeds Act (ESSA) to Title I, Part A of the Elementary and Secondary Education Act of 1965 that are related to the educational stability of youth in foster care. These provisions have been codified at 20 U.S.C. §§ 6311(g)(1)(E), 6311(h)(1)(C), and 6312(c)(5). Assistance Best interest determination documents, like meeting documentation templates, questions to consider during the meeting, or sample notices to inform parties of the decision Sample memorandum of understanding/agreement for data sharing between school districts and local child welfare agencies for the purposes of identifying youth in foster care for the report card reporting 17 10 school of origin when in their best interest will be provided, arranged, and funded for the duration of the time in foster care. This includes states that reported that they solely respond when alerted to issues and do not conduct any other systematic monitoring activities. Specifically, nine states reported responding when alerted to issues regarding the provisions on best interest determinations and immediate enrollment, and did not report conducting any other monitoring activities. Similarly, 14 states reported solely responding when alerted to issues regarding new enrolling schools immediately contacting schools of origin to obtain relevant academic and other records, and did not report conducting any other monitoring activities. Finally, seven states reported responding when alerted to issues related to the provision on transportation procedures, and did not report conducting any other monitoring activities or did not know if their state monitors LEAs in other ways. educational stability of youth in foster care. These provisions have been codified at 20 U.S.C. §§ 6311(g)(1)(E), 6311(h)(1)(C), and 6312(c)(5). Appendix III: Comments from the U.S. Department of Education Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, the following individuals made important contributions to this report: Elizabeth Morrison (Assistant Director), Kate Blumenreich (Analyst-in-Charge), Aimee Elivert, and Kelsey Kreider. Also contributing to this report were Steven Campbell, William Chatlos, Sarah Cornetto, Holly Dye, Jill Lacey, Jessica Orr, Catherine Roark, and Curtia Taylor.

Roughly 270,000 school-aged youth were in foster care at the end of fiscal year 2017. Youth in foster care may change schools frequently, which can negatively affect their academic achievement. ESSA, enacted in 2015, reauthorized the Elementary and Secondary Education Act of 1965 and included provisions to improve educational stability for youth in foster care. These included requiring state educational agencies to ensure youth placed into foster care stay in their current school, unless it is not in their best interest to do so. GAO was asked to review implementation of these provisions. This report examines (1) the challenges SEAs and selected school districts face implementing the ESSA educational stability provisions for youth in foster care, and (2) how Education provides technical assistance and monitors state implementation efforts. GAO surveyed SEA foster care points of contact in the 50 states, District of Columbia, and Puerto Rico and all but one state responded. In addition to interviewing federal officials, GAO interviewed selected state and local educational and child welfare agency officials, and held discussion groups with foster youth and parents, in three states selected by number of youth in foster care, among other factors. GAO also held discussion groups with officials from 14 SEAs and 5 state child welfare agencies, and reviewed relevant federal laws, regulations, guidance, and technical assistance. State educational agencies (SEAs) reported several challenges in implementing the provisions in the Every Student Succeeds Act (ESSA) related to educational stability for youth in foster care. In their responses to GAO's national survey, SEAs reported challenges, including high turnover among local educational and child welfare agency officials, and with identifying and arranging transportation to schools for students (see figure). Turnover of local staff can result in the loss of knowledge and experience needed to implement the provisions, according to SEA and local officials we interviewed. Regarding transportation, ESSA requires school districts to work with child welfare agencies to provide and fund transportation so that youth in foster care can remain in their current school when it is in their best interest. Six school district and child welfare agency officials we interviewed indicated that funding was a concern and some noted that transporting youth to their current school can result in extensive costs. The Department of Education (Education) provided technical assistance in the form of written guidance, webinars, and in-person meetings to help states implement the ESSA educational stability provisions. Education officials said they also plan to monitor state implementation of the provisions. Most SEA officials reported in GAO's survey that they would like additional assistance and more opportunities to interact with other state officials. Education plans to convene a community of practice for several states in which participants will meet regularly for several months, and is exploring other technical assistance efforts. To share information about implementing the ESSA educational stability provisions, Education maintains an email address list of SEA foster care points of contact. GAO found that the list was inaccurate and not regularly updated. Education updated the list in late summer 2019 and plans to do so quarterly. Education also provides information online, but the information is scattered across different web pages. Twenty-two SEA officials reported on GAO's survey that a clearinghouse of information would be extremely helpful. Federal standards for internal control require agencies to externally communicate necessary information in a manner that enables them to achieve their objectives. Without a dedicated web page about implementing the provisions, states may not receive the assistance they need to improve educational stability for youth in foster care.

CRS_R46240

Introduction Evolution of the Framework for Budgetary Decisionmaking Under the U.S. Constitution, Congress exercises the "power of the purse." This power is expressed through the application of several provisions. The power to lay and collect taxes and the power to borrow are among the enumerated powers of Congress under Article I, Section 8. Furthermore, Section 9 of Article I states that funds may be drawn from the Treasury only pursuant to appropriations made by law. By requiring the power of the purse to be exercised through the lawmaking process, the Constitution allows Congress to direct any budgetary actions that may be taken by the President and executive departments. The Constitution, however, does not prescribe how these legislative powers are to be exercised, nor does it expressly provide a specific role for the President with regard to budgetary matters. Instead, various statutes, congressional rules, practices, and precedents have been established over time to create a complex system in which multiple decisions and actions occur with varying degrees of coordination. As a consequence, there is no single "budget process" through which all budgetary decisions are made, and in any year there may be many budgetary measures necessary to establish or implement different aspects of federal fiscal policy. Under Article I, Section 5, "Each House may determine the Rules of its Proceedings," so it is left to the House and Senate to adapt and develop procedures and practices as needed to facilitate the consideration and enactment of legislation. Congress, however, is a dynamic institution that can, and does, change its rules, practices, and organization in order to achieve changing goals or overcome new obstacles. Since the early years of the Republic, there have been a number of notable milestones in the evolution of procedures and practices concerning the consideration, enactment, and execution of budgetary legislation. These milestones were often the result of congressional efforts to solve problems or promote outcomes and thus help to provide insight into when, how, or why current practices developed. Although early Congresses referred legislation to ad hoc committees, within a few years the House began to organize a system of standing committees with fixed jurisdictions and responsibility for different legislative issues. In the House, responsibility for revenue, spending, and debt were assigned to a standing Committee of Ways and Means beginning in the Fourth Congress (1795-1797). In the Senate, a Committee on Finance with jurisdiction over these matters was established as part of a standing committee system during the second session of the 14 th Congress (1815-1817). By creating a system in which legislation was categorized by its content, Congress laid the groundwork for establishing rules and practices to provide for the separate consideration of various budgetary measures. The House later created a separate standing Committee on Appropriations in 1865, and the Senate took similar action in 1867. The distinction between appropriations and general policy legislation appears to have been understood and practiced long before it was formally recognized in House or Senate rules, probably derived from earlier British and colonial practices. As congressional practices developed in the early 19 th century, this distinction was reflected in the designation of general appropriations measures as "supply bills," whose purpose was simply to supply funds to carry out government operations already defined in law. This distinction was also reinforced by the way in which they were considered by the House. Supply bills would be initially taken up as a list of objects of expenditure, with blanks rather than dollar amounts for associated expenditures, and the amounts filled in by action on the floor. Such bills were generally considered as little more than a matter of form, without extensive debate except for the purpose of filling in the blanks. The inclusion of substantial new legislative language in supply bills was generally believed to be inappropriate, as it might delay the provision of necessary funds or lead to the enactment of matters that might not otherwise become law. According to Hinds' Precedents , the origin of a formal rule mandating the separate consideration of policy legislation and appropriations can be traced to 1835, when the House discussed the increasing problem of delays in enacting appropriations. A significant part of this delay was attributed to the inclusion in such bills of "debatable matters of another character, new laws which created long debates," and a proposal was made to strip appropriation bills of "everything but were legitimate matters of appropriation, and such as were not … made the subject of a separate bill." Although the proposal was not adopted at the time, at the beginning of the following Congress (25 th Congress, 1837-1839), language was added to the standing rules of the House that stated: No appropriation shall be reported in such general appropriation bill, or be in order as an amendment thereto, for any expenditure not previously authorized by law. By formulating the rule as a requirement that appropriations only be to provide funding to carry out activities for which previously enacted legislation had provided the statutory authority for an agency to act, the rule formally limited the scope of purposes for which appropriations could be provided. The House soon after developed a practice of striking provisions containing general legislation from appropriations bills. It was not until 1876, however, that the House adopted language in its rules formally restricting the inclusion of legislative language in appropriations bills. As adopted in 1876, the rule stated: No appropriation shall be reported in such general appropriation bills, or be in order as an amendment thereto, for any expenditure not previously authorized by law unless in continuation of appropriations for such public works and objects as are already in progress; nor shall any provision in any such bill or amendment thereto, changing existing law, be in order except such as, being germane to the subject matter of the bill, shall retrench expenditures. There were also important principles established in the 19 th century concerning the extent to which the actions of agencies to execute the budget could be directed or limited by Congress. Although the First Congress enacted all appropriations in 1789 in a single act divided into lump sums for broad categories of expenditure, within a few years, Congress began to exercise control over how federal agencies spent money by enacting increasingly more specific appropriations. An additional general statutory restriction on agency actions to allocate how funds were spent was imposed in 1809 by the enactment of the "purpose statute" which required that sums appropriated by law for each branch of expenditure in the several departments shall be solely applied to the objects for which they are respectively appropriated, and to no other. Agencies sometimes took actions that undermined congressional fiscal controls, however. In some instances, they obligated funds in anticipation of appropriations, thereby creating liabilities that Congress would feel compelled to ratify. In others, they would obligate appropriated funds at a rate that was likely to produce a need for additional funds before the end of the fiscal year, giving rise to what were termed "coercive deficiencies." As a result, Congress enacted the first "antideficiency" provision in 1870 stating that it shall not be lawful for any department of the government to expend in any one fiscal year any sum in excess of appropriations made by Congress for that fiscal year, or to involve the government in any contract for the future payment of money in excess of such appropriations. In addition to prohibiting agencies from obligating payments in the absence of appropriations, antideficiency laws also established the requirement that agencies establish plans to apportion available funds over the course of the fiscal year in order to avoid deficiencies. Although some Presidents made attempts to coordinate or limit agency budget estimates before they were communicated to Congress, such attempts were intermittent and uneven. This changed with the enactment of the Budget and Accounting Act of 1921. It created a statutory role for the President by requiring agencies to submit their budget requests to him and, in turn, for him to submit a consolidated request to Congress. The President's budget request became the center of a new relationship between the President and federal agencies and, consequently, of the agencies and Congress. The act also established the Bureau of the Budget (now the Office of Management and Budget [OMB]) to assist the President and the General Accounting Office (now the Government Accountability Office [GAO]) to serve as an independent auditor of government budgetary activities. Another significant change in federal budgeting in the 20 th century was the advent of direct (or mandatory) spending laws. Although there were 19 th century antecedents in which legislation was enacted to entitle an eligible class of recipients (such as veterans) to certain payments, such spending was not common. Beginning with Social Security in the 1930s, Congress began to enact broad-based spending legislation for which the level of spending was not controlled through the appropriations process. Instead, payments were required to be made to all eligible persons as prescribed in the law. In effect, such programs were designed to establish an expectation of stable payments for a class of individual recipients (even when the class or payments might change over time), rather than have the aggregate level of spending for the program subject to control through annual appropriations decisions. Such programs have grown to comprise the majority of all federal outlays. Until the 1970s, congressional consideration of the multiple budgetary measures considered in a given year as a whole lacked any formal coordination. Instead, Congress considered these various budgetary measures separately, sometimes informally comparing them to proposals in the President's budget. That was changed by the Congressional Budget Act of 1974 (CBA). The CBA provides for the adoption of a concurrent resolution on the budget that allows Congress to make decisions about overall fiscal policy and priorities and coordinate and establish guidelines for the consideration of various budget-related measures. Because a concurrent resolution is not a law—the President cannot sign or veto it—the budget resolution does not have statutory effect, so no money is raised or spent pursuant to it. Revenue and spending levels set in the budget resolution, however, do establish the basis for enforcement of congressional budget policies through points of order. The CBA also established the House and Senate Budget Committees as well as CBO to provide Congress with an independent source for budgetary information, particularly estimates concerning the cost of proposed legislation. Since 1985, budgetary decisionmaking has also been subject to various budget control statutes designed to restrict congressional budgetary actions or implement particular budgetary outcomes in order to reduce the budget deficit, limit spending, or prevent deficit increases. The mechanisms included in these acts sought to supplement and modify the existing budget process and also added statutory budget controls, in some cases seeking to require future deficit reduction legislation or limit future congressional budgetary actions and in some cases seeking to preserve deficit reduction achieved in accompanying legislation. Chief among the laws enacted were the Balanced Budget and Emergency Deficit Control Act of 1985 and the Budget Enforcement Act of 1990. The Balanced Budget and Emergency Deficit Control Act of 1985 did not include legislation that reduced the deficit but instead established a statutory requirement for the gradual reduction and elimination of budget deficits over a six-year period. The act specified annual deficit limits and set forth a specific process for the cancellation of spending by requiring the President to issue an order (termed a sequester order) to enforce the annual deficit limit in the event that compliance was not achieved through legislation. The deficit targets and timetable were modified and extended in the Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987. With the Budget Enforcement Act of 1990, Congress changed the focus of budgetary control. While the 1985 Balanced Budget and Emergency Deficit Control Act had focused on enforcing deficit targets through unspecified future legislation, the Budget Enforcement Act was enacted as part of deficit reduction legislation and focused instead on inhibiting future legislation that would undo the savings. Budgetary enforcement under the Budget Enforcement Act was based on the implementation of pay-as-you-go (PAYGO) procedures to limit any increase in the deficit due to new direct spending or revenue legislation and limit discretionary spending through statutory spending caps. These budget control mechanisms sought to preserve the deficit reduction achieved in the accompanying legislation rather than force subsequent legislation. As originally enacted, these mechanisms were to be in force for a period of five years, but they were modified and extended twice. In 1993, they were extended through 1998 in the Omnibus Budget Reconciliation Act of 1993, and in 1997, they were extended through 2002 in the Budget Enforcement Act of 1997. In 2010, Congress reinstated PAYGO in the Statutory Pay-As-You-Go Act of 2010. In 2011, the Budget Control Act (BCA) reestablished statutory limits on discretionary spending, divided into separately enforceable defense and nondefense limits, for FY2012-FY2021. Several measures have subsequently been enacted that changed the spending limits or enforcement procedures included in the BCA. Basic Concepts of Federal Budgeting The federal budget is a compilation of numbers reflecting the receipts, spending, borrowing, and debt of the government. Receipts come largely from various taxes but are also derived from other sources as well (such as leases, licenses, and other fees). Spending involves such concepts as budget authority, obligations, outlays, and offsetting collections. Although the amounts are computed according to previously established rules and conventions, they do not always conform to the way receipts and spending might be accounted for in a different context. When Congress appropriates money, it provides budget authority , that is, statutory authority to enter into obligations for which payments will be made by the Treasury. Budget authority may also be provided in legislation that does not go through the annual appropriations process (such as direct spending legislation). The key congressional spending decisions relate to the obligations that agencies are authorized to incur during a fiscal year (amount, purpose, and timing), not to the outlays that result. Obligations occur when agencies enter into contracts, submit purchase orders, employ personnel, and so forth. Outlays occur when obligations are liquidated, primarily through the issuance of checks, electronic fund transfers, or the disbursement of cash. The provision of budget authority is the key point at which Congress exercises control over federal spending. Congress generally does not exercise direct control over outlays related to executive or judicial branch spending. The amount of outlays in a given year derive in part from new budget authority enacted in that year but also from "carryover" budget authority provided in prior years. The relation of budget authority to outlays varies from program to program and depends on the outlay or "spendout" rate, that is, the rate at which budget authority provided by Congress is obligated and payments are disbursed. Various factors can have an impact on the spendout rate for a particular program or activity. In a program with a high spendout rate, most new budget authority is expended during the fiscal year. If the spendout rate is low, however, most of the outlays occur in later years. Spendout rates are generally sensitive to program characteristics and vary over time for certain projects. The outlay levels associated with budget enforcement during the consideration of legislation reflect the projected amount that will be outlayed during the first year that budget authority is available. If actual payments turn out to be higher than the budget estimate, outlays can be above the projected level. The President and Congress can control outlays indirectly by deciding on the amount of budget authority provided by limiting the amount that can actually be obligated (termed an "obligation limit") or by limiting the period during which the funds may be obligated. The receipts of the federal government may be accounted for in the budget as revenues or as "offsets" against outlays. Revenues result from the exercise of the government's sovereign power to tax. In contrast, receipts from businesslike or market transactions, such as Medicare premiums or various fees collected by government agencies, are deducted from outlays. Similarly, income from the sale of certain assets is also treated as an offset to spending. These offsets may be classified as offsetting collections or offsetting receipts. In most cases, offsetting collections may be obligated without further legislative action, while offsetting receipts require an explicit appropriation to be available for obligation. Most such receipts are offsets against the outlays of the appropriation account for the agency that collects the money, but in the case of some activities (such as offshore oil leases), the receipts are offset against the total outlays of the government. Scope of the Budget The budget consists of two main groups of funds: federal funds and trust funds . Federal funds—which comprise mainly the general fund—largely derive from the general exercise of the taxing power and general borrowing. For the most part, these funds are not designated in law for any specific program or agency, although there are also special funds that are designated with respect to their source or purpose. Trust funds are established under the terms of statutes that specifically designate them as such and are available to fund only specific purposes. For example, the Social Security trust funds (the Old-Age and Survivors Insurance Fund and the Disability Insurance Fund), which are the largest of the trust funds, comprise revenues collected under a Social Security payroll tax and are used to pay for Social Security benefits and related purposes. The unified budget includes both the federal funds and the trust funds. In some circumstances, a trust fund may accumulate more funds in a given time period than are necessary to meet current obligations. Such balances are held in the form of federal debt, so that while a trust fund may be said to have a surplus, by holding it for future use in the form of federal debt, it is effectively borrowed by federal funds and counted as part of federal debt. Thus, a trust fund surplus can offset the overall budget deficit, but because it is included in the federal debt, the annual increase in the debt invariably exceeds the amount of the budget deficit. For the same reason, it is possible for the federal debt to rise even when the federal government has a budget surplus. Federal budgeting is mostly calculated based on cash flow so that capital and operating expenses are not segregated in the budget. Hence, expenditures for the operations of government agencies and expenditures for the acquisition of long-life assets (such as buildings, roads, and weapons systems) both appear in the budget in terms of their outlays. Proposals have been made from time to time to divide the budget into separate capital and operating accounts. While these proposals have not been adopted, the budget does provide information showing the investment and operating outlays of the government. One portion of the federal budget that is not based on cash flow is the budgeted levels for direct and guaranteed loans by the federal government. The Federal Credit Reform Act of 1990 made fundamental changes in the budgetary treatment of direct loans and guaranteed loans. The reform, which first became effective for FY1992, shifted the accounting basis for federally provided or guaranteed credit from the amount of cash flowing into or out of the Treasury to the estimated subsidy cost of the loans. Credit reform entails complex procedures for estimating these subsidy costs and new accounting mechanisms for recording various loan transactions. The changes have had only a modest impact on budget totals but a substantial impact on budgeting for particular loan programs. The budget totals do not include all the financial transactions of the federal government, however. The main exclusions fall into two categories—off-budget entities and government-sponsored enterprises (GSEs). Off-budget entities are excluded by law from the budget totals. The receipts and disbursements of the Social Security trust funds, as well as spending for the Postal Service Fund, are presented separate from the budget totals. Thus, the budget reports two deficit (or surplus) amounts—one excluding the Social Security trust funds and the Postal Service Fund and the other (the unified budget) including these entities. In most cases, the latter is the main focus of discussion in both the President's budget and the congressional budget process. The transactions of government-owned corporations (excluding the Postal Service), as well as revolving funds, are included in the budget on a net basis. That is, the amount shown in the budget is the difference between their receipts and outlays, not the total activity of the enterprise or revolving fund. If, for example, a revolving fund has annual income of $150 million and disbursements of $200 million, the budget would report $50 million as net outlays. The Federal Reserve System has never been subjected to the appropriations process, and aside from the recording of transfers of Federal Reserve earnings as budget receipts, its financial operations have always been excluded from the federal budget. It is funded by fees and the income generated by securities it owns. Annual appropriations approval of Federal Reserve spending plans is not required, a result of a provision of the Federal Reserve Act, which stipulates that the Federal Reserve Board's assessment "shall not be construed to be Government funds or appropriated moneys." If the Federal Reserve's income exceeds its expenses, its net earnings are transferred to the Treasury and recorded as "miscellaneous receipts." GSEs have historically been excluded from the budget because they were deemed to be non-governmental entities. Although they were established by the federal law, the federal government did not own any equity in these enterprises, most of which received their financing from private sources, and their budgets were not reviewed by the President or Congress in the same manner as other programs. Most of these enterprises engaged in credit activities. They borrowed funds in capital markets and lent money to homeowners, farmers, and others. Financial statements of the GSEs were published in the President's budget. Although some GSEs continue to operate on this basis, the economic downturn and credit instability that occurred in 2008 fundamentally changed the status of two GSEs that play a significant role in the home mortgage market: Fannie Mae and Freddie Mac. In September 2008, the Federal Housing Finance Agency placed the two entities in conservatorship, thereby subjecting them to control by the federal government until the conservatorship is brought to an end. Debt Limit Legislation When the receipts collected by the federal government are not sufficient to cover outlays, it is necessary for the Treasury to finance the shortfall through the sale of various types of debt instruments to the public and federal agencies. Federal borrowing is subject to a statutory limit on public debt (referred to as the debt limit or debt ceiling). When the federal government operates with a budget deficit, or otherwise increases the level of debt necessary (such as to allow federal trust funds to hold surpluses), the response has been for the public debt limit to be increased to meet that need. The frequency of congressional action to raise the debt limit has ranged in the past from several times in one year to once in several years. In recent years, Congress has chosen to suspend the debt limit for a set amount of time instead of raising the debt limit by a fixed dollar amount. When a suspension period ends, the debt limit is reestablished at a dollar level that accommodates the level of federal debt issued during the suspension period. Legislation to raise the public debt limit falls under the jurisdiction of the House Ways and Means Committee and the Senate Finance Committee. In some cases, Congress has combined other legislative provisions with changes in the debt limit. For example, the Senate amended a House-passed bill raising the debt limit to add the Balanced Budget and Emergency Deficit Control Act of 1985. The House added debt limit provisions (as well as other matters) to an unrelated Senate-passed measure to create the Budget Control Act of 2011. In addition, debt limit provisions may be included in reconciliation legislation (described in a separate section of this report). In the 96 th Congress (1979-1980), the House amended its rules to provide for the automatic engrossment of a measure increasing the debt limit upon final adoption of a budget resolution. The rule (commonly referred to as the Gephardt Rule after Representative Richard Gephardt of Missouri) was intended to facilitate quick action on debt limit increases by deeming such a measure as passed by the House by the same vote as the final adoption of the budget resolution, thereby avoiding the need for a separate vote on the debt limit. The engrossed measure would then be transmitted to the Senate for further action. The rule was repealed in the 107 th Congress, reinstated in the 108 th Congress, repealed again in the 112 th Congress, and reinstated in modified form in the 116 th Congress. As currently provided in House Rule XXVIII, the rule provides for a measure to automatically be engrossed and deemed to have been passed by the House by the same vote as the adoption by the House of the concurrent resolution on the budget if the resolution sets forth a level of the public debt that is different from the existing statutory limit. Rather than a specific level of debt, however, this measure would suspend the debt limit through the end of the budget year for the concurrent resolution on the budget (but not through the period covered by any outyears beyond the budget year). As with the earlier version of the rule, the engrossed measure would then be transmitted to the Senate for further action. The Senate has no special procedures concerning consideration of debt limit legislation. Revenue Legislation Article I, Section 8, of the Constitution gives Congress the power to levy "taxes, duties, imposts, and excises." Section 7 of this article, known as the Origination Clause, requires that all revenue measures originate in the House of Representatives. Legislation concerning taxes and tariffs falls under the jurisdiction of the House Ways and Means Committee and the Senate Finance Committee. Furthermore, House Rule XXI, clause 5, specifically bars the consideration of a tax or tariff measure reported from another committee (or an amendment containing a tax or tariff provision, including a Senate amendment, from being offered to a House measure reported by another committee). Neither the Origination Clause nor House Rule XXI, clause 5, applies to the consideration of legislation concerning receipts or collections, such as user fees, that are levied on a class that benefits from a particular service, program, or activity. Most revenues derive from existing provisions of the tax code or Social Security law, which continue in effect from year to year unless changed by Congress and are generally expected to produce increasing amounts of revenue in future years if the economy expands and incomes rise or the workforce grows. Nevertheless, Congress typically makes some changes in the tax laws each year, either to raise or lower revenues or to redistribute the tax burden. In enacting revenue legislation, Congress often includes provisions that establish or alter tax expenditures. The term tax expenditures is defined in the 1974 CBA to include revenue forgone due to deductions, exemptions, credits, and other exceptions to the basic tax structure. Tax expenditures are a means by which the federal government uses the tax code to pursue public policy objectives and can be regarded as alternatives to spending policy actions such as grants or loans. The Joint Committee on Taxation estimates the revenue effects of legislation changing tax expenditures, and it also publishes five-year projections of these provisions as an annual committee print. Congress may choose to act on revenue legislation pursuant to proposals in the President's budget. An early step in congressional work on revenue legislation is publication by CBO of its own estimates (developed in consultation with the Joint Committee on Taxation) of the revenue impact of the President's budget proposals. Revenue totals agreed to in a budget resolution can be used to establish the framework for subsequent action on revenue measures. A budget resolution, however, contains only revenue totals and total recommended changes; it does not allocate these totals among revenue sources, nor does it specify which provisions of the tax code are to be changed. The House and Senate may consider revenue measures under their regular legislative procedures, such as the chambers did for the Tax Reform Act of 1986. However, changes in revenue policy may also be made in the context of the reconciliation process (described in a separate section of this report), such as the Economic Growth and Tax Relief Reconciliation Act of 2001, the Jobs and Growth Tax Relief Reconciliation Act of 2003, and the Tax Cuts and Jobs Act of 2015. Spending Legislation Congressional budgetary procedures distinguish between two types of spending: discretionary spending (which is controlled through the annual appropriations process) and direct spending (also referred to as mandatory spending, for which the level of funding is controlled outside of the annual appropriations process). Discretionary and direct spending are both included in the President's budget and the congressional budget resolution, and they both provide statutory authority for agencies to enter into obligations for payments from the Treasury. The two forms of spending, however, are distinct in most other respects in terms of both their formulation and consideration. There are some notable exceptions to these distinctions, however, so that some procedures associated with direct spending are applied to particular discretionary spending programs and vice versa. Formulation. The basic unit for appropriations legislation is the spending account. In modern practice, regular appropriations legislation is drafted as unnumbered paragraphs that provide a lump-sum amount for each appropriations account. This lump sum provides a definite amount of budget authority that is available to finance activities or programs covered by that account for a certain period of availability for certain purposes consistent with statutory requirements or limitations. In many cases, appropriations for an agency may be provided in relatively few broad accounts, such as for "salaries and expenses," "operations," or "research." Direct spending, on the other hand, characteristically provides budget authority in the form of a requirement to make payments to eligible individual recipients according to a formula that establishes eligibility criteria and a program of benefits. The resulting overall level of outlays would be an aggregation of obligations for these individual benefits. In some cases (termed "appropriated entitlements"), appropriations legislation may be used to provide the means of financing, but, in practice, the requirements for funding such programs are determined through their authorizing legislation so that the Appropriations Committees have little or no discretion as to the amounts they provide. Committee j urisdiction. The Appropriations Committees have jurisdiction over discretionary spending for federal agencies and programs. In contrast, legislative committees (such as the Senate Committee on Health, Education, Labor and Pensions or the House Agriculture Committee), have jurisdiction over direct spending programs (including those funded in annual appropriations acts) through their jurisdiction over legislation concerning the structure of direct spending programs and their formulas regarding eligibility criteria and program of benefit payments. Frequency of d ecision m aking. Discretionary spending is provided in regular appropriations bills that are characteristically considered on an annual schedule. With some exceptions, budget authority provided in these measures is available for obligation only during a single fiscal year. Direct spending programs are typically established in permanent law that continues in effect until such time as it is revised or terminated, although in some cases (such as the Child Health Insurance Program and Temporary Assistance for Needy Families) the program may need periodic reauthorization. The scheduling for consideration of legislation making such changes is determined by congressional leadership through their agenda-setting authority rather than keyed to the beginning of the fiscal year. Enforcing s pending l evels in the b udget r esolution. The procedures Congress uses to enforce the policies set forth in the annual budget resolution differ somewhat for discretionary and direct spending programs. For both types of spending, Congress relies on allocations made under Section 302 of the 1974 CBA to ensure that new spending legislation reported by House and Senate committees conforms to parameters established in the budget resolution. Although this procedure is effective in limiting consideration of new legislation—both annual appropriations measures and new entitlement legislation—it is not an effective means for controlling direct spending that results from existing laws. Changes to the level of direct spending requires the enactment of new legislation that would change formulas regarding eligibility criteria and program of benefit payments, either through the regular legislative process or some expedited procedure such as reconciliation (described in a later section of this report). Statutory c ontrols. Discretionary spending for FY2012-FY2021 is subject to spending limits set in the Budget Control Act, as revised. These spending limits are divided into separately enforced amounts for defense and nondefense. Direct spending is not capped, but new direct spending (or revenue) legislation is subject to the Statutory Pay-as-You-Go Act of 2010. This act requires that the net effect of direct spending and revenue legislation enacted for a fiscal year not cause the deficit to rise or the surplus to decrease over specified periods of time. The Budget Cycle For any given fiscal year, federal budgeting is often viewed as a cyclical activity that begins with the formulation of the President's annual budget request and concludes with the audit and review of expenditures spreading over a multiyear period. The main stages are formulation and submission to Congress of the President's budget; congressional consideration of budgetary measures, including the budget resolution, appropriations legislation, and other measures as necessary to establish statutory spending and revenue requirements; budget execution; and finally audit and review. While the basic steps continue from year to year, particular procedures and timing can vary in accordance with the President or Congress, as well as various other economic and political considerations. The budget cycle can be discussed within the context of the calendar year, the congressional session, and the fiscal year. The calendar year and congressional sessions exist largely side by side. Since the Budget and Accounting Act of 1921, the President has been required to submit his budget request for the next fiscal year at the beginning of the calendar year. Furthermore, since the ratification of the Twentieth Amendment to the U.S. Constitution in 1933, congressional sessions have begun on January 3 (unless a law is enacted setting a different day). Together, these two factors mean that the consideration of budgetary matters by Congress for the upcoming fiscal year is generally expected to start near the beginning of the calendar year. Since FY1977, the federal fiscal year has been October 1 through September 30, as set by the CBA. Because appropriations legislation typically provides budget authority to be obligated over the course of a single fiscal year, the focus of congressional action in the budget cycle is the consideration and enactment of new annual appropriations legislation before the expiration of prior enacted appropriations (although this process often stretches beyond the beginning of the fiscal year). This focus on the upcoming fiscal year (referred to as the budget year) is reflected in the President's budget proposal and budget resolution as well. Direct spending or revenue legislation, however, may have effective dates that are different from the beginning of the fiscal year. In addition, Section 300 of the CBA establishes a timetable with respect to target dates for certain actions in the congressional budget process. The budget process, however, is not just about a single fiscal year. While the focus for Congress is legislation pertaining to the upcoming fiscal year, it may also need to address legislation, such as supplemental appropriations for disaster relief, affecting the fiscal year in progress or long-term budget planning. Federal agencies also typically deal with multiple fiscal years at the same time: auditing of completed fiscal years, implementing the budget for the current fiscal year, seeking funds from Congress for the upcoming fiscal year, and planning for fiscal years after that. Taken as a whole then, budgetary activities from planning to execution related to the funding for a fiscal year can actually stretch over an extended period of two-and-a-half calendar years (or longer). The Executive Budget Process: Formulation and Content of the President's Budget The Constitution does not assign a formal role to the President in the federal budget process. It was largely left for agencies to develop and submit their own budget estimates to Congress individually. Although some Presidents made attempts to coordinate or limit agency budget estimates before they were communicated to Congress, such attempts were intermittent and uneven. This was changed by the Budget and Accounting Act of 1921, which created a statutory role for the President in federal budgeting by establishing a framework for a consolidated federal budget proposal to be developed by the President and submitted to Congress prior to the start of each fiscal year. By barring agencies from submitting their budget requests directly to Congress, and making the President responsible for a consolidated budget request, the act altered the institutional responsibilities of the office. The President's budget submission reflects the President's policy priorities and offers a set of recommendations regarding federal programs, projects, and activities funded through appropriations acts as well as any proposed changes to revenue and mandatory spending laws. Under current law, the President is required to submit a budget to Congress no later than the first Monday in February prior to the start of the fiscal year, but preparation typically begins at least nine or 10 months prior to that, approximately 18 months before the start of the fiscal year. OMB coordinates the development of the President's budget by issuing various circulars, memoranda, and other guidance documents to the heads of executive agencies. In particular, OMB Circular No. A-11 is issued annually. It is an extensive document that provides agencies with an overview of applicable budgetary laws, policies for the preparation and submission of budgetary estimates, and information on financial management and budget data systems. Circular A-11 also provides agencies with directions for budget execution and guidance regarding agency interaction with Congress and the public. When agencies begin work on the budget for a forthcoming fiscal year, Congress has not yet made final determinations for the next year. Consequently, agencies must begin the process of developing their budget estimates with a great deal of uncertainty about future economic conditions, presidential policies, and congressional actions. Agency requests are typically submitted to OMB in late summer or early fall and are reviewed by OMB on behalf of the President. Under the Government Performance and Results Act, agencies are required to link the formulation of their budgets with government performance through strategic plans, annual performance plans, and annual performance reports. OMB notifies agencies of decisions regarding their budget and performance plans through what is known as the "passback" and are given an opportunity to make appeals to the OMB director and, in some cases, to the President. Once OMB and the President make final decisions, federal agencies and departments must revise their budget requests and performance plans to conform with these decisions. The content of the budget submission is partly determined by law, but Title 31 authorizes the President to set forth the budget "in such form and detail" as he may determine. Over the years, there has been an increase in the types of information and explanatory material presented in the budget documents. In most years, the budget is submitted as a multi-volume set consisting of a main document setting forth the President's message to Congress and an analysis and justification of his major proposals. Additional supplementary documents typically provide account and program level details (the "Budget Appendix"), historical information ("Historical Tables"), and special budgetary analyses ("Analytical Perspectives"). The latter volume includes multiyear budget estimates that project spending and revenues where current policies are continued (called the "current services baseline") as well as spending and revenues under the President's proposed policy changes, among other things. In support of the President's appropriations requests, agencies prepare additional materials, frequently referred to as congressional budget justifications. These materials provide more detail than is contained in the President's budget documents and are used in support of agency testimony during Appropriations subcommittee hearings on the President's budget. The President is also required to submit a supplemental summary of the budget, referred to as the Mid-Session Review, before July 16 of each year. The Mid-Session Review is required to include any substantial changes in estimates of expenditures or receipts, as well as any changes or additions to proposals made in the earlier budget submission. The President may also submit other supplemental requests or revisions to Congress at other times during the year. The Congressional Budget Process Until the 1970s, congressional consideration of the multiple budgetary measures considered every year lacked any formal coordination. Instead, Congress considered these various spending and revenue measures separately, sometimes informally comparing them to proposals in the President's budget. That was changed by the CBA of 1974. The CBA provides for the adoption of a concurrent resolution on the budget, allowing Congress to make decisions about overall fiscal policy and priorities as well as to coordinate and establish guidelines for the consideration of various budget-related measures. This budget resolution sets aggregate budget policies and functional priorities for the upcoming budget year and for at least four additional fiscal years. In recent practice, budget resolutions have often covered a 10-year period. Because a concurrent resolution is not a law, the President cannot sign or veto it, and it does not have statutory effect, so no money can be raised or spent pursuant to it. The main purpose of the budget resolution is to establish the framework within which Congress considers separate revenue, spending, and other budget-related legislation. Revenue and spending amounts set in the budget resolution establish the basis for the enforcement of congressional budget policies through points of order . The budget resolution may also be used to initiate the reconciliation process for conforming existing revenue and direct spending laws to congressional budget policies (described below). The Budget Resolution: Formulation, Content, and Consideration For each fiscal year covered in a budget resolution, Section 301(a) of the CBA requires that it include budget aggregates and spending levels for each functional category of the budget. The aggregates in the budget resolution include: total revenues (and the amount by which the total is to be changed by legislative action); total new budget authority and outlays; the surplus or deficit; and public debt. With regard to each of the functional categories, the budget resolution must indicate for each fiscal year the amounts of new budget authority and outlays, and they must add up to the corresponding spending aggregates. Because they are considered off-budget, the aggregate amounts in the budget resolution do not reflect the revenues or spending of the Social Security trust funds, although these amounts are set forth separately in the budget resolution for purposes of Senate enforcement procedures. Similarly, the off-budget status of the Postal Service means that only an appropriation to subsidize certain mail costs is included in the budget resolution. In addition, the CBA requires that the report accompanying the budget resolution in each chamber include the following information: a comparison of total new budget authority, total outlays, total revenues, and the surplus or deficit for each fiscal year set forth in the budget resolution with the amounts requested in the budget submitted by the President; the estimated levels of total new budget authority and total outlays, divided between discretionary and mandatory amounts, for each major functional category; the economic assumptions that underlie the matters set forth in the budget resolution and any alternative assumptions and objectives the Budget Committee considered; information, data, and comparisons indicating the manner in which, and the basis on which, the Budget Committee determined each of the matters set forth in the resolution; the estimated levels of tax expenditures by major items and functional categories for the President's budget and in the budget resolution; and the committee spending allocations (commonly referred to as Section 302(a) allocations after the applicable section of the CBA). The budget resolution does not allocate funds among specific programs or accounts, but allocations of total spending in the budget resolution are made to committees with spending jurisdiction under Section 302(a). Major program assumptions underlying the functional amounts are often discussed in the reports accompanying the resolution. While the allocation to a committee is enforceable, these assumptions are not binding. Finally, Section 301(b) identifies certain additional matters that may be included in the budget resolution. Perhaps the most significant optional feature of a budget resolution is reconciliation directives (discussed below). The House and Senate Budget Committees are responsible for marking up and reporting the budget resolution. In the course of developing the budget resolution, the Budget Committees hold hearings, receive "views and estimates" reports from other committees, and obtain information from CBO. These "views and estimates" reports of House and Senate committees provide the Budget Committees with information on the preferences and legislative plans of congressional committees regarding budgetary matters within their jurisdiction. The extent to which the Budget Committees (and the House and Senate) consider particular programs when they act on the budget resolution varies from year to year. Specific programmatic funding decisions remain the responsibility of the Appropriations Committees and the committees with direct spending jurisdiction, but there is a strong likelihood that major issues will be discussed in markup, in the Budget Committees' reports, and during floor consideration of the budget resolution. Although any programmatic assumptions generated in this process are not binding on the committees of jurisdiction, they often influence the final outcome. Floor consideration of the budget resolution is guided by the statutory provisions in the CBA and by House and Senate rules and practices. In the House, the Rules Committee usually reports a special rule, which, once approved, establishes the terms and conditions under which the budget resolution is considered. This special rule typically specifies which amendments may be considered and the sequence in which they are to be offered and voted on. It has been the practice of the House to allow consideration of a few amendments (as substitutes for the entire resolution) that present broad policy choices. In the Senate, the consideration is less structured, but there are some notable constraints that apply to consideration of budget resolutions that do not apply to the consideration of legislation generally. In particular, Section 305 of the CBA limits debate on the initial consideration of a budget resolution and all amendments, debatable motions, and appeals to not more than 50 hours with the time equally divided between, and controlled by, the majority and the minority. The effect of the limit on debate time is that a cloture process requiring three-fifths support is not necessary to reach a final vote on a budget resolution, so the question can be decided by a simple majority. In addition, all amendments offered must be germane. Although there is a limit on debate time, there is no limit on the number of amendments so that consideration of amendments (as well as other motions and appeals) may continue but without debate (sometimes referred to as a "vote-a-rama"). Although no further debate time is available, the Senate has sometimes agreed by unanimous consent to accelerated voting procedures, allowing a nominal amount of time to identify and explain an amendment before voting. The CBA imposes no procedural limit on the duration of a vote-a-rama. The CBA provides that a motion to proceed to consideration of a conference report on a budget resolution in the Senate may be made at any time and that all debate on the conference report (and any amendments, debatable motions, or appeals) is limited to 10 hours. As with the limit on debate time for initial consideration, this limit means that in the Senate a cloture process requiring three-fifths support is not necessary to reach a final vote, so the question can be decided by a simple majority. Although the CBA also provides for House consideration of a conference report on a budget resolution, the House routinely considers a conference report under a special rule, usually limiting debate to one hour. Achievement of the policies set forth in the annual budget resolution depends on the subsequent legislative actions taken by Congress (and their approval or disapproval by the President), the performance of the economy, and technical considerations. Many of the factors that determine whether budgetary goals will be met are beyond the direct control of Congress. If economic conditions—growth, employment levels, inflation, and so forth—vary significantly from projected levels, so too will actual levels of revenue and spending. Similarly, actual levels of spending or receipts may also differ substantially if the technical factors upon which estimates were based prove faulty, such as the number of participants who become eligible or apply for benefits under a direct spending program. Deeming Resolutions and Other Alternatives to the Budget Resolution If the House and Senate do not reach final agreement on a budget resolution it can complicate the budget process. In the absence of a budget resolution, the House and Senate often lack the basis for using points of order to limit the budgetary impact of legislation, and it may also be more difficult to coordinate consideration of the various measures with budgetary impact, both within each chamber and between the chambers, or to assess a measure's relationship to overall budgetary policies and goals. For example, Section 303 of the CBA prohibits consideration of budgetary legislation prior to adoption of the budget resolution. The House is permitted to consider regular appropriations bills after May 15 even if a budget resolution has not been adopted, but without a budget resolution there would be no enforceable upper limit on the overall level of appropriations. In the absence of a budget resolution, however, Congress may use alternative means to establish enforceable budget levels. When Congress has been late in reaching final agreement on a budget resolution or has not reached agreement at all, the House and Senate, often acting separately, have used legislative procedures to deal with enforcement issues on an ad hoc basis. These alternatives are typically referred to as "deeming resolutions," because they are deemed to serve in place of an agreement between the two chambers on an annual budget resolution for the purposes of establishing enforceable budget levels for the upcoming fiscal year (or multiple fiscal years). Often, a chamber initiates action on a deeming resolution so that it can subsequently begin consideration of appropriations measures with enforceable limits. Deeming resolutions have varied in terms of the legislative vehicle used to establish them, the timing and duration of their effect, and their content. Congress initially used simple resolutions in each chamber as the legislative vehicle for deeming resolutions (which is why they are referred to as resolutions). In the House, deeming resolutions have often been included in the same resolution providing for consideration of the first appropriations measure for the upcoming fiscal year. Deeming resolutions have also been included as provisions in lawmaking vehicles, such as appropriations bills or statutory budget enforcement legislation. For example, the Budget Control Act of 2011 included provisions for the purpose of budget enforcement for FY2012 and FY2013 to apply in the Senate only if Congress did not agree on a budget resolution for either of those years. These provisions allowed the Senate Budget Committee chair to file in the Congressional Record enforceable levels consistent with the statutory spending caps (for discretionary spending) and with baseline projections made by the CBO (for direct spending and revenues). Subsequent measures enacted to modify the spending limits included similar provisions for the House or Senate or both. Adopting a deeming resolution does not preclude later action to approve a budget resolution. In some cases when Congress has been late in reaching final agreement on a budget resolution, either or both chambers have chosen to use a deeming resolution in order to allow the appropriations process to move forward in a more timely and coordinated fashion and later superseded it through final adoption of a budget resolution. Deeming resolutions have typically included at least two things: (1) language setting forth or referencing specific enforceable budgetary levels (such as an aggregate spending limit or committee spending allocations) and (2) language stipulating that such levels are to be enforceable as if they had been included in a budget resolution. Even so, significant variations exist in their content, with some incorporating (either in their text or by reference) language mirroring everything in a budget resolution adopted in that chamber but not adopted in final form by both. Budget Enforcement Regardless of whether Congress establishes budgetary parameters in a budget resolution or some other legislative vehicle, in order for enforcement procedures to work, Congress must be able to relate the budgetary effect of an individual measure to these overall budget parameters to determine whether it would be consistent with those parameters. In order to do so, Congress has sought access to complete and up-to-date budgetary information. A baseline is a projection of federal spending and receipts during the current or future fiscal year under existing law. It provides a benchmark for measuring the impact of proposed changes to existing policies. Projections of the impact of proposed or pending legislation, referred to as scoring or scorekeeping , allow Congress to be informed about the budgetary consequences of its actions. When a measure with spending or revenue impact is under consideration, scoring information helps Members determine whether a bill or amendment would violate budgetary rules. Scoring also allows Congress to determine how best to achieve the budgetary goals. Section 312(a) of the CBA designates the House and Senate Budget Committees as the principal scorekeepers for Congress. They provide each chamber's presiding officer with the estimates needed to make decisions about points of order enforcing budgetary parameters. The Budget Committees also make periodic summary scorekeeping reports that are placed in the Congressional Record . CBO assists Congress in these activities by preparing cost estimates of legislation, which are included in committee reports, and scoring reports for the Budget Committees. The Joint Committee on Taxation also supports Congress by preparing estimates of the budgetary impact of revenue legislation. Although a budget resolution does not become law, Congress has a variety of tools that it may use for enforcing the decisions made in it. The CBA includes several provisions designed to encourage congressional compliance with the budget resolution. The House and Senate have also adopted other limits, as part of their standing rules, as procedural provisions in budget resolutions, or as a part of some other measure to establish other budgetary rules, limits, and requirements. In particular, the overall spending ceiling, revenue floor, and committee allocations of spending determined in a budget resolution are all enforceable by points of order in both the House and the Senate. In addition, Appropriations Committees are required to make subdivisions of their committee allocation, and these too are enforceable by points of order. Legislation breaching other budgetary limits or causing increases in the deficit would also generally be subject to points of order. Points of order are effectively prohibitions against certain types of legislation or other congressional actions being taken in the legislative process. Points of order are not self-enforcing, however. A point of order must be raised by a Member on the floor of the chamber before the presiding officer can rule on its application and thus for its enforcement. In the Senate, most points of order related to budget enforcement may be waived by a vote of three-fifths of all Senators duly chosen and sworn (60 votes if there are no vacancies). Although the presiding officer may rule on whether the point of order is well taken, in practice Senators will typically make a motion to waive the application of the rule. If the waiver motion fails, the presiding officer will then rule the provision or amendment out of order. As with other provisions of Senate rules, budget enforcement points of order may also be waived by unanimous consent. In the House, points of order, including those for budget enforcement, may be waived by the adoption of special rules, although other means (such as unanimous consent or suspension of the rules) may also be used. A waiver may be used to protect a bill, specified provision(s) in a bill, or an amendment from a point of order that could be raised against it. Waivers may be granted for one or more amendments even if they are not granted for the underlying bill. The House may waive the application of one or more specific points of order, or it may include a "blanket waiver," that is, a waiver that would protect a bill, provision, or amendment from any point of order. The Reconciliation Process Because a budget resolution is in the form of a concurrent resolution and is not enacted into law, any statutory changes concerning spending or revenues that are necessary to implement changes in budget policies must be enacted in separate legislation. Reconciliation is an optional legislative process that affords Congress an opportunity to use an expedited procedure to accomplish this. As provided in Section 310 of the CBA, reconciliation consists of several stages, beginning with congressional adoption of the budget resolution, that allow Congress to make policy changes within the jurisdiction of specified committees. The reconciliation process allows a certain measure (or measures) to be privileged for consideration and then allows Congress to use an expedited procedure when considering it. These procedures include directing committees to draft legislative language to fit specific desired budgetary outcomes, packaging language from multiple committees into omnibus legislation, limiting amending opportunities, and limiting the duration of debate on the Senate floor. If Congress intends to use the reconciliation process, reconciliation instructions to committees must first be included in the budget resolution. This feature alone places perhaps the most significant limitation on the use of reconciliation. A budget resolution can be adopted with a simple majority, but because bicameral agreement on the budget resolution is a necessary first step, the House and Senate must collectively agree on the need for reconciliation. If such an agreement can be achieved, reconciliation instructions can then trigger the second stage of the process by directing specific committees to develop and report legislation that would change laws within their respective jurisdictions related to spending, revenues, or the debt limit. If a committee is instructed to submit legislation reducing spending (or the deficit) by a specific amount, that amount is considered a minimum, meaning that a committee may report greater net savings. If a committee is instructed to submit legislation increasing revenues by a specific amount, that amount would also be considered a minimum. If a committee is instructed to decrease revenue, however, that amount would be considered a maximum. Although there is no procedural mechanism to ensure that legislation developed by a committee in response to reconciliation instructions will be in compliance with the instructed levels, if a committee does not report legislation or such legislation is not fully in compliance with the instructions, procedures are available that would allow either chamber to move forward with reconciliation nevertheless. For example, legislative language that falls within the jurisdiction of the noncompliant committee can be added to a reconciliation bill during floor consideration that will bring the bill into compliance. These methods vary by chamber. In the development of legislation in response to reconciliation instructions, the policy choices remain the prerogative of the committee. In some instances, reconciliation instructions have included particular policy options or assumptions regarding how an instructed committee might be expected to achieve its reconciliation target, but such language has not been considered binding or enforceable. Reconciliation instructions may further direct the committee to report the legislation for consideration in its respective chamber or to submit the legislation to the Budget Committee to be included in an omnibus reconciliation measure. If it will be included in an omnibus measure, the CBA requires that the Budget Committee report such a measure "without any substantive revision." Although reconciliation instructions may include target dates for committees to submit their legislative language, there is no requirement that the Budget Committee, in either chamber, report a reconciliation bill by that date. As a consequence, the target date included in reconciliation instructions is not necessarily indicative of a timetable for consideration of reconciliation legislation. In the House, floor consideration of reconciliation legislation has historically been governed by special rules reported from the House Rules Committee. These special rules have established the duration of a period of general debate as well as provided for a limited number of amendments (if any) that may be considered before the House votes on final passage. In the Senate, reconciliation legislation is eligible to be considered under expedited procedures. The Senate has interpreted the CBA to allow it to take up a reconciliation bill by agreeing to a nondebatable motion to proceed to its consideration. Because it is nondebatable, a majority can vote immediately to take it up so that a cloture process requiring three-fifth support is not necessary to reach a vote on the question of whether to take up a reconciliation bill. For a reconciliation bill, as with a budget resolution, a distinguishing feature is that there are limits on the consideration of the bill as well as any amendments. Section 310 of the CBA limits total debate time on a reconciliation measure including all amendments, motions, or appeals to 20 hours, equally divided and controlled by the majority and minority. As with a budget resolution, because the limit is on debate time (rather than all consideration), after the debate time has expired, Senators may continue to offer amendments (and make other motions or appeals) in a vote-a-rama although no further debate is allowed. Despite this, the limit on debate time has meant that, in practice, it has been unnecessary for a supermajority of the Senate to invoke cloture in order to reach a final vote on a reconciliation bill so that it can be passed by a simple majority. Perhaps the best-known limit on the content of reconciliation bills or amendments is the so-called Byrd Rule (Section 313 of the CBA). This rule prohibits including extraneous provisions in the measure or offering them as amendments. In general, this means that it prohibits the inclusion of nonbudgetary provisions in reconciliation legislation or provisions that are otherwise contrary to achieving the purposes established in reconciliation instructions. If a Byrd Rule point of order is sustained on the floor against a provision in the bill as reported by committee, the provision is stricken, but further consideration of the bill may continue. If the point of order is sustained against an amendment, the amendment's further consideration would not be in order. The CBA also places other limits on the content of reconciliation bill amendments. For example, all amendments must be germane to the bill, meaning that amendments generally cannot be used to expand the scope of a reconciliation bill beyond that of the provisions reported from an instructed committee (although a motion to commit or recommit that would bring a committee into compliance with its instructions would not be limited by this rule). Limits on amendments' budgetary impact also exist. Amendments, for example, may not increase the level of spending (or reduce the level of revenues) provided in the bill unless such effects are offset. Together, these rules have the effect of protecting the policy changes proposed by an instructed committee in ways that are not generally available under the Senate's regular procedures. In most cases, points of order related to limiting the content of reconciliation bills may be waived by a vote of three-fifths of all Senators. As with all legislation, any differences in the reconciliation legislation passed by the two chambers must be resolved before the bill can be sent to the President for approval or veto. Conference reports on a reconciliation bill, as for other legislation, are privileged for consideration by the Senate so that a majority can quickly vote to take up a conference report without first invoking cloture. The CBA, however, does provide that all debate on the conference report for a reconciliation bill (and any amendments, debatable motions, or appeals) is limited to 10 hours. In the House, the routine practice has been to consider a conference report under a special rule, usually limiting debate to one hour. Reconciliation first became a powerful legislative tool because reconciliation directives in a budget resolution could be used as a means to require specific legislative committees to make policy choices that would implement overall budgetary goals. Although there are constraints on the use of reconciliation, especially the need for bicameral agreement to initiate the procedure and points of order that limit the content of reconciliation bills, it has continued to be important because it has evolved to provide Congress with a procedure that has been employed to achieve a variety of budgetary and policy purposes. In particular, the limit on time for floor debate in the Senate has meant that major legislation can be enacted by majority vote without the need for a supermajority to first invoke cloture. The Annual Appropriations Process Discretionary spending is provided through a characteristically annual process in which Congress enacts regular appropriations measures. As an exercise of their constitutional authority to determine their rules of proceeding, both chambers have adopted rules that facilitate their ability to define and provide for consideration of these measures. One fundamental aspect of this has been to limit appropriations to purposes authorized by law. This requirement allows Congress to distinguish between legislation that addresses only questions of policy and that which addresses questions of funding and to provide for their separate consideration. In common usage, the terms used to describe these types of measures are authorizations and appropriations , respectively. An authorization may generally be described as a statutory provision that defines the authority of the government to act. It can establish or continue a federal agency, program, policy, project, or activity. Further, it may establish policies and restrictions and deal with organizational and administrative matters. It may also, explicitly or implicitly, authorize subsequent congressional action to provide appropriations. By itself, however, an authorization of discretionary spending does not provide funding for government activities. An appropriation may generally be described as a statutory provision that provides budget authority, thus permitting a federal agency to incur obligations and make payments from the Treasury for specified purposes, usually during a specified period of time. The authorizing and appropriating tasks are largely carried out by a division of labor within the committee system and preserved under House and Senate rules. Legislative committees—such as the House Committee on Armed Services and the Senate Committee on Commerce, Science, and Transportation—are responsible for authorizing legislation related to the agencies and programs under their jurisdiction. Most standing committees have authorizing responsibilities. The Appropriations Committees of the House and Senate have jurisdiction over appropriations measures, including annual appropriations bills, supplemental appropriations bills, and continuing resolutions. Authorizing Legislation The primary purpose of authorization statutes or provisions is to provide authority for an agency to administer a program or engage in an activity. These are sometimes referred to as "organic" or "enabling" authorizations. It is generally understood that such statutory authority to administer a program or engage in an activity also provides an implicit authorization for Congress to appropriate for such program or activity. Appropriations may also be authorized explicitly for definite or indefinite amounts (i.e., "such sums as may be necessary"), either through separate legislation or as part of an organic statute (that is, the legislation that establishes the agency mission or programmatic parameters). These are sometimes referred to as "authorizations of appropriations." If such an authorization of appropriations is present, it may have to be renewed annually or periodically, and it may expire even though the underlying authority in an organic statute to administer such a program or engage in such an activity does not. Most federal agencies operate under a patchwork of authorizing statutes that govern various requirements and duties. Furthermore, there is no requirement in either chamber that the structure of authorizations mirror the account structure in appropriations bills. As a consequence, the burden of proving the authorization for funding carried in an appropriations bill falls on the proponents and managers of the bill. The rules of the House and Senate establish a general expectation that agencies and programs be authorized in law before an appropriation is made to fund them. An appropriation in the absence of a current authorization, in excess of an authorization ceiling, or for purposes not previously authorized by law is commonly called an "unauthorized appropriation." Conversely, while authorizations can impose a procedural limit on appropriations, Congress is not required to provide appropriations for an authorized discretionary spending program. House and Senate rules also preserve the distinction between authorizations and appropriations by prohibiting the inclusion of general legislative language in appropriations measures. The division between an authorization and an appropriation, however, is a procedural construct of House and Senate rules created to apply to congressional consideration. Consequently, the term unauthorized appropriations does not convey a legal meaning with regard to subsequent funding. If unauthorized appropriations or legislation remain in an appropriations measure as enacted, either because no one raised a point of order or the House or Senate waived the rules, the provision will still have the force of law. Unauthorized appropriations, if enacted, are therefore generally available for obligation or expenditure. Similarly, any legislative provisions enacted in an annual appropriations act also generally have the force of law for the duration of that act unless otherwise specified. Regular Appropriations Legislation An appropriation is a law passed by Congress that provides federal agencies legal authority to incur obligations and the Treasury Department authority to make payments for designated purposes. The power of appropriation derives from the Constitution, which in Article I, Section 9, provides that "[n]o money shall be drawn from the Treasury but in consequence of appropriations made by law." The power to appropriate is exclusively a legislative power; it functions as a limitation on the executive branch. An agency may not spend more than the amount appropriated to it, and it may use available funds only for the purposes and according to the conditions provided by Congress. The Constitution does not require annual appropriations, but since the First Congress the practice has been to make appropriations for a single fiscal year. Appropriations must be used (obligated) in the fiscal year for which they are provided unless the law provides that they shall be available for a longer period of time. All provisions in an appropriations act, such as limitations on the use of funds, expire at the end of the fiscal year unless the language of the act extends their period of effectiveness. Congress passes three main types of appropriations measures. Regular appropriations acts provide budget authority to agencies for the next fiscal year. Supplemental appropriations acts provide additional budget authority during the current fiscal year when the regular appropriation is insufficient or to finance activities not provided for in the regular appropriation. Continuing appropriations acts provide interim (or full-year) funding for agencies that have not received a regular appropriation. In a typical session, Congress acts on 12 regular appropriations bills. In recent years, Congress has merged two or more of the regular appropriations acts (sometimes termed "minibus" or "omnibus" appropriations legislation) for a fiscal year at some point during their consideration. In current practice, there are both statutory and procedural limits on the level of discretionary spending. A statutory limit on discretionary spending was established under the BCA for each fiscal year from FY2012 through FY2021, divided into separate defense and nondefense categories. A procedural limit on total appropriations can be established under a budget resolution or some alternate measure (see sections on the budget resolution and deeming resolutions in this report). Once the amount is established, it is allocated to the Appropriations Committee in each chamber pursuant to Section 302(a) of the CBA. Section 302(b) further requires the Appropriations Committee in each chamber to subdivide the total allocation among its subcommittees. By long-standing custom, appropriations measures originate in the House of Representatives. In the House, appropriations measures are originated by the Appropriations Committee (when it marks up or reports the measure) rather than being introduced by a Member beforehand and referred to the committee. Before the full committee acts on the bill, it is drafted and considered in the relevant Appropriations subcommittee. The House and Senate Appropriations Committees currently have 12 parallel subcommittees. The House subcommittees typically hold extensive hearings on appropriations requests shortly after the President's budget is submitted. In marking up their appropriations bills, the various subcommittees are then guided by the discretionary spending limits and the subdivisions made to them by the full committee under Section 302(b) of the CBA. The Senate usually considers appropriations measures after they have been passed by the House. When House action on appropriations bills is delayed, however, the Senate may expedite its actions by considering a Senate-numbered bill up to the stage of final passage. In this scenario, upon receipt of the House-passed bill in the Senate, it is amended with the text that the Senate has already agreed to (as a single amendment) and then passed by the Senate. The basic unit of an appropriation bill is an account. A single unnumbered paragraph in an appropriations act comprises one account, and all provisions of that paragraph pertain to that account and to no other unless the text expressly gives them broader scope. Any provision limiting the use of funds enacted in that paragraph is a restriction on that account alone. Over the years, appropriations have been consolidated into a relatively small number of accounts. It is not uncommon for a federal agency to have a single account for all its expenses of operation and additional accounts for other purposes such as construction. Accordingly, most appropriation accounts encompass a number of activities or projects. The appropriation sometimes includes directives or provisos that allot specific amounts to particular activities within the account, but the more common practice is to provide detailed information on the amounts intended for each activity in other sources, principally the committee reports accompanying the measures. In addition to the substantive limitations (and other provisions) associated with each account, each appropriations act has "general provisions" that apply to all of the accounts in a title or in the whole act. These general provisions appear as numbered sections, usually at the end of the title or the act. If not otherwise specified, an appropriation is for a single fiscal year so that the funds have to be obligated during the fiscal year for which they are provided and that they lapse if not obligated by the end of that year. Congress can also specify that an appropriation remains available for obligation for another period or even that it remain available until expended (termed "no-year" funds). Continuing Resolutions The routine activities of most federal agencies are funded annually by one or more of the regular appropriations acts. When action on the regular appropriations acts is delayed, however, one or more continuing appropriations acts (also referred to as a continuing resolution, or CR) may be used to provide interim budget authority in order to prevent a funding gap or the need for a shutdown of government activities. This may occur if regular annual appropriations acts are not enacted by the beginning of the fiscal year (October 1), or upon the expiration of a prior CR, until action on the regular appropriations acts is completed. In providing temporary funding, CRs have typically addressed several issues: Coverage. CRs have provided funding for certain activities. In current practice, this is typically specified with reference to the prior fiscal year's appropriations acts. Duration. CRs have provided budget authority for a specified duration of time. In some cases this may be as short as a single day, although a CR can provide funding for the remainder of the fiscal year. CRs include language that provides that the CR may be superseded by a regular appropriations act if it is enacted prior to the expiration of the CR. Rate. Since CRs typically provide funds for a limited period, they generally provide those funds based on a rate rather than a set amount. This rate can be set at the rate of operations funded in the previous year, it can be the previous rate of operations adjusted by some percentage, or it can be based on some other amount. This is in contrast to regular and supplemental appropriations acts, which generally provide specific amounts for each account. Other factors may also have an impact on interpreting the rate of operations, such as historical spending patterns or provisions commonly included in CRs that would require funds be apportioned at the rate necessary to avoid furloughs or limit funds for programs with high initial rates of operation or complete distribution of appropriations at a set time during a fiscal year (that is, all or most of the funds would be used at a single set time during the fiscal year). For mandatory spending that is funded through appropriations acts, CRs normally provide for a rate of funding sufficient to maintain program levels under current law since the levels necessary to meet obligations are independent of prior year actions. Funds expended under a CR are considered a portion of the total amount subsequently provided for the entire fiscal year when a regular appropriation bill is later enacted into law. Limits on u sage. CRs typically include language carrying forward any terms and conditions on the obligation of such budget authority in the prior fiscal year. CRs have also included language specifying that funding provided in the CR should be implemented so that only the most limited action allowed by law be taken with respect to providing for continuation of projects and activities in order to preserve congressional prerogative to later determine the amount available. Another typical feature of CRs is language to prohibit "new starts" in order to limit agencies, particularly the Department of Defense, the authority to make long-term commitments while operating under temporary funding or to prevent agencies from initiating or resuming any project or activity for which appropriations were not available during the prior fiscal year. Specific a djustments. The duration and amount of funds in the CR and purposes for which they may be used may be adjusted for specified activities or programs—for example, to provide that funds for a certain program be based on an amount different from the rate for the previous year. These adjustments are commonly termed "anomalies." The Executive Budget Process: Budget Execution After enactment of a particular appropriation into law, federal agencies must attempt to interpret and apply its terms in order to execute their budgetary responsibilities. Agencies may generally obligate and expend funds subject to any conditions addressed by appropriations statutes guided by three general principles: the purpose(s) for which particular funds are appropriated, which may be expressed in statute in more or less detail and, in some cases, with certain restrictions; the time period during which funds are available for obligation and expenditure—sometimes referred to as the period of availability or duration of appropriations; and the amount of appropriated funds that may be obligated and expended. Within the contours of these statutory conditions on the availability of funds, agencies may nevertheless exercise some discretion regarding how funds are allocated and the pace at which funds are obligated and spent. The Antideficiency Act and Apportionment The so-called Antideficiency Act consists of a series of provisions and revisions incorporated into appropriations laws over the years relating to matters such as prohibited activities, the apportionment system, and budgetary reserves. These provisions, now codified in two locations in Title 31 of the United States Code , continue to play a pivotal role in the execution phase of the federal budget process, when the agencies actually spend the funds provided in appropriations laws. The origins of the Antideficiency Act date back to 1870, which provided: that it shall not be lawful for any department of the government to expend in any one fiscal year any sum in excess of appropriations made by Congress for that fiscal year, or to involve the government in any contract for the future payment of money in excess of such appropriations. Later modifications, particularly the Antideficiency Acts of 1905 and 1906, sought to strengthen the prohibitions of the 1870 law by expanding its provisions, adding restrictions on voluntary services for the government, and imposing criminal penalties for violations. These laws also established a new administrative process for budget execution, termed "apportionment," which requires that budget authority provided to federal agencies in appropriations acts be allocated in installments, rather than all at once. By apportioning funds, agencies can prevent operating at a rate that would expend all budget authority before the end of the fiscal year or end the year with substantial amounts unobligated. Four main types of prohibitions are contained in the Antideficiency Act, as amended: (1) making expenditures in excess of the appropriation; (2) making expenditures in advance of the appropriation; (3) accepting voluntary service for the United States, except in cases of emergency; and (4) making obligations or expenditures in excess of an apportionment or reapportionment or in excess of the amount permitted by agency regulation. One significant impact of the Antideficiency Act has been concern with the potential for a government shutdown as a response to a funding gap. In 1980 and early 1981, then-Attorney General Benjamin Civiletti issued opinions in two letters to the President. The "Civiletti Letters" have continued to have effect through guidance provided to federal agencies under various OMB circulars clarifying the limits of federal government activities upon the occurrence of a funding gap. The Civiletti Letters state that, in general, the Antideficiency Act requires that if Congress has enacted no appropriation beyond a specified period, the agency may make no contracts and obligate no further funds for activities associated with the lapsed appropriation except as "authorized by law." In addition, because no statute generally permits federal agencies to incur obligations without appropriations for the pay of employees, the Antideficiency Act does not, in general, authorize agencies to employ the services of their employees upon a lapse in appropriations, though it does permit agencies to fulfill certain legal obligations connected with the orderly termination of agency operations. The second letter, from January 1981, discusses the more complex issue of interpretation presented with respect to obligational authorities that are "authorized by law" but not manifested in appropriations acts. In a few cases, Congress has expressly authorized agencies to incur obligations without regard to available appropriations. More often, it is necessary to inquire under what circumstances statutes that vest particular functions in government agencies imply authority to create obligations for the execution of those functions despite a lack of current appropriations. It is under this guidance that exceptions may be made for activities involving "the safety of human life or the protection of property." As a consequence of these guidelines, when a funding gap occurs, executive agencies begin a shutdown of the affected projects and activities, including the furlough of non-excepted personnel. Reprogramming and Transfers The language by which funds are provided to federal agencies may vary in the level of discretion agencies have to determine how to spend the funds that have been provided. One type of discretion that commonly occurs is with respect to the purposes for which funds are available when appropriations are provided as a lump sum with little or no specificity in the appropriations statute. Even when the purpose of appropriations has been specified in detail, agencies have some flexibility to determine how they will use their available budgetary resources during the fiscal year. For example, agencies may shift funds from one purpose or object to another through reprogramming and transfers. Reprogramming is the shifting of funds within an appropriation account from one object class to another or from one program activity to another. Generally, agencies may make such shifts without additional statutory authority, but often they must provide some form of notification to the appropriations committees, authorizing committees, or both. A transfer is the shifting of budget authority from one appropriation account to another. Agencies may transfer budget authority only as specifically authorized by law. In most cases, transfers involve movement of funds within an agency or department, but they may also involve movement of funds between two or more agencies or departments. Transfer authority may be provided either in authorizing statutes or in appropriations acts. In addition, statutory provisions that provide transfer authority will require the agency to notify Congress. In general, both transferred and reprogrammed funds are subject to any limitations or conditions that were imposed by the appropriations act that originally made it available. All original restrictions remain in effect on transferred funds regardless of whether the funds in the receiving appropriations account have different restrictions or characteristics than the funds being transferred. In other words, limitations and restrictions follow the funds. Additional restrictions may be imposed by statutes to limit transfer or reprogramming authority in certain circumstances or with respect to certain agencies. Such restrictions may be specified in terms of an amount or a percentage. One example of a statutory restriction would be language that places a cap on the amounts that may be transferred. Such caps may be imposed on either the account from which funds are being transferred or the account receiving the transferred funds. These restrictions are commonly referred to as "not-to-exceed" limits. Impoundment Although an appropriation limits the amounts that can be spent, it also establishes the expectation that the available funds will be used to carry out authorized activities. Therefore, when an agency declines to use all or part of an appropriation, it deviates from the intentions of Congress. Although Presidents have sometimes asserted that they are not obligated to spend appropriated funds, Supreme Court decisions—especially Train v. City of New York (420 U.S. 35 [1975]) and the Impoundment Control Act of 1974 (ICA) —limit their authority to reduce or withhold agency funding, by action or inaction, that prevents the obligation and expenditure of budget authority. An impoundment is an action or inaction by the President or a federal agency that delays or withholds the obligation or expenditure of budget authority provided in law. The ICA divides impoundments into two categories and establishes distinct procedures for each: A deferral delays the use of funds; a rescission is a presidential request that Congress rescind (cancel) an appropriation or other form of budget authority. Deferral and rescission are exclusive and comprehensive categories. That is, an impoundment is either a rescission or a deferral—it cannot be both or something else. As originally enacted, the ICA also created a process through which the President could propose a deferral of budget authority (meaning to delay its availability), and either the House or Senate could prevent the deferral by adopting a resolution disapproving it. The process by which a single chamber could prevent the exercise of authority delegated to the executive branch (known as a "legislative veto") was later found unconstitutional, however. Specifically, after the Supreme Court invalidated an unrelated one-house legislative veto in INS v. Chadha , 462 U.S. 919 (1983), the Court of Appeals for the D.C. Circuit applied the reasoning of Chadha to invalidate the deferral provisions in the ICA. This decision in City of New Haven v. United States (809 F.2d 900 [D.C. Cir. 1987]), also struck down the statutory authority of the President to make deferrals for policy reasons as inseverable from the unconstitutional legislative veto. After the court decisions, as well as GAO administrative interpretations of the issue, Congress amended the ICA in 1987 to eliminate the one-house disapproval and specify that deferrals be "permissible only: (1) to provide for contingencies; (2) to achieve savings made possible by or through changes in requirements for greater efficiency of operations; or (3) as specifically provided by law." In addition, deferrals could not be proposed for any period extending beyond the end of the fiscal year for which the proposal was reported. Prior to the enactment of the ICA, when the President withheld appropriated funds from obligation, there was no explicit statutory limit on the length of time that funds could be withheld. Under the ICA, however, whenever the President seeks to withhold funds from obligation, he must submit a special rescission message to Congress. The funds can be withheld only for the 45-day period specified in the act after the receipt of the special presidential message. The special presidential message to Congress must specify the amount to be rescinded, the accounts and programs involved, the estimated fiscal and program effects, and the reasons for the rescission. Multiple rescissions can be grouped in a single message. After the message has been received, Congress can choose to consider and pass a rescission bill that includes all, part, or none of the amount proposed by the President. The funds reserved pursuant to a rescission request must be released after the 45-day period unless Congress has completed action on a bill to rescind the budget authority. GAO is granted responsibilities to oversee and enforce executive branch compliance with the act. The ICA also created legislative procedures for the House and Senate to facilitate congressional review of presidential rescission requests. These procedures can effectively place a time limit on committee consideration and restrict floor debate in both chambers. The procedures discourage a filibuster in the Senate and eliminate the need for three-fifths support in the Senate to reach a final vote on the bill. These expedited procedures are available only during the 45-day period during which funds are withheld. The President can also propose cancellations of budget authority in ways other than the method described in the ICA for requesting rescissions. Funds requested for cancellation, however, may not be withheld from obligation pending congressional action. Although the Trump Administration has submitted rescission requests to Congress, during the two prior presidential Administrations, the President chose not to send rescission proposals pursuant to the ICA. Both President Barack Obama and President George W. Bush proposed cancellations of budget authority, but they chose not to do so by submitting a special message under the terms prescribed by the ICA. Conversely, Congress can, and often does, initiate the rescission of funds on its own and may choose to consider legislation rescinding funds using the regular legislative process. Rescissions are regularly included in appropriations bills, for example. Sequestration Sequestration was the principal means used to enforce statutory budget enforcement policies in place from 1985 through 2002, and it is the principal means used to enforce the requirements of the Statutory PAYGO Act and the statutory limits on discretionary spending under the BCA. In addition, sequestration is used to achieve a portion of the spending reductions required when deficit reduction legislation tied to the Joint Committee on Deficit Reduction was not enacted as provided by the BCA. Sequestration involves the issuance of a presidential order that permanently cancels non-exempt budgetary resources (except for revolving funds, special funds, trust funds, and certain offsetting collections) for the purpose of achieving a required amount of outlay savings to reduce the deficit. Once sequestration is triggered, spending reductions are made automatically. A sequestration order by the President is triggered by a report from the OMB director determining that a breach has occurred. To enforce the statutory discretionary spending caps, OMB first provides a preview report at the beginning of the calendar year, including calculations of any necessary adjustments to the existing limits for the upcoming fiscal year. Once discretionary spending is enacted, OMB evaluates that spending relative to the spending limits and determines whether sequestration is required. OMB is required to issue the final report within 15 calendar days after the congressional session adjourns sine die. For discretionary spending that becomes law after the session ends (e.g., the enactment of a supplemental appropriations measure), the OMB evaluation and any sequester order to enforce the limits would occur 15 days after enactment. For enforcement of the Statutory PAYGO Act, OMB records the budgetary effects of revenue and direct spending provisions enacted into law, including both costs and savings, on two PAYGO scorecards covering rolling five-year and 10-year periods (i.e., in each new session, the periods covered by the scorecards roll forward one fiscal year). OMB must issue an annual PAYGO report not later than 14 days (excluding weekends and holidays) after Congress adjourns to end a session. Once OMB finalizes the two PAYGO scorecards, it determines whether a violation of the PAYGO requirement has occurred (i.e., if a debit has been recorded for the budget year on either scorecard). If a breach occurs, the President issues a sequestration order that implements largely across-the-board cuts in nonexempt direct spending programs sufficient to remedy the violation. Spending for many programs is exempt from sequestration, and reductions in certain programs are limited by statutory provisions. Appendix A. Glossary of Budget Process Terms 302. The section of the Congressional Budget Act of 1974 that pertains to the distribution to House and Senate committees of new budget authority, entitlement authority, and outlays agreed to in a budget resolution. The allocation is usually included in the joint explanatory statement that accompanies the conference report on a budget resolution. Section 302(a) requires the allocation of the total spending in the budget resolution among the committees having jurisdiction over either direct or discretionary spending. When a budget resolution has not been adopted, the House and Senate (separately or jointly) may use some other means to establish committee allocations. Section 302(b) further requires the Appropriations Committee in each chamber to subdivide this total allocation among their subcommittees. Section 302(f) establishes a point of order against the consideration of a bill, amendment thereto, or conference thereon that would breach the appropriate 302(a) (or 302(b)) amount for the committee (or subcommittee). Apportionment . The action by which federal agencies, working with the Office of Management and Budget, establish a plan for budget authority made available by spending laws to be obligated over the course of a fiscal year consistent with all legal requirements. Apportionment is required under the Antideficiency Act in order to prevent the premature exhaustion of funds, and for certain kinds of budget authority, to achieve the most effective and economical use of those funds. Appropriation. Legislation that provides budget authority to allow federal agencies to incur obligations and to make payments out of the Treasury for specified purposes, usually during a specified period of time. Discretionary appropriations measures are under the jurisdiction of the House and Senate Committees on Appropriations. Authorization . A statutory provision that establishes or continues a federal agency, activity, or program. It may also establish policies and restrictions and deal with organizational and administrative matters. Authorizations may implicitly or explicitly authorize congressional action to provide appropriations for an agency, activity, or program. An explicit authorization of appropriations may apply to a single fiscal year, several fiscal years, or an indefinite period of time, and it may be for a specific level of funding or an indefinite amount. An authorization of appropriations does not provide budget authority, however, which must be provided in subsequent appropriations legislation. Furthermore, under House and Senate rules, an authorization is construed as a ceiling on the amounts that may be appropriated but not a minimum. Baseline . A projection of the levels of federal spending, revenues, and the resulting budgetary surpluses or deficits for the upcoming and subsequent fiscal years, taking into account laws enacted to date but not assuming any new policies. It provides a benchmark for measuring the budgetary effects of proposed changes in federal revenues or spending, assuming certain economic conditions. Baseline projections are prepared by the Congressional Budget Office. Budget a uthority . Authority provided by federal law to enter into financial obligations that will result in immediate or future outlays involving federal government funds. The main forms of budget authority are appropriations, entitlement authority, borrowing authority, and contract authority. It also includes authority to obligate and expend the proceeds of offsetting receipts and collections. Congress may make budget authority available for one year, several years, or an indefinite period, and it may specify definite or indefinite amounts. Budget r esolution . A concurrent resolution, provided under the Congressional Budget Act, that allows Congress to make decisions about overall fiscal policy and priorities, as well as coordinate and establish guidelines for the consideration of various budget related measures. Because a concurrent resolution is not a law, it cannot be signed or vetoed by the President. It therefore does not have statutory effect, so no money can be raised or spent pursuant to it. Revenue and spending amounts set in the budget resolution, however, establish the basis for the enforcement of congressional budget policies through points of order. Continuing r esolution (CR) . When annual appropriations acts are not enacted by the beginning of the fiscal year (October 1), one or more continuing appropriations acts may be enacted to provide temporary continued funding for covered programs and activities until action on regular appropriations acts is completed. Such funding is provided for a specified period of time, which may be extended through the enactment of subsequent CRs. Rather than providing a specific amount of funding, CRs typically allow agencies to operate at a specified rate. A continuing appropriations act is commonly referred to as a continuing resolution or CR because historically it has been in the form of a joint resolution rather than a bill, but there is no procedural requirement as to its form. In some cases, CRs have provided appropriations for an entire fiscal year. Deeming r esolution . An informal term that refers to a resolution or bill passed by one or both houses of Congress that provides an alternate means to establish the basis for budgetary enforcement actions in the absence of a budget resolution. Direct s pending . Direct spending is defined in the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, as consisting of entitlement authority (including appropriated entitlements), the Supplemental Nutrition Assistance Program, and any other budget authority (and resulting outlays) provided in laws other than appropriations acts. The term direct spending is often used interchangeably with the terms mandatory or entitlement spending . Examples include Social Security, Medicare, Medicaid, unemployment insurance, and military and federal civilian pensions. Discretionary s pending . The Balanced Budget and Emergency Deficit Control Act of 1985, as amended, defines discretionary spending as budget authority provided in annual appropriation acts and the outlays derived from that authority. Discretionary spending encompasses appropriations not mandated by existing law and therefore made available in appropriation acts in such amounts as Congress chooses. Discretionary spending for FY2012-FY2021 is limited by statutory spending limits enacted in the Budget Control Act of 2011, as revised. Fiscal y ear . The fiscal year for the federal government begins on October 1 and ends on September 30. The fiscal year is designated by the calendar year in which it ends: For example, FY2020 began on October 1, 2019, and ends on September 30, 2020. Functional c ategory. The President's budget and the congressional budget resolution classify federal budgetary activities (including budget authority, outlays, tax expenditures, and credit authority) into functional categories that represent major purposes or national needs being addressed (such as national defense, health, or general science, space, and technology). A functional category may be divided into two or more subfunctions, depending upon its scope or complexity. As a whole, functional categories provide a broad statement of budget priorities and facilitate an understanding of trends in related programs regardless of the agency administering them or type of financial transaction involved. The amounts in particular functional categories in the budget resolution are used as informational guidelines and are not enforced by points of order in the congressional budget process. Obligation . A commitment that creates a legal liability of the government to pay for goods and services and results in outlays either immediately or in the future. An agency incurs an obligation, for example, when it places an order, signs a contract, or awards a grant. When a payment is made, it liquidates the obligation. Appropriation laws usually make funds available for obligation for one or more fiscal years, but outlays may actually occur at some later time so that an agency's outlays in a particular year can come from obligations entered into in previous years as well as from its current appropriation. Offsetting r eceipts/ c ollections . Funds collected from the public primarily as a result of business-like activities (such as user fees or royalties paid to the government) that are levied on a class directly availing itself of, or directly subject to, a governmental service, program, or activity rather than on the general public. Such receipts and collections are recorded as negative amounts of spending rather than as revenues. In most cases, offsetting receipts require an explicit appropriation, while offsetting collections may be obligated without further legislative action. Outlays . The actual amount of payments from the Treasury that result from obligations entered into by executing provisions in appropriations and direct spending legislation that provides budget authority. Outlays consist of payments, usually by check, by electronic fund transfer or cash to liquidate obligations incurred in prior fiscal years as well as in the current fiscal year. Pay-as-you-go ( PAYGO ) . A budgetary enforcement mechanism originally set forth in the Budget Enforcement Act of 1990. It generally requires that any projected increase in the deficit due to changes in direct spending or revenues resulting from legislation must be offset by an equivalent amount of direct spending cuts or revenue increases to eliminate the net increase over either a six-year period covering the current fiscal year plus the ensuing five fiscal years or over an 11-year period covering the current fiscal year plus the ensuing 10 fiscal years. The statutory PAYGO mechanism currently in place was established under the Statutory Pay-As-You-Go Act of 2010. In the event that the net impact of changes to direct spending and revenue laws over the course of a session of Congress is projected to increase the deficit in either of these time periods, the President is required to issue a sequester order to eliminate it. In addition, there are currently PAYGO procedures in the House and Senate enforced by points of order on the floor to prevent the consideration of legislation that does not meet the requirement. Reconciliation. An expedited procedure, provided under Section 310 of the Congressional Budget Act, for changing existing revenue or direct spending laws to implement budgetary policies established in a budget resolution. Reconciliation must begin with language in a budget resolution instructing specific committees to report legislation adjusting revenues or spending within their respective jurisdictions by specified amounts, usually by a specified deadline. The Budget Act provides for expedited consideration of reconciliation bills in the Senate by limiting debate to 20 hours and limiting the content of amendments. Reprogramming. Shifting funds within an appropriation account from one object class to another or from one program activity to another. Generally, agencies may make such shifts without additional statutory authority, but often they must provide some form of notification to the appropriations committees, authorizing committees, or both. Rescission. A provision of law that repeals previously enacted budget authority. Under the Impoundment Control Act of 1974, the President may send a message to Congress requesting one or more rescissions and the reasons for doing so. If the President makes such a request, he may withhold the funds from obligation, but if Congress does not pass legislation approving the rescission within 45 days of continuous session after receiving the message, the funds must be made available for obligation. Congress may rescind all, part, or none of an amount proposed by the President and may also initiate rescission of funds not requested in a presidential message. Revenues. Funds collected from the public primarily as a result of the federal government's exercise of its sovereign powers. They include individual and corporate income taxes, excise taxes, customs duties, estate and gift taxes, fees and fines, payroll taxes for social insurance programs, and miscellaneous receipts. Scorekeeping. The process of both estimating the budgetary effects of pending legislation and comparing those effects to a baseline. The Congressional Budget Office prepares estimates of the budgetary effects of legislation, including both spending and revenue effects. The Budget Committees in the House and Senate act as official scorekeepers by providing the presiding officers in their respective chambers with the estimates needed to make decisions about points of order enforcing budgetary parameters. The Budget Committees also make periodic summary scorekeeping reports that are placed in the Congressional Record . Sequestration . A procedure in which the President is required to issue an order canceling budgetary resources—that is, money available for obligation or spending—to enforce a statutory budget requirement. Sequestered funds are no longer available for obligation or expenditure. The statutory PAYGO requirement and the statutory limits on discretionary spending are enforced by sequestration. In addition, the automatic spending reductions required by the Budget Control Act of 2011 are partially achieved through sequestration. Transfer. Shifting budget authority between two appropriation accounts. Agencies may transfer budget authority only as specifically authorized by law. Appendix B. Congressional Budget Process Actions

Under the U.S. Constitution, Congress exercises the "power of the purse." This power is expressed through the application of several provisions. The power to lay and collect taxes and the power to borrow are among the enumerated powers of Congress under Article I, Section 8. Furthermore, Section 9 of Article I states that funds may be drawn from the Treasury only pursuant to appropriations made by law. The Constitution, however, does not prescribe how these legislative powers are to be exercised, nor does it expressly provide a specific role for the President with regard to budgetary matters. Instead, various statutes, congressional rules, practices, and precedents have been established over time to create a complex system in which multiple decisions and actions occur with varying degrees of coordination. As a consequence, there is no single "budget process" through which all budgetary decisions are made, and in any year there may be many budgetary measures necessary to establish or implement different aspects of federal fiscal policy. This report describes the development and operation of the framework for budgetary decisionmaking that occurs today and also includes appendices that provide a glossary of budget-process-related terms and a flowchart of congressional budget process actions. Since the early years of the Republic, procedures and practices concerning the consideration, enactment, and execution of budgetary legislation have evolved to meet changing needs and circumstances. Many aspects of the framework for budgetary decisionmaking were established in the early years, including the idea that appropriations be considered separate from general policy legislation. The 19 th century also saw Congress take action in several ways to exercise control over how federal agencies spent money. One approach involved enacting increasingly specific appropriations legislation to direct the use of funds. General restrictions on agency discretion were also imposed by statute. For example, beginning in 1870, antideficiency acts were enacted to prevent agencies from exceeding appropriations made by Congress for any fiscal year or obligating payments in anticipation of future appropriations. In the 20 th century, the Budget and Accounting Act of 1921 created a statutory role for the President by requiring agencies to submit their budget requests to him and, in turn, for him to submit a consolidated request to Congress. Other important changes included the advent of direct (mandatory) spending and the enactment of the Congressional Budget and Impoundment Control Act of 1974, which provided Congress with a vehicle for making decisions about overall fiscal policy and priorities and also established the House and Senate Budget Committees and the Congressional Budget Office. Since 1985, budgetary decisionmaking has also been subject to various budget control statutes designed to restrict congressional budgetary actions or implement particular budgetary outcomes. Altogether, this evolution has resulted in the framework in which budgetary decisionmaking occurs today. Many budgetary actions result from permanent or long-term statutes, but the cycle for decisionmaking remains based on a characteristically annual timetable. The President is required to submit a budget request to Congress early in the legislative session. The President's budget is only a request to Congress, but it establishes the President's wishes regarding the direction of national policies and priorities and often influences the direction of congressional revenue and spending decisions. Congress can coordinate various budget-related actions (such as consideration of revenue and spending measures) through the adoption of a concurrent resolution on the budget to set aggregate budget policies and functional spending priorities for at least the next five fiscal years. Because a concurrent resolution is not a law—the President cannot sign or veto it—the budget resolution does not have statutory effect, so no money is raised or spent pursuant to it. Revenue and spending levels set in the budget resolution, however, do establish the basis for enforcement of congressional budget policies through points of order. In recent years, the use of a budget resolution has often been supplanted by the use of various deeming provisions that use alternate means to establish the basis for budgetary enforcement actions. Budget policies are subsequently implemented through action on individual revenue and debt limit measures, annual appropriations acts, and direct spending legislation. If Congress agrees to a budget resolution, it may later consider reconciliation legislation pursuant to reconciliation instructions included in the budget resolution. Reconciliation legislation is subject to expedited procedures that can be used to bring existing revenue and direct spending laws into conformity with policies established in the budget resolution. Action on annual appropriations measures allows Congress to set the level of discretionary spending annually. Congress passes three main types of appropriations measures: regular appropriations to provide budget authority to fund programs and agency activities for the next fiscal year, s upplemental appropriations to provide additional budget authority during the current fiscal year if the regular appropriation is insufficient or to finance activities not provided for in the regular appropriation, and c ontinuing appropriations (often referred to as continuing resolutions or CRs) to provide interim (or sometimes full-year) funding to agencies for activities or programs not yet covered by a regular appropriation.

GAO_GAO-20-336

Background Key Requirements and Guidance on Agency Analysis of Improper Payments and Corrective Actions to Remediate Them IPIA requires executive branch agencies to take various steps regarding improper payments in accordance with guidance issued by OMB, including the following: 1. reviewing all programs and activities and identifying those that may be susceptible to significant improper payments; 2. developing improper payment estimates for those programs and activities that agency risk assessments, OMB, or statutes identify as being susceptible to significant improper payments; 3. analyzing the root causes of improper payments and developing corrective actions to reduce them; and 4. reporting on the results of addressing the foregoing requirements. Figure 1 illustrates these steps, as well as the major components of analyzing root causes of improper payments and developing corrective action plans to remediate them. IPIA requires agencies with programs susceptible to significant improper payments to report a description of the causes of the improper payments identified, actions that the agency has planned or taken to correct those causes, and the planned or actual completion dates of those actions. It also requires agencies to report program-specific improper payment reduction targets that OMB has approved. OMB M-18-20 provides guidance to agencies for implementing IPIA requirements, including their responsibilities for preventing and reducing improper payments. The guidance directs agencies that have developed estimates for improper payments to categorize them by root causes, including the percentage of the total estimate for each category. According to the guidance, this level of specificity helps lead to more effective corrective actions and more focused prevention strategies. Table 2 summarizes OMB’s root cause categories. OMB M-18-20 directs agencies with programs deemed susceptible to significant improper payments to implement a corrective action plan that responds to their root causes to prevent and reduce them. As such, OMB directs that an agency must understand the true root cause of its improper payments in order to develop targeted, effective corrective actions, which are proportional to the severity of the associated amount and rate of the root cause. OMB M-18-20 also directs agencies to annually measure the effectiveness and progress of individual corrective actions by assessing results, such as performance and outcomes. In performing such measurements, OMB states that agencies should determine if any existing corrective actions can be intensified or expanded to further reduce improper payments and to identify annual benchmarks for corrective actions that agencies implement over multiple years. Agencies may use these benchmarks to demonstrate progress in implementing the actions or their initial effect on preventing and reducing improper payments. Characteristics of Programs Reviewed and Related Improper Payment Estimates The eight programs we reviewed serve a variety of purposes and are administered by various agencies across the federal government, as discussed below. Supplemental Nutrition Assistance Program The Department of Agriculture’s (USDA) Supplemental Nutrition Assistance Program (SNAP) is the largest federally funded nutrition assistance program, providing benefits to about 40 million people in fiscal year 2018. SNAP is intended to help low-income households obtain a more nutritious diet by providing them with benefits to purchase food from authorized retailers nationwide. SNAP recipients receive monthly benefits on an Electronic Benefit Transfer (EBT) card and redeem them for eligible food at authorized food stores. The Food and Nutrition Act of 2008 established SNAP as a federally funded, state-administered program. States, following federal guidelines, are responsible for program administration. States determine applicant eligibility, calculate benefit amounts, issue EBT cards to recipients, and investigate possible recipient program violations. USDA’s Food and Nutrition Service (FNS) pays the full cost of SNAP benefits and shares 50 percent of administrative costs with the states. As part of oversight responsibilities, FNS develops program regulations and monitors states to ensure that they comply with program rules. FNS is also directly responsible for authorizing and monitoring retail food stores where recipients may purchase food. In accordance with IPIA, USDA has annually reported an improper payment estimate for SNAP since fiscal year 2004. In its fiscal year 2019 AFR, USDA reported an improper payment estimate of approximately $4 billion, or 6.8 percent of SNAP outlays of $59.1 billion. Direct Loan Program The Department of Education’s (Education) William D. Ford Federal Direct Loan (Direct Loan) program authorizes Education to make loans, through participating schools, to eligible undergraduate and graduate students and their parents. The Direct Loan program comprises four types of loans: Subsidized Stafford, Unsubsidized Stafford, PLUS, and Consolidation loans. Evidence of financial necessity is required for an undergraduate student to receive a Subsidized Stafford loan; however, borrowers at all income levels are eligible for the other three types. Education originates the loans and disburses them through each borrower’s school. Once a loan is disbursed, Education assigns a servicer responsible for communicating with the borrower, providing information about repayment, and processing payments from the borrower. Education first reported an improper payment estimate for the Direct Loan program in fiscal year 2013. In its fiscal year 2019 AFR, Education reported an improper payment estimate of approximately $483 million, or 0.5 percent of Direct Loan program outlays of $92.9 billion. Pell Grant Program Education’s Pell Grant program—the single largest source of grant aid for postsecondary education—awards federally funded grants to low-income undergraduate and certain post-baccalaureate students who are enrolled in a degree or certificate program and have a federally defined financial need. Students are eligible to receive Pell Grants for no more than 12 semesters (or the equivalent). To qualify, an applicant must, in addition to satisfying other requirements, demonstrate financial need and not have obtained a bachelor’s degree or a first professional degree. Grant amounts depend on the student’s expected family contribution, the cost of attendance (as determined by the institution), the student’s enrollment status (full-time or part-time), and whether the student attends for a full academic year or less. Education first reported an improper payment estimate for the Pell Grant program in fiscal year 2004. In its fiscal year 2019 AFR, Education reported an improper payment estimate of approximately $646 million, or 2.2 percent of Pell Grant program outlays of $28.9 billion. Children’s Health Insurance Program The Department of Health and Human Services’ (HHS) Children’s Health Insurance Program (CHIP) expands health coverage to uninsured children who are ineligible for Medicaid but cannot afford private coverage. The states and the federal government jointly fund CHIP benefit payments and administrative expenses. HHS’s Centers for Medicare & Medicaid Services (CMS) oversees the program; however, each state administers the program and sets its own guidelines regarding eligibility and services according to federal guidelines. HHS first reported an improper payment estimate for CHIP (based on one-third of the states) in fiscal year 2008. In its fiscal year 2019 AFR, HHS reported an improper payment estimate of approximately $2.7 billion, or 15.8 percent of CHIP outlays of $17.3 billion. Earned Income Tax Credit The Earned Income Tax Credit (EITC) administered by the Department of the Treasury (Treasury) is a credit that offsets taxes owed by eligible taxpayers, and because the credit is refundable, EITC recipients need not owe taxes to receive a benefit. If the taxpayer’s credit exceeds the amount of taxes due, the Internal Revenue Service (IRS) issues a refund of the excess to the taxpayer. To claim the EITC, the taxpayer must work and have earnings that do not exceed the phaseout income of the credit. Additional eligibility rules apply to any children that a taxpayer claims for calculating the credit. Among other criteria, a qualifying child must meet certain age, relationship, and residency requirements. Treasury first reported an improper payment estimate for EITC in fiscal year 2003. In its fiscal year 2019 AFR, Treasury reported an improper payment estimate of approximately $17.4 billion, or 25.3 percent of EITC outlays of $68.7 billion. Prosthetic and Sensory Aids Service Through its Prosthetic and Sensory Aids Service (PSAS), the Department of Veterans Affairs’ (VA) Veterans Health Administration (VHA) provides prosthetics to veterans who have experienced the loss or permanent impairment of a body part or function. The items VA provides include those worn by the veteran, such as an artificial limb or hearing aid; those that improve accessibility, such as ramps and vehicle modifications; and devices surgically placed in the veteran, such as hips and pacemakers. In general, veterans enrolled in the VA health care system with a medical need for a prosthetic service or item are eligible; however, additional eligibility criteria for certain services or items may apply. PSAS officials in VA’s central office provide overall administration of VA’s provision of prosthetic items, including allocating funding among various networks, monitoring spending, and establishing and monitoring mechanisms to evaluate the agency’s performance. PSAS processes prescriptions and provides the prescribed items to individual veterans. PSAS government credit card holders, typically at VA medical centers, perform administrative actions—such as obtaining additional information from the prescribing clinician, obtaining price quotes from contractors, and creating purchase orders—to process prescriptions. PSAS also has staff who provide clinical services to veterans, such as evaluating prosthetic needs and designing and fitting artificial limbs. VA first reported an improper payment estimate for PSAS in fiscal year 2017. In its fiscal year 2019 AFR, VA reported an improper payment estimate of approximately $60 million, or 2.1 percent of PSAS outlays of $2.9 billion. Old Age, Survivors, and Disability Insurance Program The Social Security Administration’s (SSA) Old Age, Survivors, and Disability Insurance program (OASDI), collectively referred to as Social Security, provides cash benefits to eligible U.S. citizens and residents. OASDI is financed largely on a pay-as-you-go basis. Specifically, OASDI payroll taxes, paid each year by current workers, are primarily used to pay benefits provided during that year to current beneficiaries. OASDI consists of two separate insurance programs that SSA administers under the Social Security Act. Old Age and Survivors Insurance (OASI) provides benefits to retired workers, their families, and survivors of deceased workers. The monthly benefit amount depends on a worker’s earnings history and the age at which he or she chooses to begin receiving benefits, along with other factors. Benefits are paid to workers who meet requirements for the time they have worked in covered employment—that is, jobs through which they have paid Social Security taxes. Disability Insurance (DI) provides cash benefits to working-age adults who are unable to work because of long-term disability. SSA generally considers individuals to have a disability if (1) they cannot perform work that they did before and cannot adjust to other work because of their medical condition(s) and (2) their disability has lasted or is expected to last at least 1 year or is expected to result in death. Further, individuals must have worked and paid into the program for a minimum period of time to qualify for benefits. To ensure that only beneficiaries who remain disabled continue to receive benefits, SSA is required to conduct periodic continuing disability reviews in certain circumstances. SSA first reported an improper payment estimate for OASDI in fiscal year 2004. In its fiscal year 2019 AFR, SSA reported an improper payment estimate of approximately $2.7 billion, or 0.3 percent of OASDI program outlays of $948 billion. Supplemental Security Income Program SSA’s Supplemental Security Income (SSI) is a federal income supplement program funded by general tax revenues (not Social Security taxes). The program provides payments to low-income aged, blind, and disabled persons—both adults and children—who also meet financial eligibility requirements. For adults, a disability is defined as the inability to engage in any substantial gainful activity because of any medically determinable physical or mental impairment(s) that can be expected to result in death or has lasted or can be expected to last for a continuous period of not less than 12 months. To ensure that only recipients who remain disabled continue to receive benefits, SSA is required to conduct periodic continuing disability reviews in certain circumstances. To be eligible to receive monthly SSI payments, the adult individual’s (or married couple’s) or child’s (and parent’s) monthly countable income has to be less than the monthly federal SSI benefit amount. The amount of the monthly SSI payment is then determined based on the countable income. In most cases, countable income received in the current month affects the SSI payment amount 2 months later. Furthermore, countable resources—such as financial institution accounts—must not exceed the maximum allowable threshold. While recipients are required to report changes in their income and financial resources, SSA also conducts periodic redeterminations to verify that recipients are still eligible for SSI. SSA first reported an improper payment estimate for SSI in fiscal year 2004. In its fiscal year 2019 AFR, SSA reported an improper payment estimate of approximately $5.5 billion, or 9.7 percent of SSI program outlays of $56.9 billion. Selected Agencies Generally Used Improper Payment Estimation Methodology Results as the Basis for Identifying Root Causes of Improper Payments Five Out of Six Agencies Used Improper Payment Estimation Methodology Results as the Basis for Identifying Root Causes of Selected Programs’ Improper Payments We found that five out of six agencies—USDA, Education, HHS, VA, and SSA—used the results of their improper payment estimation methodologies as the basis for identifying the root causes of improper payments for the selected programs we reviewed. Specifically, the agencies generally used a two-step process to identify root causes of improper payments. First, the agencies reviewed a sample of payments to identify which payments were improper and to establish an improper payment rate. Second, the agencies analyzed the improper payment results to determine the causes of error. Further details on each agency’s process are provided below. USDA: According to USDA’s fiscal year 2018 AFR, FNS used SNAP’s Quality Control System to identify improper payments and determine improper payment rates for fiscal year 2018. According to agency officials, SNAP improper payment root causes occur at the state level. According to agency officials, as required by the Food and Nutrition Act of 2008 and subsequent program regulations, FNS requires states to conduct root cause analyses and develop corrective action plans because of the unique circumstances in each state owing to flexibilities under statute and regulations. SNAP’s Quality Control system uses a two-tier approach to report improper payments. In the first tier, each month, state agencies follow federal sampling requirements to select samples of households that participated in SNAP in their states and conduct quality control reviews to determine whether each selected household was eligible and received the right amount of benefits. In the second tier of the process, Federal SNAP staff select a subsample of the state data for review to confirm the validity of the states’ findings. Federal SNAP staff use that subsample data to aggregate the root cause information at a nationwide level in order to categorize the data into the OMB root cause categories for fiscal year 2018 reporting. Education: According to Education’s fiscal year 2018 AFR, Education conducted a risk-based, nonstatistical sample and estimation methodology, which OMB approved, to estimate Pell Grant and Direct Loan improper payment rates for fiscal year 2018 reporting. As part of this estimation process, Education analyzed identified improper payments to determine improper payment root causes. HHS: According to HHS’s fiscal year 2018 AFR, HHS estimated the CHIP improper payment rate for fiscal year 2018 reporting through the Payment Error Rate Measurement (PERM) program. CHIP improper payment root causes were identified at both the agency and state levels. Specifically, to determine improper payment root causes at the agency level, HHS analyzed the issues identified during the PERM review and identified primary drivers of the national PERM rate for CHIP. HHS also provided improper payment results to each state and required them to conduct more in-depth state-level root cause analyses as part of developing their corrective action plans. VA: According to VA’s fiscal year 2018 AFR, VA conducted a statistical sample and estimation methodology to estimate the PSAS improper payment rate for fiscal year 2018 reporting. VA then analyzed the improper payments identified during testing to determine improper payment root causes. SSA: According to SSA’s fiscal year 2018 AFR, SSA conducts stewardship reviews each fiscal year to estimate the improper payment rates for OASDI and SSI. Although SSA considers the stewardship review data sufficient to provide statistically reliable data on the overall payment accuracy of OASDI and SSI, SSA considered deficiency data from the most recent 5 years of stewardship reviews to determine improper payment root causes for each program for its fiscal year 2018 reporting. Treasury Used 2006 through 2008 Tax Year Data to Identify Reported Root Causes of Fiscal Year 2018 EITC Improper Payments Treasury identified the root causes of EITC improper payments for fiscal year 2018 reporting based on the most recent detailed 3-year EITC compliance study IRS conducted, using data from tax years 2006 through 2008. IRS officials acknowledged that using older data creates additional potential for error; however, they stated that IRS is only able to conduct in-depth compliance studies on major refundable income tax credits, including EITC, on a rotating basis. IRS also conducted in-depth EITC compliance studies for tax years 1997 and 1999. These studies and IRS’s 2006 through 2008 compliance study, identified income misreporting and qualifying child errors as the main sources of errors. Therefore, agency officials indicated that Treasury is comfortable with using the 2006 through 2008 data as the basis for determining the root causes of fiscal year 2018 EITC improper payments. However, Treasury has reported changes to the tax environment since 2008, including legislative revisions that may have affected taxpayer compliance behavior. Specifically, EITC-related changes include expanding the credit to a third child, establishing new criteria for claiming a qualifying child, and amending the “age test” for qualifying children, among others. Furthermore, the 2006 through 2008 compliance study did not take into account the Protecting Americans from Tax Hikes Act of 2015 program integrity provisions that required tax filers to provide Form W-2 payer information to IRS for verification earlier than in previous tax years. Federal internal control standards state that management should use quality information to achieve the entity’s objectives. As part of these standards, management obtains relevant data from reliable internal and external sources in a timely manner and uses quality information to make informed decisions and evaluate the entity’s performance in achieving objectives and addressing risks. Quality information is appropriate, current, complete, accurate, accessible, and provided on a timely basis. Although a specific delivery date has not been set, agency officials stated that IRS plans to conduct another in-depth EITC compliance analysis within the next 2 years. We agree with Treasury’s plan to conduct another EITC compliance analysis using more timely data. However, until Treasury conducts an EITC improper payment root cause analysis using more timely data, it will be uncertain whether identified root causes are sufficiently relevant to inform decisions and evaluate risks. Specifically, continued use of outdated information to evaluate EITC improper payments increases the risk that Treasury may not be identifying these payments’ true root causes and therefore will lack quality information needed to develop appropriate corrective actions and reduce them. Most Selected Agencies Developed Corrective Actions That Correspond to Identified Root Causes of Improper Payments Four Out of Six Agencies Developed Corrective Actions That Correspond to Identified Root Causes of Improper Payments for the Selected Programs Four out of six agencies—Education, HHS, VA, and SSA—developed corrective actions that correspond to identified root causes of improper payments for the selected programs we reviewed, in accordance with OMB guidance. Specifically, we found that Education and VA developed corrective actions corresponding to each root cause of improper payments identified for fiscal year 2018 in Education’s Direct Loan and Pell Grant programs and VA’s PSAS, respectively. In addition, HHS stated that it developed corrective actions that corresponded to the root causes it determined to be significant to CHIP improper payments for fiscal year 2018, prioritizing large dollar over smaller dollar value root cause categories. Corrective action plans for CHIP improper payments were developed at both the agency and state levels. According to agency officials, CMS helped individual states develop and implement state-specific PERM corrective action plans to address the errors identified in each state. In addition, because each state’s errors do not necessarily represent errors that are the main drivers of the national PERM rate, CMS developed agency-level corrective action plans focused on those drivers, which typically occurred across multiple states. We also found that SSA’s corrective actions corresponded to root causes of improper payments identified in OASDI and SSI for fiscal year 2018. However, SSA did not develop corrective actions corresponding to three of the six major root causes it identified for OASDI improper payments based on its stewardship review findings. Agency officials explained that SSA’s corrective action development process was decentralized among the different SSA components, and therefore, there was no formalized process for components to develop corrective actions for all identified root causes. SSA has since developed a new standardized improper payment strategy and updated procedures to implement the strategy for fiscal year 2020. Although the scope of our review focused on processes in place for fiscal year 2018, we found that the updated procedures, if effectively implemented, will address our concerns because they include control activities designed to help ensure that corrective actions that SSA develops and implements correspond to the identified root causes of improper payments, as directed by OMB guidance. Specifically, the updated procedures direct SSA components to identify root causes of improper payments and develop mitigation strategies for each; conduct cost-benefit analyses for such strategies; and after considering these analyses, determine and prioritize necessary corrective actions. USDA Did Not Develop Agency Corrective Actions That Correspond to Identified Root Causes of SNAP Improper Payments In contrast to HHS, which developed both agency- and state-level corrective actions for its state-administered CHIP, USDA did not develop agency-level corrective actions corresponding to the root causes of SNAP improper payments. USDA’s IPIA corrective action plan guidance directs its components, including FNS, to develop corrective actions that correspond to the identified root causes of improper payments for programs that are susceptible to significant improper payments. Instead of developing agency-level SNAP corrective actions, FNS requires the states to develop state-level corrective actions. Additionally, FNS provided technical assistance and support to the individual states to help them improve payment accuracy. As part of this assistance, agency officials stated that FNS regional offices provided routine formal training and guidance to the states and conducted site visits. According to agency officials, FNS did not develop agency-level corrective actions corresponding to the root causes of SNAP improper payments because FNS requires the states to develop individual state- level corrective actions. Additionally, because of varying root causes and the uniqueness of issues identified among the states, agency officials believe that state corrective actions may not easily aggregate to the state level. However, FNS’s procedures did not include a process to analyze state-level root causes to identify similarities and develop agency-level corrective actions, if warranted, to help address them. According to agency officials, FNS has made significant improvements in the last few years regarding its controls over SNAP. The officials said that FNS has also implemented major changes in oversight in the last few fiscal years to address previously identified deficiencies among the states. While these changes may be valuable in improving agency oversight and states may have unique circumstances that could lead to varying state-identified root causes of improper payments, FNS is ultimately responsible for preventing and reducing improper payments within SNAP. OMB guidance directs agencies to develop and implement appropriate corrective actions that respond to the root causes of improper payments to prevent and reduce them. OMB guidance also directs agencies to ensure that managers; programs; and, where applicable, states are held accountable for reducing improper payments. Additionally, federal internal control standards state that management should establish and operate activities to monitor the internal control system and evaluate the results and remediate identified internal control deficiencies on a timely basis. As part of these standards, management retains responsibility for monitoring the effectiveness of internal control over the assigned processes that external parties, such as state agencies, perform. Without considering similarities of root causes of SNAP improper payments among the states, USDA will be uncertain whether developing and implementing agency-level corrective actions (in addition to state-level actions) would also help to effectively reduce them. Treasury Did Not Develop Corrective Actions That Correspond to Identified Root Causes of EITC Improper Payments Instead of developing corrective actions corresponding to the identified root causes of EITC improper payments for fiscal year 2018, Treasury addressed improper payments through IRS’s compliance programs and through outreach and education efforts to taxpayers and preparers. According to agency officials, although some of the outreach efforts are indirectly related to root causes identified, it is difficult to link those efforts to the reduction of errors that result from being unable to authenticate eligibility—which Treasury considers the biggest issue in the EITC program—because of the complexity of statutory eligibility requirements. Although Treasury uses information from SSA and HHS to help IRS verify residency and relationship information for parents and children, Treasury’s strategy for addressing the root causes of EITC improper payments does not include continuing efforts to identify and reach out to additional agencies to (1) determine how they verify information for certain eligibility-based programs and whether they use strategies that Treasury could adopt or (2) identify other potential data sources that could be used to verify EITC information or confirm that other data sources do not exist. According to agency officials, such inquiries are not included because the eligibility requirements for EITC are not always the same as requirements for other government programs. Additionally, Treasury’s fiscal year 2018 AFR states that because of the nature of EITC, corrective actions implemented by IRS alone will not significantly reduce EITC improper payments. For example, according to Treasury officials, legislative changes are needed to help address certain EITC improper payments. While Treasury has made certain legislative proposals related to providing IRS greater flexibility to address correctable errors and increasing oversight of paid tax return preparers, it has not made proposals to help address EITC eligibility criteria issues. Additionally, Treasury’s strategy does not include identifying and proposing legislative changes needed to help reduce EITC improper payments related to these or other issues, such as those related to the inability to authenticate taxpayer eligibility discussed above. OMB guidance directs agencies to develop and implement appropriate corrective actions that respond to the root causes of improper payments to prevent and reduce them. Further, federal internal control standards state that management should use quality information to achieve the entity’s objectives. As part of these standards, management designs a process that uses the entity’s objectives and related risks to identify the information requirements needed to achieve the objectives and address the risks and obtains relevant data from reliable internal and external sources in a timely manner based on the identified information requirements. While we recognize the unique eligibility requirements for EITC, until Treasury coordinates with other agencies to identify potential strategies or data sources that may help in determining eligibility, it will be uncertain whether Treasury can leverage additional sources to help verify data. Additionally, without identifying and proposing legislative changes to help resolve such issues, Treasury will be at risk of continuing to be unable to significantly reduce EITC improper payments. All Six Agencies Communicated Improper Payment Corrective Action Plan Information to Internal Stakeholders, but Several Did Not Monitor Progress or Measure Effectiveness All six agencies responsible for the programs we reviewed communicated with internal agency stakeholders regarding their improper payment corrective action plan information, in accordance with OMB guidance and federal internal control standards. However, as shown in table 3, three of the four agencies—Education, HHS, and SSA—that developed corrective actions corresponding to the identified root causes either did not establish planned completion dates, monitor the progress, or measure the effectiveness of their corrective actions. In fact, we found that VA was the only agency that measured the effectiveness of each corrective action for the selected program (PSAS) that we reviewed. As previously discussed, USDA and Treasury did not develop agency corrective actions corresponding to the identified root causes of improper payments for their selected programs and therefore did not establish planned related completion dates, monitor progress, or measure the effectiveness of such corrective actions. Selected Agencies Have Processes in Place to Communicate with Internal Stakeholders regarding Corrective Action Plan Information All six agencies we reviewed communicated information regarding the selected programs’ corrective action plans to internal stakeholders, consistent with OMB guidance and federal internal control standards. OMB M-18-20 directs agencies to ensure that managers, accountable officers (including the agency head), and program officials are held accountable for reducing improper payments. Additionally, federal internal control standards state that management should internally communicate the necessary quality information to achieve the entity’s objectives. As part of these standards, management communicates quality information down, across, up, and around reporting lines to all levels of the entity. We found that the six agencies communicated information, at least annually, to such internal stakeholders, including the relevant agency head, chief financial officer (CFO), and program managers. For example, some selected agencies—Education, HHS, VA, and SSA—provided briefings to the agency head and the CFO’s office regarding the status of the selected program’s improper payment corrective action activities during fiscal year 2019 for the corrective actions reported for fiscal year 2018. USDA and Treasury required their components to annually submit deliverables to the office of the CFO and coordinate accordingly with the Office of the Secretary as part of their fiscal year 2018 AFR reporting process. Two Agencies Established Planned Completion Dates for the Selected Programs’ Corrective Actions We found that two of the six agencies we reviewed—Education and VA— established planned completion dates for the selected programs’ corrective actions. Two agencies—HHS and SSA—did not consistently establish planned completion dates for all the selected programs’ corrective actions, as required by IPIA. Two agencies—USDA and Treasury—did not develop agency corrective actions corresponding to the identified root causes of improper payments for their selected programs and therefore did not establish planned completion dates for such corrective actions. Further details on each agency’s process are provided below. USDA: As previously discussed, FNS did not develop corrective actions at the agency level to address SNAP’s root causes of improper payments and, as a result, did not have planned completion dates for such corrective actions. However, in the event that FNS develops agency-level corrective actions, USDA’s IPIA corrective action plan guidance includes a directive for each corrective action to have an estimated completion date. Education: Education established planned completion dates for all Direct Loan and Pell Grant corrective actions that were not legislative proposals. For example, in fiscal year 2018, Education did not report a planned completion date for Federal Student Aid’s (FSA) corrective action related to proposed legislative changes, as the timeline for the legislative process is subject to external factors outside of Education’s control. HHS: HHS did not consistently establish planned completion dates for agency-level CHIP corrective actions. According to agency officials, most agency-level CHIP corrective actions are unlikely to have completion dates because the work is ongoing. We agree with HHS’s determination that establishing completion dates for ongoing corrective actions was not relevant. HHS provided a spreadsheet of CHIP’s corrective actions, which included a column of target completion dates. However, this column was not consistently filled out for actions that were not considered either ongoing or voluntary state processes. HHS officials stated that although HHS has a process for its improper payment corrective action plans, this process is not documented in formal policies and procedures. Instead, HHS uses OMB guidance as its policies and procedures. Lack of formally documented policies and procedures may have contributed to the inconsistencies in HHS establishing planned completion dates for agency-level CHIP corrective actions. Treasury: As previously discussed, instead of developing corrective actions to address root causes of EITC improper payments, Treasury addressed improper payments through IRS’s compliance programs and through outreach and education efforts to taxpayers and preparers. According to agency officials, Treasury did not establish planned completion dates for its compliance programs and outreach efforts because these activities were ongoing in nature and completed every year as part of IRS operations. We agree with Treasury’s determination that establishing completion dates for EITC ongoing compliance activities was not relevant. In the event that Treasury develops corrective actions for EITC improper payments, Treasury’s corrective action plan guidance includes a directive for each corrective action to have an estimated completion date. VA: VA established relevant planned completion dates for each PSAS corrective action. In addition, each task associated with each corrective action had a planned completion date. SSA: SSA did not consistently establish relevant completion dates for each OASDI and SSI corrective action. For example, SSA’s corrective action plans included sections for “target completion.” However, based on our review, these sections were not filled out consistently. According to agency officials, the process for developing and implementing its corrective actions was inconsistent because of SSA’s decentralized corrective action plan process. As previously discussed, SSA developed a new standardized improper payment strategy that if effectively implemented will address these concerns. Specifically, SSA’s procedures to implement this strategy include control activities designed to help ensure that the agency establishes planned completion dates for each corrective action, as required by IPIA. IPIA requires agencies to report on the planned or actual completion date of each action taken to address root causes of improper payments. Federal internal control standards state that management should design control activities to achieve objectives and respond to risks and implement control activities through policies. Further, federal internal control standards state that management should remediate identified internal control deficiencies on a timely basis. As part of these standards, management monitors the status of remediation efforts so that they are completed on a timely basis. Additionally, federal internal control standards state that management should implement its control activities through policies. Without documented policies and procedures for its improper payment corrective action plan process, including the establishment of planned completion dates, HHS lacks assurance that corrective action plan–related activities will be performed consistently. Additionally, without planned completion dates, HHS cannot demonstrate that it is effectively implementing and completing corrective actions timely and therefore cannot ensure that they will help reduce improper payments. Two Agencies Currently Do Not Have a Documented Process in Place to Monitor the Progress of Implementing the Selected Programs’ Corrective Actions Three of the four agencies—Education, HHS, and VA—that developed corrective actions corresponding to the identified root causes monitored the progress of the selected programs’ corrective actions, in accordance with OMB guidance. However, HHS’s process was not documented in policies and procedures. SSA did not monitor the progress for all relevant OASDI and SSI corrective actions but has since implemented policies and procedures to monitor such progress. USDA did not develop corrective actions at the agency level that corresponded to the identified root causes of improper payments for SNAP and therefore did not monitor the progress of such corrective actions. In addition, USDA’s corrective action plan guidance does not direct the agency to monitor the progress of its corrective actions. Although Treasury did not have corrective actions that corresponded to the root cause of improper payments, it did monitor the progress of its compliance and outreach efforts that are intended to help reduce EITC improper payments. Further details on each agency’s process are provided below. USDA: As previously discussed, FNS did not develop corrective actions at the agency level to address SNAP’s root causes of improper payments and, as a result, did not monitor the progress of such corrective actions. In addition, USDA’s IPIA corrective action plan guidance does not direct the agency to monitor the progress of its corrective actions. Without agency-level corrective actions to address the root causes of SNAP improper payments and a documented process to monitor the progress of implementing such agency-level corrective actions, USDA may miss opportunities to reduce SNAP improper payments. Education: Education monitored the progress of implementing each Direct Loan and Pell Grant corrective action. We found that Education maintained a spreadsheet to track the implementation status of each corrective action annually. Specifically, the status of each corrective action was updated to either “complete” or “open” for the annually recurring and long-term, multiyear corrective actions. The actions marked as “complete” had actual completion dates. Actions that Education considered ongoing, such as needed updates to help clarify verification requirements to the “Question and Answer” section of FSA’s website, were updated as “not applicable.” HHS: HHS monitored the progress of implementing each of its agency-level CHIP corrective actions. Specifically, HHS tracked the progress of implementing the corrective actions in a spreadsheet that included status updates for each agency-level corrective action. Agency officials stated that this information was updated approximately two to three times each fiscal year through an online interface; however, this process was not documented in policies and procedures. Without a properly documented process and related control activities, HHS is at increased risk that it may not consistently monitor the progress of CHIP corrective actions and has less assurance that such actions are implemented and completed timely. Treasury: Treasury did not develop corrective actions that corresponded to the root causes of EITC improper payments and, as a result, did not monitor the progress of such corrective actions. However, Treasury did monitor its compliance programs and outreach efforts that are intended to help reduce EITC improper payments during fiscal year 2018. VA: VA monitored the progress of implementing each PSAS corrective action. Specifically, we found that VA monitored the progress for each corrective action each month by calculating a completion percentage based on the status of tasks associated with each corrective action. SSA: SSA did not monitor the progress of implementing each OASDI and SSI corrective action. According to agency officials, the monitoring of corrective actions was inconsistent and evaluation of corrective actions was limited because of SSA’s decentralized corrective action plan process. As previously discussed, SSA developed a new standardized improper payment strategy that if effectively implemented will address these concerns. Specifically, SSA’s procedures to implement this strategy include control activities designed to help ensure that the agency monitors the progress of its corrective actions, as directed by OMB guidance. OMB guidance directs agencies to measure the progress of each individual corrective action annually. Federal internal control standards state that management should establish and operate activities to monitor the internal control system and evaluate the results and remediate identified internal control deficiencies on a timely basis. As part of these standards, management monitors the status of remediation efforts so that they are completed on a timely basis. Additionally, federal internal control standards state that management should implement its control activities through policies. Without monitoring the progress of its corrective actions, USDA cannot demonstrate that it is effectively implementing and completing its corrective actions timely and therefore cannot ensure that they will contribute to a reduction in improper payments. Further, unless HHS documents its process in policies and procedures, it will lack assurance that the progress of its corrective actions is monitored consistently and that such actions are implemented and completed timely. One Out of Six Agencies Measured the Effectiveness of Corrective Actions for the Selected Programs We found that one out of six agencies we reviewed—VA—measured the effectiveness of the selected programs’ corrective actions, including the establishment of reduction targets in accordance with OMB guidance. Education, HHS, and SSA did not measure the effectiveness of their corrective actions for the selected programs. In addition, USDA and Treasury did not develop agency corrective actions corresponding to the identified root causes of improper payments for their selected programs and therefore did not measure the effectiveness of such corrective actions. Further details on each agency’s process are provided below. USDA: As previously discussed, FNS did not develop agency-level corrective actions to address root causes of SNAP improper payments. Instead, FNS provided technical assistance and support to the individual states. According to agency officials, FNS cannot link each technical assistance initiative it provides to the states to the effect these efforts have on reducing payment integrity errors, as the technical assistance provided to the states can vary significantly. Additionally, USDA’s IPIA corrective action plan guidance did not include direction for the agency to measure the effectiveness of its corrective actions. Without agency-level corrective actions to address the root causes of SNAP improper payments and a documented process to measure the effect that agency actions have on improper payments, USDA will be unable to demonstrate whether such actions are effective in reducing improper payments and may risk continuing ineffective actions. In addition, as permitted by OMB, USDA did not establish a reduction target for SNAP improper payments because it lacked a sufficient baseline to accurately project future improper payment rates. USDA plans to reestablish reduction targets for fiscal year 2021 reporting. Education: Education’s policies and procedures state that to measure the effectiveness of the corrective actions, FSA solicits input from the corrective action owner, including, among other items, whether measuring and monitoring of the effectiveness of the corrective action has been established and a description of anecdotal evidence available to confirm the effectiveness of the corrective action. However, based on the procedures, it is unclear how the corrective action owners will conduct this analysis to demonstrate effectiveness. Education provided an example of communication to a corrective action owner requesting, among other items, that the corrective action owner (1) confirm that existing actions are focused on the true root causes of the improper payments and are actually reducing improper payments and (2) verify that existing corrective actions are achieving the intended purposes and results. Education officials informed us that although these items were discussed in stakeholder meetings, FSA was unable and did not attempt to quantify the direct effect of any one corrective action on the improper payment estimates. Education’s fiscal year 2018 AFR states that FSA does not attempt to quantify the reduction of the improper payment estimates in terms of percentage or amount due to Pell Grant and Direct Loan corrective actions. It further states that quantifying of results is not feasible because Education uses a nonstatistical alternative estimation methodology. However, according to Education’s fiscal year 2019 AFR, Education implemented a statistical estimation methodology for the fiscal year 2019 estimates. Education believes that the new methodology will allow FSA to better measure the effectiveness of corrective actions over time as FSA collects a baseline of statistically valid improper payment estimates. According to agency officials, FSA is currently refining its process for measuring the effectiveness of corrective actions based on its new statistical estimation methodology. However, until Education revises and documents its process to include measuring the direct effect that its Pell Grant and Direct Loan corrective actions have on improper payments, it will be unable to demonstrate whether the corrective actions are effective in reducing the associated improper payments and may risk continuing ineffective actions. As part of its overall payment integrity reporting in fiscal year 2018, Education established program-wide reduction targets for Pell Grant and Direct Loan. However, according to agency officials, because it used an OMB-approved nonstatistical methodology, Education’s confidence in using these results to establish reduction targets for the upcoming fiscal year was limited. Specifically, Education’s fiscal year 2018 AFR states that imprecision and volatility in the improper payment estimates continue to limit its ability to establish accurate out-year reduction targets. Therefore, for fiscal years 2016 through 2018, Education set the upcoming fiscal year reduction targets to match the current fiscal year reported improper payment rate for each program. According to agency officials, Education plans to consider the feasibility of setting meaningful reduction targets moving forward with its new statistical methodology. HHS: HHS did not measure the effectiveness of its corrective actions for CHIP improper payments. In addition, as discussed above, HHS does not have formal documented policies and procedures for its improper payment corrective action plan process. According to agency officials, establishing a one-to-one relationship between specific corrective actions and resulting changes in the improper payment rates is difficult because of the complexity of factors involved that lead to them. However, until HHS develops and implements a documented process to measure the effect that CHIP corrective actions have on improper payments, it will be unable to demonstrate whether the corrective actions are effective in reducing the associated improper payments and may risk continuing ineffective actions. As permitted by OMB’s implementing guidance, HHS did not establish a program-wide reduction target for CHIP improper payments for fiscal years 2019 or 2020, and does not anticipate setting one for 2021 because it lacks a sufficient baseline to accurately project future improper payment rates. According to agency officials, HHS plans to establish a CHIP reduction target for fiscal year 2022 reporting. Treasury: Treasury did not develop specific corrective actions to address root causes of EITC improper payments, so it could not measure the effectiveness of its corrective actions. Agency officials recognized that the current actions on their own will be unable to significantly reduce the amount of EITC improper payments. As approved by OMB, Treasury did not establish a program-wide reduction target for EITC improper payments for fiscal year 2018 reporting. However, Treasury set a reduction target for EITC improper payments in its fiscal year 2019 AFR, per OMB guidance. VA: VA has documented procedures in place to measure the effectiveness of its corrective actions for PSAS improper payments. As part of this process, VA set reduction targets and timelines for reducing the errors associated with each corrective action. VA maintained a timeline spreadsheet showing the corrective action reduction targets by year and the percentage of improper payments it expects to be reduced once each corrective action is fully implemented. VA updated the spreadsheet at the end of fiscal year 2019 with the current results of the effectiveness measure for corrective actions reported in fiscal year 2018. In addition, VA also set a program-wide reduction target for PSAS improper payments. SSA: SSA did not measure the effectiveness of its corrective actions for OASDI and SSI improper payments. According to agency officials, SSA did not have procedures to collect the necessary data and therefore was unable to measure the effectiveness of its corrective actions. SSA’s procedures for its new standardized improper payment strategy (discussed above) direct responsible components to define the metrics and information necessary to evaluate the corrective actions and to determine if the actions are effectively reducing improper payments. However, it is still unclear which metrics will be used to determine the effect that OASDI and SSI corrective actions have on the corresponding root causes to demonstrate effectiveness. Until SSA develops and implements a documented process to measure the effect that the OASDI and SSI corrective actions have on improper payments, it will be unable to demonstrate whether the corrective actions are effective in reducing the associated improper payments and may risk continuing ineffective actions. As part of its overall payment integrity reporting in fiscal year 2018, SSA established program-wide reduction targets for both programs. However, some of SSA’s reduction targets have remained constant since fiscal year 2004 reporting. Agency officials stated that although SSA believes OASDI’s payment accuracy rate is exceptionally high, if SSA’s mitigation strategies help decrease improper payments, it would consider changing the reduction target. For SSI, agency officials stated that SSA believes that SSI’s program complexity and reliance on self-reporting have made meeting the current accuracy goal challenging. Agency officials further stated that if planned mitigation strategies help decrease improper payments, SSA would consider changing the SSI reduction target. OMB guidance directs agencies to measure the effectiveness of each individual corrective action annually. Agencies may measure the effectiveness of corrective actions by assessing the results of actions taken to address the root causes, such as the performance and outcomes of these processes. In addition, OMB guidance states that for long-term, multiyear corrective actions, agencies should identify annual benchmarks used to demonstrate the initial effect on improper payment prevention and reduction. For corrective actions already in place, agencies should be able to describe how they evaluate these actions’ effectiveness and the results. Federal internal control standards state that management should establish and operate activities to monitor the internal control system and evaluate the results. As part of these standards, management performs ongoing monitoring of the design and operating effectiveness of the internal control system as part of the normal course of operations. Additionally, federal internal control standards state that management should implement its control activities through policies. Unless USDA, Education, HHS, and SSA develop and implement a process that clearly links corrective actions to effectively addressing improper payments, they will be uncertain whether the actions are actually reducing improper payments and the agencies may risk continuing ineffective actions. Further, unless these processes are documented in policies and procedures, agencies will lack assurance that the effectiveness of their corrective actions is measured consistently. Conclusions Developing corrective action plans that respond to identified root causes of improper payments is a critical component in government-wide efforts to reduce improper payments. Agency processes to monitor the progress and measure the effectiveness of such plans are also essential to evaluating their efforts to address improper payments. However, certain agencies have not effectively taken these steps for the selected programs we reviewed. For example, USDA and Treasury have not developed agency-wide corrective actions that correspond to the identified root causes of improper payments in their SNAP and EITC programs, respectively, that would better position these agencies to reduce and prevent them. Also, HHS lacks important information to monitor its efforts to address CHIP improper payments because it does not consistently establish planned completion dates for agency-level corrective actions. Additionally, USDA, Education, HHS, and SSA do not have sufficient processes in place to measure the effectiveness of corrective actions to address improper payments for the selected programs we reviewed. Unless agencies develop corrective action plans that correspond to the root causes of improper payments and implement processes to effectively monitor progress and measure their effectiveness, their ability to ensure that their actions will reduce improper payments will be limited. Recommendations for Executive Action We are making the following seven recommendations—one each to Education, HHS, and SSA and two each to USDA and Treasury. The Administrator of FNS should develop and implement a process, documented in policies and procedures, to analyze SNAP state-level root causes to identify potential similarities among the states and develop and implement SNAP agency-level corrective actions, if appropriate, to help address them. (Recommendation 1) The Secretary of Agriculture should revise USDA’s procedures to include processes for monitoring the progress and measuring the effectiveness of improper payment corrective actions. The process for measuring the effectiveness of corrective actions should clearly demonstrate the effect USDA’s corrective actions have on reducing improper payments. (Recommendation 2) The Secretary of Education should revise and document Education’s process for measuring the effectiveness of its corrective actions based on its new statistical estimation methodology for Direct Loan and Pell Grant improper payments. This process should clearly demonstrate the effect Education’s corrective actions have on reducing improper payments. (Recommendation 3) The Secretary of Health and Human Services should document in policies and procedures HHS’s improper payment corrective action plan process. As part of these procedures, HHS should include processes for (1) establishing planned completion dates, (2) monitoring the progress of implementing corrective actions, and (3) measuring the effectiveness of improper payment corrective actions. The process for measuring the effectiveness of corrective actions should clearly demonstrate the effect HHS’s corrective actions have on reducing improper payments. (Recommendation 4) The Secretary of the Treasury should determine whether Treasury’s current improper payment root cause analysis provides sufficiently relevant information that can be used as a basis for proposed corrective actions in reducing EITC improper payments and, if not, update the analysis using more timely data to ensure their reliability for identifying root causes of EITC improper payments. (Recommendation 5) The Secretary of the Treasury should update Treasury’s strategy for addressing the root causes of EITC improper payments to include (1) coordinating with other agencies to identify potential strategies and data sources that may help in determining EITC eligibility and (2) determining whether legislative changes are needed, and developing proposals as appropriate, to help reduce EITC improper payments, such as those related to the inability to authenticate taxpayer eligibility. (Recommendation 6) The Commissioner of SSA should develop and implement a process, documented in policies and procedures, to measure the effectiveness of SSA’s corrective actions for OASDI and SSI improper payments. This process should clearly demonstrate the effect SSA’s corrective actions have on reducing improper payments. (Recommendation 7) Agency Comments and Our Evaluation We provided a draft of this report for comment to OMB, USDA, Education, HHS, Treasury, VA, SSA, and the Council of the Inspectors General on Integrity and Efficiency (CIGIE). We received written comments from five agencies—USDA, Education, HHS, VA, and SSA—which are reproduced in appendixes I through V and summarized below. The Assistant Director of Treasury’s Risk and Control Group also provided comments in an email, which are summarized below. Treasury, HHS, VA, and SSA also provided technical comments, which we incorporated as appropriate. CIGIE and OMB liaisons informed us that CIGIE and OMB had no comments on the report. In its written comments, USDA stated that it generally agrees with our findings and recommendations. USDA stated that FNS has agency-level corrective actions that correspond to the identified root causes and establishes planned completion dates, monitors the progress, and measures the effectiveness of SNAP’s corrective actions. However, USDA officials did not provide documentation or other information supporting such agency-level corrective actions and efforts. Rather, as discussed in our report, FNS provides technical assistance and support to the states to help them improve payment accuracy and requires them to develop state-level corrective actions. Because FNS’s initiatives do not address specific root causes, we continue to believe that USDA does not have agency-level corrective actions that correspond to the identified root causes of SNAP improper payments. In regard to our recommendation to FNS to develop and implement a process to analyze SNAP state-level root causes and take other related actions, FNS stated that it already has an existing process and recommended that we revise our recommendation to indicate that its existing process should be formalized. In our report, we acknowledge that under statutory requirements and program regulations, FNS requires the states to identify the root causes and develop corrective actions that address them. However, USDA did not provide any evidence that FNS analyzes the states’ root causes to identify similarities and develop corrective actions at the agency level. Therefore, we continue to believe that our recommendation to FNS to develop and implement this process is valid to help ensure that it develops corrective actions at the agency level, if appropriate, and to help reduce improper payments within SNAP. In regard to our recommendation to revise USDA’s procedures, USDA stated that it will develop a proposed action plan to revise its procedures for monitoring the progress and measuring the effectiveness of improper payment corrective actions and the revised process will focus on the impact corrective actions have on the corresponding root causes of improper payments. The actions USDA described, if implemented effectively, would address our recommendation. In its written comments, Education neither concurred nor disagreed with our recommendation, stating that FSA will continue to evaluate and refine its processes to measure corrective actions and the effectiveness of these actions. Further, Education stated that FSA’s measurement of corrective action effectiveness and root cause identification will gain additional precision as FSA collects annual improper payment data and builds upon the new baseline of statistically valid improper payment estimates. Education stated that FSA annually measures the overall effectiveness of its corrective action plans collectively against the improper payment reduction targets, rather than measuring the effectiveness of each individual corrective action. However, as discussed in our report, OMB guidance directs agencies to measure the effectiveness of each individual corrective action annually. We continue to believe that our recommendation to Education is valid to help ensure that Education’s corrective actions are effective in reducing improper payments. In its written comments, HHS stated that it does not concur with our recommendation. Specifically, HHS stated that the portion of our recommendation providing that HHS’s process for measuring the effectiveness of corrective actions should clearly demonstrate their impact on the corresponding root causes of improper payments is operationally impossible and not required by OMB guidance. We acknowledge that given the unique circumstances across federal agencies concerning improper payments, OMB guidance provides some flexibility for how agencies are to measure the effectiveness of their corrective actions. However, if agencies’ corrective actions are effective, they should ultimately reduce improper payments. Without being able to demonstrate whether corrective actions are effective in reducing the associated improper payments, agencies will be uncertain if their actions are actually reducing improper payments and may risk continuing ineffective actions. While we acknowledge that OMB guidance does not explicitly require agencies to demonstrate the impact corrective actions have on the corresponding root causes of improper payments, agencies are required to analyze the root causes of improper payments and develop corrective actions to reduce improper payments. As such, we clarified this portion of our recommendation to indicate that HHS’s process should clearly demonstrate the effect corrective actions have on reducing improper payments, to better align with the purpose of corrective action plans. We also made this revision to our recommendations to USDA, Education, and SSA. In its written comments, VA stated that PSAS supported improper payments statutory requirements by completing annual audit reviews, identifying root causes, and developing a national program action plan to reduce improper payments. VA also stated that PSAS reduced improper payments from 39.7 percent in fiscal year 2018 to 2.1 percent in fiscal year 2019 and continues to make improvements through enhanced audit reviews and consultation with PSAS sites. In its written comments, SSA stated that it concurs with our recommendation and will determine the most cost-effective strategies to remediate the underlying causes of payment errors and monitor, measure, and revise the strategies as needed. The actions SSA described, if implemented effectively, would address our recommendation. In emailed comments, the Assistant Director of Treasury’s Risk and Control Group neither concurred nor disagreed with our recommendations. In regard to our recommendation to update its strategy for addressing root causes of EITC improper payments, Treasury stated that each year it indicates in its corrective action plan that IRS will continue to work with Treasury to develop legislative proposals that will improve refundable credit compliance and reduce erroneous payments. Treasury also stated that its fiscal year 2020 budget request included two legislative proposals that may improve refundable credit compliance and reduce erroneous payments and that both proposals have been in the President’s Budget for several years now. We acknowledge these legislative proposals in our report, and note that although Treasury has made certain legislative proposals, it has not made proposals to specifically help address EITC eligibility criteria issues. Additionally, as noted in the report, Treasury’s strategy does not include identifying and proposing additional legislative changes needed to help reduce EITC improper payments. Therefore, we continue to believe that our recommendation to Treasury is valid to help ensure that Treasury addresses EITC eligibility issues, which Treasury identifies as the primary root cause for EITC improper payments. We are sending copies of this report to the appropriate congressional committees, the Director of the Office of Management and Budget, the Secretary of Agriculture, the Secretary of Education, the Secretary of Health and Human Services, the Secretary of the Treasury, the Secretary of Veterans Affairs, the Commissioner of the Social Security Administration, and other interested parties. In addition, this report is available at no charge on the GAO website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-2623 or davisbh@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 VI. Appendix I: Comments from the Department of Agriculture Appendix II: Comments from the Department of Education Appendix III: Comments from the Department of Health and Human Services Appendix IV: Comments from the Department of Veterans Affairs Appendix V: Comments from the Social Security Administration Appendix VI: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Matthew Valenta (Assistant Director), Stephanie Adams (Auditor in Charge), William Beichner, Susanna Carlton, Virginia Chanley, Anthony Clark, Lindsay Hollup, James Kernen, and Diana Lee made key contributions to this report.

Improper payments, estimated at almost $175 billion for fiscal year 2019, are a significant problem in the federal government. IPIA and OMB guidance directs agencies to analyze the root causes of improper payments and develop corrective actions to reduce improper payments. This report examines (1) actions that agencies took to identify root causes of improper payments for selected programs, (2) the extent to which their corrective action plans correspond to identified root causes, and (3) the extent to which they monitored progress and evaluated the effectiveness of corrective actions. GAO analyzed corrective action plans reported in fiscal year 2018 for the following eight programs: Department of Education's Direct Loan and Pell Grant; HHS's Children's Health Insurance Program; SSA's Old Age, Survivors, and Disability Insurance and Supplemental Security Income; Treasury's EITC; USDA's SNAP; and VA's Prosthetic and Sensory Aids Service. GAO selected these programs based, in part, on those programs with at least $1 billion in fiscal year 2018 improper payment estimates. Five out of six agencies used their improper payment estimation results to identify the root causes for the eight programs GAO reviewed. However, the Department of the Treasury (Treasury) used 2006 through 2008 taxpayer data to identify root causes of fiscal year 2018 Earned Income Tax Credit (EITC) improper payments. Without timely data on the true root causes of EITC improper payments, Treasury will lack quality information needed to develop appropriate corrective actions to reduce them. In addition, only one agency we reviewed—the Department of Veterans Affairs (VA)—adhered to relevant Improper Payments Information Act of 2002, as amended (IPIA), requirements and Office of Management and Budget (OMB) guidance. The Department of Agriculture (USDA) and Treasury did not develop agency corrective action plans corresponding to the identified root causes of improper payments for the Supplemental Nutrition Assistance Program (SNAP) and EITC, respectively. In addition, the remaining three agencies did not have processes in place to either establish planned completion dates, monitor progress, or measure the effectiveness of their corrective actions in reducing improper payments. Unless agencies develop corrective action plans that correspond to root causes of improper payments and implement processes to monitor progress and measure their effectiveness, their ability to ensure that their efforts will reduce improper payments will be limited

GAO_GAO-19-691

Background FAR Part 15 describes negotiated contracting, which includes the use of several competitive source selection processes. The processes are associated with the best value continuum, which includes the LPTA process on one end and the trade-off process on the other (see figure 1). Federal agencies may elect to use the LPTA process where the requirement is clearly defined and the risk of unsuccessful contract performance is minimal. In such cases, agencies can determine that cost or price should play a dominant role in the source selection. When using the LPTA process, the agency specifies the evaluation factors that establish the requirements of acceptability in the solicitation. Firms submit their proposals and the agency determines which of the proposals meet those requirements. No trade-offs between cost or price and non-cost factors (for example, technical capabilities or past performance) are permitted. Non-cost factors are rated on an acceptable or unacceptable basis. The award is made based on the lowest priced, technically acceptable proposal submitted to the government. In contrast, agencies may elect to use the trade-off process in acquisitions where the requirement is less definitive, more development work is required, or the acquisition has a greater performance risk. In these instances, non-cost factors may play a dominant role in the source selection process. Trade-offs between price and non-cost factors allow agencies to accept other than the lowest priced proposal. The FAR requires the solicitation to state whether all evaluation factors other than cost or price, when combined, are significantly more important than, approximately equal to, or significantly less important than cost or price. Contracting officials have broad discretion in the selection of the evaluation criteria that will be used in an acquisition. When one is required, a written acquisition plan generally should include a description of the acquisition’s source selection process and the relationship of the evaluation factors to the acquisition objectives. The FAR does not explicitly require contracting officials to document the reasons why the specific source selection process was chosen. The defense and civilian provisions required the DFARS and FAR, respectively, be revised to require that the LPTA process only be used if certain criteria are met, as described in table 1. The defense and civilian provisions also required that the use of the LPTA process be avoided, to the maximum extent practicable, in procurements that are predominantly for the products and services identified in table 2. The FAR and DFARS Rulemaking Process The process for revising the FAR and DFARS is governed by statute, which generally requires agencies to issue a proposed rule in the Federal Register. Agencies are also required to provide at least a 30-day public comment period following publication of the proposed rule. Figure 2 illustrates the basic process that is generally used to revise the FAR and the DFARS. Recent Reports on DOD’s Use of the LPTA Process We have issued two reports in response to the defense provisions requiring us to review DOD’s use of the LPTA process. In November 2017, we found that the Army, Navy, and Air Force used the LPTA process for information technology and other services in 9 out of 133 instances when awarding contracts valued at $10 million or more in the first half of fiscal year 2017. Contracting officials stated that the LPTA process was used in these instances, in part, because the requirements were well-defined, noncomplex, or recurring. We also found that contracting officials’ use of the LPTA process was generally consistent with the criteria listed in the defense provisions. In November 2018, we estimated that about 26 percent of DOD’s contracts and orders valued at $5 million or more in fiscal year 2017 were competitively awarded using the LPTA process. We found that DOD used the LPTA process to buy equipment, fuel, information technology services, and construction services, among other things. We also found that contracting officials used the LPTA process for reasons consistent with the criteria in the defense provisions. Specifically, contracting officials associated with the 14 contracts and orders we selected used the LPTA process, in part, because they determined there was no trade-off available or determined that DOD would not derive any benefit from paying a premium for offers that exceeded the minimum capabilities. Finally, we found that some contracting officials were confused about how to apply two of the criteria included in the defense provisions. Specifically, contracting officials were confused regarding how to assess life cycle costs associated with their procurements (shown as criterion 6 in table 1) or whether the products and services they were acquiring would be considered expendable in nature (criterion 8). Absent clarification on how to consider these two criteria, we found there was potential for increased risk that DOD contracting officials would not consistently apply the criteria of the defense provisions. Accordingly, we recommended that DOD address how contracting officials should apply these two criteria when using the LPTA process. DOD concurred with our recommendations, and plans to address them by issuing guidance concurrent with publication of the final rule at the end of fiscal year 2019. Status of Revisions to Regulations Addressing Use of the LPTA Process Defense and Civilian Agencies’ Revisions to the DFARS and the FAR In December 2018, DOD issued a proposed DFARS rule for public comment to address the defense provisions for using the LPTA process. The December 2018 proposed rule reflected the criteria and limitations for using the LPTA process set forth in the defense provisions, and provided further clarification that these provisions were applicable to both contracts and orders. The public comment period ended on February 4, 2019, during which time the Defense Acquisition Regulations Council received 15 comments. In commenting on the proposed rule, industry representatives generally indicated their support for the proposed rule. On June 19, 2019, the Council agreed to move forward with the process for issuing a final rule revising the DFARS. Defense Pricing and Contracting officials stated that DOD expects to finalize the rule by the end of fiscal year 2019. The time required to develop and finalize the revisions to the DFARS has been longer than provided for under the NDAA for fiscal year 2017, which required the DFARS be revised within 120 days after enactment, which would have been in April 2017. In July 2019, we found that it can take a year or longer to issue a final DFARS rule. For this DFARS case, a Defense Pricing and Contracting official cited several reasons why the revisions have been delayed, including the need to address LPTA-related provisions in two separate NDAAs and the need to resolve a backlog of DFARS changes. In addition to ongoing efforts to update DFARS regulations, DOD officials plan to update the DFARS Procedures, Guidance and Information to provide defense contracting officers with supplemental guidance on applying the new criteria for using the LPTA process. A Defense Pricing and Contracting official stated that this update would be finalized by the end of fiscal year 2019 to coincide with the issuance of the final DFARS rule. The FAR Council has also initiated efforts to incorporate the civilian provisions for using the LPTA process into the FAR. The NDAA for Fiscal Year 2019 required that the FAR be revised to incorporate the civilian provisions within 120 days after enactment, which would have been in December 2018. Officials from the Office of Federal Procurement Policy told us, however, that it generally takes much longer than 120 days to revise the FAR. According to an analysis provided by DOD, it takes 483 days on average to issue a FAR rule. The FAR case to implement the civilian LPTA provisions was initiated in August 2018—the same month the NDAA for Fiscal Year 2019 was enacted. Office of Federal Procurement Policy officials stated that a proposed FAR rule is scheduled to be published in the Federal Register in September 2019. The public comment period for the proposed rule is scheduled to end in November 2019. Figure 3 shows when the defense and civilian provisions were enacted, when the rules were required to be implemented, and some of the efforts associated with revising both the DFARS and the FAR. Current Agency Guidance for Using LPTA Of the six agencies we reviewed, we found that DOD and DHS had existing source selection guidance that already reflected some of the criteria for using the LPTA process identified in the defense and civilian provisions. The other four civilian agencies did not have source selection guidance specific to using the LPTA process. Table 3 shows the status of selected agencies’ existing guidance related to the LPTA process. We found the following: DOD’s March 2016 Source Selection Procedures generally includes five of the eight criteria for using the LPTA process. A Defense Pricing and Contracting official stated that this guidance could be updated after the DFARS rule is implemented and the Procedures, Guidance, and Information resource is updated. The DHS September 2013 Source Selection Guide generally includes the first four of the six criteria for using the LPTA process. DHS officials stated that they plan to update their guidance after the FAR is amended to reflect the criteria and limitations for using LPTA. Acquisition policy officials from VA, GSA, USDA, and HHS stated that they do not have agency-specific guidance for using the LPTA process beyond what is currently provided for under the FAR. These officials stated that they were waiting for regulations to be finalized before determining if there is a need to develop any new guidance. DOD Used the LPTA Process More Frequently Than Selected Civilian Agencies in Fiscal Year 2018 Based on the results of our generalizable samples, we estimate that the selected DOD components used the LPTA process for about 25 percent of competitive contracts and orders valued at $5 million or more in fiscal year 2018, compared to about 7 percent of such contracts and orders at selected civilian agencies, as shown in Table 4. Our findings regarding how often DOD uses the LPTA process are consistent with what we found in our prior work. In November 2018, for example, we reported that Army, Navy, Air Force, and DLA awarded about 26 percent of contracts and orders using the LPTA process in fiscal year 2017. In November 2017, we reported that officials told us the LPTA process was used in instances where the requirements were well- defined, noncomplex, or recurring. This is the first year we were required to evaluate civilian agencies’ use of the LPTA process. Civilian agency officials we interviewed provided various perspectives on the extent to which their agency used the LPTA process. HHS officials told us that their acquisitions are generally complex, so the LPTA process is not often deemed the appropriate mechanism for determining best value. USDA officials told us that they have few acquisitions valued at more than $5 million, and that those acquisitions are likely to have more complex requirements. In such cases, the officials told us, technical and performance considerations generally would be more important than price factors. In analyzing FPDS-NG data, we found that 1 percent of USDA’s fiscal year 2018 contracts and orders were valued at more than $5 million. GSA officials told us their agency often procures services where it is beneficial for industry to propose solutions to a stated need, rather than GSA dictating the solution, such as professional services or information technology systems for a secure network solution. In these cases, officials said they would not have the technical specifications that an LPTA process would require. Officials from DHS and VA stated that they do not centrally track the source selection method used and they do not have sufficient information to say why their agencies use LPTA less frequently than other source selection methods. Within the sample of contracts we reviewed, we found DOD and the five selected civilian agencies bought a variety of products and services using the LPTA process in fiscal year 2018 (see table 5). We found that four of these DOD contracts and orders and one civilian agency order were for services that could be considered within the categories for which the defense and civilian provisions place limitations on, but do not prohibit, use of the LPTA process. In November 2018, we found that DOD contracting officers generally justified the use of the LPTA process for products and services in these categories. As described earlier in this report, the DFARS and FAR are in the process of being revised and do not currently address the limitations on the use of LPTA for these products and services. Agency Comments We provided a draft of this report to OFPP, DOD, VA, HHS, GSA, DHS, and USDA for review and comment. OFPP, DOD, GSA, DHS and HHS provided technical comments, which we incorporated as appropriate. VA and USDA told us that they had no comments on the draft report. We are sending copies of this report to the appropriate congressional committees, the Director of the Office of Management and Budget, the Secretary of Defense, the Administrator of General Services, the Secretary of Veterans Affairs, the Secretary of Homeland Security, the Secretary of Agriculture, and the Secretary of Health and Human Services. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or dinapolit@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 II. Appendix I: Objectives, Scope, and Methodology Section 813 of the National Defense Authorization Act (NDAA) for Fiscal Year 2017, as amended, included a provision that we report on the number of instances where Department of Defense (DOD) used the lowest price technically acceptable (LPTA) process for contracts exceeding $5 million, as well as provide an explanation of how acquisition officials considered the new criteria in making a determination to use the LPTA process. We have previously issued two reports in response to this provision. Subsequently, Section 880 of the NDAA for Fiscal Year 2019 included a provision that we report on the number of instances where civilian agencies used the LPTA process for contracts exceeding $5 million, as well as provide an explanation of how acquisition officials considered the six criteria in making a determination to use the LPTA process. This report, which addresses both provisions, describes (1) the status of regulatory changes required by the defense and civilian provisions for using the LPTA process and (2) the extent to which DOD and selected civilian agencies used the LPTA process to competitively award contracts and orders valued at $5 million or more in fiscal year 2018, and what they bought using this process. To address both objectives and select the DOD components and civilian agencies included in our scope, we used data from the Federal Procurement Data System-Next Generation (FPDS-NG) to identify the population of DOD and civilian agency contracts and orders that were reported as competitively awarded and valued at $5 million or more in fiscal year 2018. For DOD, we focused our review on the top four DOD components—Army, Navy, Air Force, and Defense Logistics Agency (DLA)—because they accounted for about 5,400—or about 88 percent— of all DOD contracts and orders valued at $5 million or more that were reported as competitively awarded in fiscal year 2018. Similarly, we focused our analysis on the top five civilian agencies—the Departments of Veterans Affairs (VA), Health and Human Services (HHS), Homeland Security (DHS), and Agriculture (USDA) and the General Services Administration (GSA)—which accounted for about 3,000—or about 66 percent—of all civilian agency contracts and orders valued at $5 million or more that were reported as competitively awarded in fiscal year 2018. To describe the status of regulatory changes governing the use of the LPTA process, we obtained information on agency officials’ efforts to amend the Defense Federal Acquisition Regulation Supplement (DFARS) and the Federal Acquisition Regulation (FAR). To do this, we met with DOD and Office of Federal Procurement Policy officials responsible for overseeing the regulatory changes. We also reviewed DOD’s December 2018 proposed rule to revise the DFARS and the 15 public comments DOD received on the proposed rule. Because revisions to the FAR and DFARS have not been finalized, regulations do not yet require or provide guidance to acquisition officials on how to consider the new criteria. Therefore, we also analyzed agency guidance and interviewed acquisition and contracting policy officials at DOD and each of the selected civilian agencies to determine whether agencies had existing guidance that addressed the defense and civilian provisions, in whole or in part. Specifically, we reviewed agency-specific source selection guidance from DOD, DHS, and VA. GSA, USDA, and HHS do not have source selection guidance that specifically addresses the LPTA process. According to officials, DOD and the selected civilian agencies do not maintain centralized data on whether the LPTA process is used to award contracts and orders. Consequently, to describe the extent to which DOD and civilian agencies used the LPTA process in competitively awarded contracts and orders valued at $5 million or more in fiscal year 2018, we used FPDS-NG to select two generalizable random samples of contracts and orders to estimate the use of LPTA by the DOD components and the civilian agencies within our scope. This resulted in samples of 102 contracts and orders for the four selected DOD components and 100 for the five selected civilian agencies. We removed five contracts and orders from our DOD sample: two contracts and one order because they were incorrectly reported by the agency in FPDS-NG as having been competitively awarded, and two contracts because they were classified. We removed three contracts and orders from our civilian agency sample: two orders because they were incorrectly reported by the agency in FPDS-NG as having been competitively awarded, and one contract because it was incorrectly reported as having an estimated value of more than $5 million. After removing these contracts and orders, our generalizable sample consisted of 97 DOD contracts and orders and 97 civilian agency contracts and orders. For each contract and order in our sample, we requested that the selected agencies identify whether the LPTA process was used. We independently verified agency responses by reviewing the solicitations for each of the contracts and orders within our two samples. We also verified relevant FPDS-NG data on estimated value and competition using agency-provided documentation for the contracts and orders we reviewed. Based on this, we determined these data were sufficiently reliable for us to estimate the percentage of contracts and orders valued at $5 million or more that the four components within DOD and the five selected civilian agencies competitively awarded in fiscal year 2018 using the LPTA process. We also used FPDS-NG product and service codes to identify whether the LPTA contracts and orders in our sample could be considered to be within one of the categories that the defense and civilian provisions direct agencies to avoid use of the LPTA process to the maximum extent practicable. The regulatory changes required by the defense and civilian provisions are not yet in place, and the defense and civilian provisions do not explicitly prohibit use of the LPTA process to acquire these categories of products and services. Therefore, we did not evaluate the reasons why an agency may have used the LPTA process in these instances. The findings based on our review of the product and services codes for the LPTA contracts and orders in our sample are not generalizable. We conducted this performance audit from February 2019 to September 2019 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. Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Justin Jaynes (Assistant Director), Heather B. Miller (Analyst-in-Charge), Sarah Cantatore, Matthew T. Crosby, Lorraine Ettaro, Lori Fields, Stephanie Gustafson, Julia Kennon, Sarah Martin, Alyssa Weir, and Khristi Wilkins made key contributions to this report.

When awarding a contract competitively, agencies can evaluate proposals using a best value, LPTA process that assesses which firm offered the lowest priced technically acceptable proposal. Section 813 of the NDAA for Fiscal Year 2017, as amended, included limitations on DOD's use of the LPTA process and required DOD to revise its acquisition regulation to reflect new criteria for use of the LPTA process. Section 880 of the NDAA for Fiscal Year 2019 required the FAR to be updated with similar requirements for civilian agencies. Sections 813 and 880 also included provisions for GAO to report on the number of instances where the LPTA process was used for contracts exceeding $5 million. This report describes (1) the status of regulatory changes governing the use of the LPTA process; and (2) the extent to which DOD and selected civilian agencies used the LPTA process to competitively award contracts and orders valued over $5 million in fiscal year 2018. GAO interviewed DOD and civilian agency officials involved in revising the DFARS and the FAR. GAO used data from the Federal Procurement Data System-Next Generation to select the top four DOD components and the top five civilian agencies based on the total number of contracts and orders valued at $5 million or more and competitively awarded in fiscal year 2018. Using this data, GAO developed generalizable samples to estimate these components' and agencies' use of the LPTA process in fiscal year 2018. Defense and civilian agencies are in the process of revising acquisition regulations to include criteria and limitations for using the lowest price technically acceptable (LPTA) process, as established under the National Defense Authorization Acts (NDAA) for Fiscal Years 2017 and 2019. While the Acts required revised regulations to be in place within 120 days of enactment, officials involved in revising the regulations stated that this process typically takes at least a year. The Department of Defense (DOD) issued a proposed Defense Federal Acquisition Regulation Supplement (DFARS) rule in December 2018 and expects the rule to be finalized by the end of fiscal year 2019. Officials responsible for revising the Federal Acquisition Regulation (FAR) have drafted a proposed FAR rule. The proposed FAR rule is scheduled to be published in the Federal Register in September 2019. See the figure below for the time frames and actions taken to update the DFARS and the FAR. Based on the results of GAO's generalizable samples, DOD used the LPTA process more frequently than selected civilian agencies in fiscal year 2018 for competitive contracts and orders valued at $5 million or more (see table).

GAO_GAO-20-146

Background Since the early 1980s, the Air Force has been working to modernize and consolidate its space command and control systems and improve its space situational awareness. Effective command and control systems are important because DOD space capabilities are globally distributed and operated from geographically diverse locations. With new threats against space assets, the ability to quickly respond or take action can mean the difference between mission success and failure. Space situational awareness is the current and predictive knowledge and characterization of space objects and the operational environment upon which space operations depend. Good space situational awareness data are the foundation of command and control systems because the data are critical for planning, operating, and protecting space assets and informing government and military operations. Past Command and Control Efforts The Air Force’s last three space command and control programs over more than three decades have ended significantly over budget and schedule, and key capabilities have gone undelivered. Those programs were the Cheyenne Mountain Upgrade, the Combatant Commanders’ Integrated Command and Control System, and the Joint Space Operations Center Mission System. Some capabilities were deferred from one program to the next, making the true cost growth in each program significantly higher when compared to original program content. This deferral was due in part to the complicated nature of the planned work. Enabling a single system to command and control numerous assets in space and on the ground at multiple levels of information classification is a technically challenging task. In addition, as discussed below, we found that the Air Force made optimistic cost and schedule estimates for these programs, and thus did not assign adequate resources to their development. Cheyenne Mountain Upgrade Begun in 1981, the Cheyenne Mountain Upgrade was intended to modernize systems that provide critical strategic surveillance and attack warning and assessment information. We issued 11 reports on the Cheyenne Mountain Upgrade program between 1988 and 1994. In 1991, we found that the program planned to complete only a portion of its requirements in an attempt to stay within budget and schedule constraints. We also found that the Air Force had adopted a strategy of deferring some requirements on the optimistic assumption that these requirements could be achieved during later stages of system development. We concluded that while such deferrals may have permitted the Air Force to meet revised short-term goals, they also masked the magnitude of problems the program experienced as it moved forward. We also found that DOD had not formally evaluated the performance risks related to deferring requirements and concluded that the strategy of deferral significantly raised the risk that system development would be more costly and take longer. DOD declared the program operational in 1998; however, some critical capabilities were not delivered. At that time, the program was nearly $1 billion over budget and 11 years late. That same year, DOD determined that some of the program’s components were not well integrated and would be unresponsive to future mission needs. Combatant Commanders’ Integrated Command and Control System DOD initiated the Combatant Commanders’ Integrated Command and Control System program in 2000 to modernize and integrate the Cheyenne Mountain Upgrade computer systems and to replace a space situational awareness data computer system called the Space Defense Operations Center (SPADOC). At that time, the SPADOC system was significantly overtaxed and in need of replacement by a system that could handle larger volumes of data. In 2006, we found that Combatant Commanders’ Integrated Command and Control System program costs had increased by approximately $240 million, 51 percent over initial estimates, and the program was at least 3 years behind schedule. In addition, we found that that some capabilities had been deferred indefinitely, resulting in increased risks to performing future operations. Further, we found that the Air Force did not effectively assess the appropriateness of the program’s requirements prior to initiating the program, leading to significant additions, deletions, and modifications to the program’s initial requirements. Consequently—similar to what transpired within the Cheyenne Mountain Upgrade program—significant amounts of work were deferred to address the cost increases associated with requirements changes. Ultimately, the Combatant Commanders’ Integrated Command and Control System program was not able to successfully replace SPADOC. Joint Space Operations Center Mission System Started in 2009, the Joint Space Operations Center Mission System (JMS) was the Air Force’s most recent effort to meet command and control capability and space situational awareness data needs and replace the SPADOC system. JMS was a software-intensive system and was supposed to be delivered in three increments. Increment 1 was to provide the foundational structure for the overall program. Increment 2 was to deliver numerous operational capabilities to users, including replacing SPADOC by the end of fiscal year 2014 with the ability to automatically determine if objects in space were likely to collide (called conjunction assessments), which was a key performance parameter for the program. Increment 3 was to provide additional command and control capabilities and the ability to incorporate data from highly classified special access programs. Of the three planned increments, Increment 1 is the only one that is fully operational today. JMS Increment 2 encountered significant challenges during development, and in 2016 the program experienced a critical change because of significant schedule delays and cost increases. Specifically, JMS Increment 2 planned to delay delivery by more than 1 year, in turn increasing total program costs by over 25 percent. According to the August 2016 JMS Critical Change Report, which the program office submitted to Congress in September 2016 as a result of the critical change, several issues contributed to Increment 2’s challenges. These included an overly aggressive schedule, inadequate staffing, underestimating the amount of work required to integrate various pieces of the system that were developed by different groups, and numerous concurrent development efforts. An independent program assessment team comprised of military, intelligence, and contractor staff determined that the JMS program had underestimated the complexity of developing the system. Further, the program reported that its organizational structure proved problematic. For example, the program reported that program- related contracts were awarded and administered outside the program office, which limited program flexibility and support and hampered effective oversight. As a result of the critical change, the program re- estimated its costs, established new schedule goals, and deferred a number of capabilities and requirements to Increment 3. Even after these changes, JMS Increment 2 was not successful at delivering its planned capabilities. Air Force operational testing in 2018 revealed significant issues with JMS Increment 2 performance. The Air Force’s test team determined that Increment 2 was not suitable for operations, as it was unable to provide conjunction assessments or maintain the catalog of space objects, another key performance parameter. In the wake of these findings and the numerous issues found in testing, the Air Force stopped further development on JMS Increment 2. When development ended, JMS was almost 3 years behind schedule and $139 million (42 percent) over budget. Air Force leadership placed the JMS Increment 2 program in sustainment and transferred three of the 12 planned Increment 2 capabilities into operations; the remaining nine capabilities were to be used for planning and analytic purposes only, as they were not reliable enough for operational use. Key requirements from Increment 2, including automated conjunction assessments and the ability to maintain a high-accuracy space catalog, as well as all of the requirements from Increment 3, were deferred to a subsequent effort, called the Space C2 program. SPADOC Replacement and Space C2 Because JMS was unable to replace SPADOC, the system is still in use today. Since 2000, the Air Force has been addressing unique space surveillance requirements for follow-on systems to SPADOC. Air Force officials we spoke with stated that the system’s ability to continue operations is a growing concern. While work is underway to move SPADOC onto a more modernized platform and infrastructure, the Air Force has not established a schedule for that effort. In the meantime, Air Force officials told us that large amounts of data are going unprocessed as the volume of available sensor data today is greater than ever before—and is expected to increase exponentially in the next year as new DOD sensors come online. The Space C2 program is the Air Force’s latest software-intensive program to develop capabilities to anticipate and respond to emerging threats in space and ensure the uninterrupted availability of capabilities to the warfighter. SPADOC is expected to be retired as Space C2 capabilities become operational. The Air Force expects to spend between $72 million and $108 million per year on the Space C2 program, which is managed by the Air Force’s Space and Missile Systems Center, through fiscal year 2024. The Air Force’s Space C2 Program Is in Its Early Planning Stages and Is Taking a New Approach to Software Development While it is still early in the planning and development stages, the Air Force’s Space C2 program office expects to deliver a consolidated space command and control system over the next few years using a new system design. The program also plans to use a modernized, iterative software development process called Agile development to more quickly and responsively provide capability to users. According to Air Force officials, this development approach is relatively new to DOD programs. Therefore, the Space C2 program and DOD officials are working to determine the appropriate level of detail needed for the program’s planning documents as well as the best way to provide oversight of a non-traditional development approach. The Space C2 Program Plans to Consolidate Capabilities Using a New System Design The Space C2 program is intended to consolidate operational level command and control capabilities for DOD space assets into an integrated system, allowing operators and decision makers to have a single point of access to command and control space assets around the globe in a timely manner. A consolidated space command and control capability will: allow operators to comprehensively identify and monitor threats to identify possible courses of action to mitigate or eliminate threats, communicate courses of action to decision makers, and direct action to respond to threats. A consolidated space command and control capability is necessary, according to Air Force and DOD officials we met with, because the space domain has transitioned from a benign environment to one that—like ground, sea, and air domains—is contested by foreign adversaries. According to these officials, DOD needs the ability to respond to the increased threats to U.S. space assets in near real-time. Consequently, the Air Force is planning for Space C2 program capabilities to be significantly more automated than in the past, requiring high-quality software development and architecture planning. As shown in figure 1, the Space C2 program itself will consist of multiple layers. Program officials explained that the foundational layer is the computing infrastructure, which must be secure from vulnerabilities and have adequate processing power to accommodate the complexity of the system. On this infrastructure will run the software platform, which forms the backbone of the operating system. The Space C2 program plans to procure the platform commercially. The software platform will contain standards that developers will need to comply with to create applications that will work on the platform. Some applications may be targeted to a broad number of users, and some may be more niche capabilities for a particular group of users. Space C2 program officials told us they believe this structure will allow them to be flexible in meeting multiple user needs more responsively than has been possible in past DOD programs. Users include, for example, space system operators responsible for predicting and avoiding space object collisions, and other operators responsible for responding to conflicts in space. The program also expects applications from a variety of developers, both commercial and government, to run on the platform, thus presenting opportunities for companies that do not regularly do business with DOD to participate in the program. The work being done for the Space C2 program is spread out among multiple Air Force groups. For example, the Air Force Research Laboratory has been developing applications for the Space C2 program both internally and with commercial partners since 2016. The Laboratory is also working on some battlespace awareness capabilities that may eventually run on the Space C2 program’s platform. Additionally, officials from the Air Force Rapid Capabilities Office stated that they have been working on common interface standards for applications, and this work will feed into the Space C2 program. As the Enterprise Manager, the Space C2 program manager is responsible for integrating all of the development work selected for use in the Space C2 program, irrespective of its origin. A principal component of the Space C2 program is a data repository that will be populated with data from a wide variety of commercial, civil, military, and intelligence space sensors. Eventually the program plans for operators using the Space C2 program’s platform and applications to be able to retrieve data from the data repository. The data will be electronically tagged with its appropriate classification level and will be accessible to users according to their individual security clearances. The overall design of the Space C2 program is for data to be gathered from sensors, placed into the data repository, and then be available for various applications to process and provide timely information to space operators and commanders on threats to space assets and anomalies in the space environment. Operators and commanders will then be able to promptly direct actions, such as tasking sensors to collect additional data or respond to threats. Figure 2 shows the proposed construct of the Space C2 program, including the various actions that can be taken in response to the data collected by the sensors. The Air Force Plans to Use an Agile Software Development Approach for Space C2 Development The Space C2 program is planning to use an approach new to DOD in terms of software development, known as Agile. Agile development is a flexible, iterative way of developing software that delivers working capabilities to users earlier than the traditional, incremental DOD software development processes, known as the waterfall approach. Agile practices integrate planning, design, development, and testing into an iterative life cycle to deliver software early and often, such as every 60-90 days. The frequent iterations of Agile development are intended to effectively measure progress, reduce technical and programmatic risk, and be responsive to feedback from stakeholders and users. This is different from the way DOD has developed software in the past, in which requirements were solidified in advance of development and the software was delivered as a single completed program at the end of the development cycle—with no continual involvement or feedback from users or ability to modify requirements. Traditional software development mirrored the development of a hardware system. We have previously reported on past DOD software programs that experienced challenges due, in part, to that traditional development approach. The differences between the two approaches are illustrated in figure 3. The Space C2 program is one of the first DOD software-intensive programs to move away from the traditional approach and into the more modernized Agile development methodology. Program officials told us that many of the problems with JMS’s development stemmed from its more traditional approach, and that with the Space C2 program they wanted to avoid circumstances that did not lead to program success. Considering that past software development problems were caused, at least in part, by the traditional method of software development, utilizing a different approach could be a positive step. However, the current DOD acquisition instruction does not include guidance for Agile software programs. According to DOD officials, new software guidance is in development, and this guidance is expected to offer pathways for developing Agile programs. DOD has also developed a draft template to assist Agile programs with developing their acquisition strategies, though the template and associated software guidance are in the early stages of development. In the meantime, however, Space C2 program officials confirmed that they are currently operating without specific software acquisition guidance. Space C2 officials also clarified that while official Agile software acquisition guidance has not yet been formally published, the program office has been actively engaged with the Office of the Under Secretary of Defense for Acquisition and Sustainment on refining draft policy and guidance. The program office noted that its program activities over the past year have been informed by and are consistent with this draft guidance. The Space C2 program has submitted preliminary planning documents to the Under Secretary of Defense for Acquisition and Sustainment for approval. While officials in the Under Secretary’s office expect these documents to be modified and expanded upon in late 2019, the Under Secretary gave the program approval to begin its development under an Agile process, signifying her support for using alternative approaches. In addition, Air Force officials told us that the Commander of Air Force Space Command has requested frequent briefings on the program’s development process, and while he does not have approval authority over the program, he is monitoring the program closely. Plans show that the program is conducting 90-day development iterations with the goal of providing working software at the end of each cycle. As of August 2019, the program had completed three program development iterations, and reported delivering capabilities which included: expanding the commercial data available in the data repository; tasking various sensors; and providing a tool for visualization and analytics. The Air Force noted that these capabilities were deployed in a relatively short time; however, most capabilities delivered so far are considered to be available for use “at your own risk,” since they have not yet been fully approved for use in operations. Though the Air Force has not yet published a time frame for certifying these capabilities for operational use, the new development approach is underway and delivering some early capabilities. DOD officials noted that the foundational elements of the Space C2 system, including the infrastructure and software platform, should be completed prior to significant application development; however, at this early stage of the program, the schedule indicating the time frame in which these elements will be completed appears to be still in development. DOD Is Establishing Agile Software Development Expertise For government programs, some level of insight and oversight is essential when using public funds to develop a system. According to DOD officials, DOD is embracing Agile development because software can be delivered quickly and can be more responsive to user needs. However, according to GAO’s upcoming guide for assessing Agile development programs, known as the Agile Assessment Guide, sound engineering principles are still beneficial when employing this approach. For example, continuous attention to technical excellence and good design requires the developers to consider security requirements throughout development. This is particularly true with complex programs that process sensitive data with complex security requirements. In past work, we have found that teams overlooking security requirements may end up developing systems that do not comply with current federal requirements (for example cybersecurity requirements for information technology programs), resulting in the software not becoming operational until these components are addressed. In addition, the Agile Assessment Guide notes that transitioning to Agile software development can be challenging because Agile methods require organizations to do more than implement new tools, practices, or processes. Agile requires a re-evaluation of existing organizational structures, planning practices, business and program governance, and business measures, in addition to technical practices and tools. However, Agile does not mean eliminating the need for documentation, planning, oversight, architecture, risk analysis, or baseline schedule, for example. Leading practices for Agile software development—as described in GAO’s upcoming Agile Assessment Guide—state that, among other things, programs should have the following characteristics: a product owner who manages the requirements prioritization, communicates operational concepts, and provides continual feedback to the development team; staff who are appropriately trained in Agile methods; management that has established an Agile supportive environment; a program strategy that reflects the mission, architectural, safety- critical components, and dependencies; organization’s acquisition policy and guidance that require the contract type and the acquisition strategy to be aligned to support Agile implementation; an architecture that is planned upfront to enable flexibility and to provide support to Agile methods; and mission goals that drive the prioritization of the most advantageous requirements (e.g., security and privacy) that are well understood and reviewed throughout development. Recognizing the need to change traditional processes to accommodate more iterative software development, both the Air Force and Under Secretary of Defense for Acquisition and Sustainment have created software advisor positions. The Air Force Chief Software Officer and the Special Assistant for Software Acquisition are working to improve and modernize the way DOD acquires software. In addition, DOD is looking into how to use industry practices to modernize the way it develops software. For example, the Office of the Secretary of Defense has a Development Security Operations (DevSecOps) pathfinder program for software, which helps programs define and develop a technical digital roadmap and leverages industry and Office of the Secretary of Defense expertise in developing appropriate infrastructure for software programs. The DevSecOps concept emphasizes rapid prototyping, security, and continuous integration and delivery of software products. In a May 2019 Acquisition Decision Memorandum, the Under Secretary of Defense for Acquisition and Sustainment directed the Space C2 program to become a pathfinder program. This is a positive step, because it should increase input into the program’s acquisition planning by the Office of the Secretary of Defense software development experts. The Office of the Secretary of Defense has other groups that draw on private-sector software development expertise to help DOD programs, including the Defense Digital Service and the Defense Innovation Board. These groups’ missions include improving DOD’s technology and innovation, and the groups can be valuable DOD resources for helping the Space C2 program develop its plans and Agile processes. The Defense Innovation Board conducted a review of some of the Space C2 program’s software acquisition plans in December 2018. According to the Office of the Secretary of Defense officials we spoke with, this informal review was beneficial and resulted in real-time feedback on the approach the program was taking, as well as suggestions for areas to focus on. In the May 2019 memorandum, the Under Secretary of Defense for Acquisition and Sustainment noted that in October 2019 she will determine if an independent technical assessment of the Space C2 program is necessary. Considering the stated benefits of the prior Defense Innovation Board review of the Space C2 program, as well as the fact that using Agile processes for a DOD program is relatively new and includes many unknowns, independent reviews could help ensure the program is on a successful path. As the Office of the Secretary of Defense and the Air Force have made an effort to increase in-house Agile software development expertise, programs like the Space C2 program—especially in light of its early stage of development—could benefit from periodic attention from the experts at its disposal, including input from independent, external reviews to help ensure the necessary software development steps are taken to set programs up for success. DOD programs following traditional acquisition processes conduct internal reviews at major milestones, and GAO best practices for knowledge-based acquisitions also include conducting independent program reviews at these milestones. The draft GAO Agile Assessment Guide notes that while traditional DOD program milestone reviews are not used for Agile programs, Agile programs rely on other review methods such as stakeholder demonstrations and retrospective program reviews during each iteration of work. In addition, the GAO Schedule Assessment Guide, which identifies best practices for managing a program’s schedule, states that programs should conduct periodic reevaluations of risks, and that an independent view in this is valuable. Such reviews offer greater objectivity, as the reviewers are not responsible for the activities being evaluated, and programs benefit from the wide variety of expertise and experience represented by the external review team. In addition, in many cases, having these external reviews periodically can prove useful. The Air Force’s Space C2 Program Faces Challenges in Multiple Areas and Plans Are Underway to Address Some, but Not All of Them The Space C2 program faces a number of management, technical, and workforce challenges. Some of these challenges may ultimately be overcome by time and experience, and the Air Force has efforts underway to mitigate others in the near-term. But it is too early to determine whether these efforts will be sufficient to achieve program success. Management Challenges The Space C2 program faces several management challenges. The Air Force has been working on developing various parts of the Space C2 program since 2016, but as previously noted, the program is working from a draft acquisition strategy and does not yet have an overall program architecture. These plans are important for providing direction for a program and facilitating effective oversight by establishing a business case for the effort. A business case establishes that the program is necessary and that it can be developed with the resources available, and typically includes: a requirements document, an acquisition strategy, sound cost estimates based on independent assessments, and a realistic assessment of risks, including those relating to technology and schedule. In addition, according to Air Force officials, the Space C2 Enterprise Manager has management responsibility—but not authority—over multiple development efforts included in the Space C2 enterprise. For example, technology maturation and risk reduction activities are divided across three program offices, managed by two program executive officers, and reliant upon multiple sources of information. This division of work is being done in part because the various organizations have areas of expertise that the program was hoping to leverage. However, such distribution of activities among many organizations can result in synchronization and coordination challenges. JMS’s development was hampered by similarly-split responsibilities for development contracts for various efforts. Because space is becoming an increasingly contested domain, DOD has noted that its ability to effectively respond to space threats has increased the importance of focused leadership in national security space, to include Space C2. See table 1 for additional details of management challenges facing the Space C2 program. According to officials from the Space C2 program and the Office of the Secretary of Defense, the Space C2 program was allowed to begin development work without an acquisition strategy, due to the program’s urgency. In May 2019, the Under Secretary of Defense for Acquisition and Sustainment tasked the Space C2 program office with revising its preliminary acquisition strategy to be consistent with DOD’s draft template for software acquisition. DOD’s draft template contains specific elements for ongoing planning and evaluation that are to be included in DOD software acquisition strategies moving forward, including acquisition and contracting approach; program management structure, including authorities and oversight plans for platform and infrastructure development; requirements management and development approach, and plans for prioritization; risk management plans, including how the program will identify and mitigate risks; metrics for measuring quality of software, and how those results will be shared with external stakeholders; manpower assessment identifying program workforce needs and state of expertise in Agile methods; requirements for reporting program progress to decision makers; and yearly funding levels. We have also noted these factors in our previous reports that identify the need to develop a sound, executable business case at the outset of a program, and the importance of using knowledge-based decision making in DOD acquisition programs. In addition, our work on best practices for knowledge-based acquisitions has emphasized that the success of any effort to develop a new product hinges on having the right knowledge at the right time, and that a better opportunity exists to meet program goals when the knowledge is available early. However, given that DOD’s draft template is still subject to change, including these elements in the finalized acquisition strategy would help position the program for success. Technical Challenges The Space C2 program also faces significant technical challenges, as described in table 2. For example, the program is planning to meet previously deferred requirements that proved too complex for prior programs to achieve. It also plans to address new and emerging threats to space assets, for which requirements are not yet defined. In addition, the program plans to use an Agile software development approach, the processes of which DOD has yet to show proficiency in applying, as discussed above. Integration of the multiple types of software planned for Space C2 is also likely to present considerable technical challenges. Further, cybersecurity is a growing concern for DOD space programs, including Space C2. Workforce Challenges In addition to the management and technical risks we identified, limited availability of staff with expertise in Agile software development poses a challenge to the Space C2 program and to DOD in general. The Space C2 program manager stated that the program is undertaking an effort that is fast-paced in nature and needs to be rapidly fielded, and she expressed confidence in her staff’s abilities to meet the development demands. However, various DOD officials told us that a lack of qualified software developers within DOD, and within the Space C2 program, is an issue. Agile software development methods are different from the traditional approaches used by DOD, and according to DOD officials, proficiency in Agile methods requires specific training. Software developers with this training are in high demand in the private sector, and according to DOD officials, sufficient numbers may not be immediately available for the Space C2 program. One industry best practice for software development states that to be successful, programs should ensure that each development team has immediate access to people with specialized skills including contracting, architecture, database administration, development, quality assurance, operations (if applicable), information security, risk analysis, and business systems analysis. As early as March 2009, DOD acknowledged it had a top priority to establish a cadre of trained information technology professionals, and that the lack thereof was a significant impediment to successful implementation of any future software development process. Furthermore, a 2018 Defense Science Board report highlights the lack of Agile software expertise in DOD, citing no modern software expertise in program offices or the broader acquisition workforce. Moreover, the report states that DOD defense prime contractors need to build their own internal competencies in modern software methodologies. Similarly, we found in March 2019 that DOD faces several challenges related to hiring, assigning, and retaining qualified personnel to work on space acquisition programs, similar to the challenges it faces more generally with the acquisition workforce. We also noted that DOD is taking steps to address these challenges where possible. In May 2019, the DOD’s Defense Innovation Board issued a congressionally mandated study on software acquisition and practices. The report stated that numerous past studies have recognized the deficiencies in software acquisition and practices within DOD. The report also noted the importance of digital talent and stated that DOD’s current personnel processes and culture will not allow its military and civilian software capabilities to grow fast or deep enough to meet its mission needs. In addition, the report stated that new mechanisms are needed for attracting, educating, retaining, and promoting digital talent and for supporting the workforce to follow modern practices, including developing software in close coordination with users. Finally, the report emphasized that the military services and Office of the Secretary of Defense will need to create new paths for digital talent (especially internal DOD talent) by establishing software development as a high-visibility, high-priority career track and increasing the level of understanding of modern software within the acquisition workforce. This is the case for all DOD space programs, including Space C2. Conclusions DOD’s ability to command and control U.S. space assets, as well as anticipate and respond to the threats these assets face, is critical. However, over more than three decades, DOD’s efforts to improve its space command and control capabilities—commensurate with the space threats that have continued to grow in frequency and type—have been fraught with development problems. The Air Force has again undertaken a program to meet the nation’s ongoing and future consolidated command and control needs, while trying to overcome past problems with a modern software development process. The Space C2 program is making a concerted effort to learn from past software development mistakes while forging a new path for Agile development. Though DOD is taking steps to ensure that the Space C2 program has a comprehensive approach in place for managing, identifying, and mitigating challenges associated with this approach, key program plans and agency-wide guidance are still in draft form, leaving uncertainty as to how program development and oversight will ultimately proceed. Finalizing a robust acquisition strategy containing the key elements for ongoing planning and evaluation would position the program for success. Striking the right balance between trying new development methods and working within DOD’s knowledge-based framework will be essential for meeting cost, schedule, and performance goals. Periodic assessments of the program’s approach to developing software, done by independent software development experts, could not only help ensure the reviews are balanced, but would also help ensure the Space C2 program effectively addresses the challenges it faces and is situated for success. Such reviews would also help the Space C2 program to identify potential roadblocks, and ultimately, potential solutions. Effectively addressing the challenges facing the Space C2 program will help ensure that needed space command and control capabilities are no longer deferred, but actually delivered. Recommendations for Executive Action We are making two recommendations to the Department of Defense. The Under Secretary of Defense for Acquisition and Sustainment should ensure that the Air Force’s finalized Space C2 program’s acquisition strategy includes, at a minimum, the following elements: acquisition and contracting approach; program management structure, including authorities and oversight plans for platform and infrastructure development; requirements management and development approach, and plans for prioritization; risk management plans, including how the program will identify and mitigate risks; metrics for measuring quality of software, and how those results will be shared with external stakeholders; manpower assessment identifying program workforce needs and state of expertise in Agile methods; requirements for reporting program progress to decision makers; and yearly funding levels. (Recommendation 1) The Under Secretary of Defense for Acquisition and Sustainment should ensure that the Air Force’s Space C2 program conducts periodic independent reviews to assess the program’s approach to developing software and provide, as needed, advice to the program and recommendations for improving the program’s development and progress. Participants could include, but are not limited to, officials from the Defense Innovation Board, the Defense Digital Service, the office of the Air Force Chief Software Advisor, and the Under Secretary of Defense for Acquisition and Sustainment’s Special Assistant for Software Acquisition. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of this product to the Department of Defense for comment. In its comments, reproduced in appendix II, DOD concurred with our recommendations. DOD also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Secretary of the Air Force, and the Under Secretary of Defense for Acquisition and Sustainment. In addition, the report will be available at no charge on GAO’s website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or ChaplainC@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 major contributions to this report are listed in appendix III. Appendix I: Objectives, Scope, and Methodology The House Armed Services Committee report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2018 contained a provision for us to review the Department of Defense’s (DOD) efforts to develop space command and control capabilities. This report (1) assesses the status of and plans for ongoing Air Force efforts to develop advanced command and control capabilities for space, and (2) identifies challenges the Air Force faces in developing these capabilities. To assess the status of and plans for ongoing Air Force efforts to develop advanced command and control capabilities for space, we analyzed Air Force Space Command and Control (C2) Program Increment Demonstration and Planning Retrospective reports for the first three increments and examined acquisition strategies for relevant programs, including acquisition strategies and addenda for Joint Space Operations center (JSPOC) Mission System (JMS) Increments 1 and 2. We also examined the Air Force’s draft acquisition strategy for Space C2 and DOD’s draft acquisition strategy for Major Agile Software Programs; reviewed Space C2 document mapping planned capabilities to the specific requirements that will be met by program deliveries; and analyzed status updates from the Space C2 program and the Combined Space Operations Center and program update briefings prepared for congressional staff by the JMS and Space C2 programs and the National Space Defense Center. In addition, we analyzed Space C2 program plans in conjunction with interim DOD guidance for Agile Software Acquisition, the Joint Chiefs of Staff Cyber Survivability Endorsement Implementation Guide, the Office of the Secretary of Defense guidance on cybersecurity operational test and evaluation procedures in acquisition programs and DOD Enterprise Development, Security and Operations (DevSecOps) processes; and examined the Principal DOD Space Advisor’s Capabilities Based Assessment which included issues relating to Space C2. We also reviewed Air Force Broad Agency Announcements and Requests for Information for Space Battle Management Command and Control and Space Situational Awareness capability development. In addition, we obtained information from 12 of the 16 companies with whom the Air Force is working to obtain their perspectives of the Air Force’s approach to developing Space C2 capabilities. To identify challenges the Air Force faces as it develops advanced command and control capabilities for space, we analyzed the JMS Critical Change Certification; examined Joint Requirements Oversight Council memoranda pertaining to the JMS critical change management and certification; reviewed the Air Force’s Space and Missile Systems Center evaluation of commercial capability gaps and capabilities; reviewed the JMS Program Manager briefing on lessons learned; and examined the DOD test and evaluation report on JMS Increment 2 (Service Pack 9). We also reviewed a selected chapter of GAO’s draft Agile Assessment Guide (Version 13), which is intended to establish a consistent framework based on best practices that can be used across the federal government for developing, implementing, managing, and evaluating agencies’ information technology investments that rely on Agile methods. To develop this guide, GAO worked closely with Agile experts in the public and private sector; some chapters of the guide are considered more mature because they have been reviewed by the expert panel. We reviewed this chapter to ensure that our expectations for how the Air Force should apply best practices for development of software capabilities for space command and control are appropriate for an Agile program and are consistent with the draft guidance that is under development, and we compared Space C2 program plans to the practices outlined in the guide. Additionally, since Agile development programs may use different terminology to describe their software development processes, the Agile terms used in this report are specific to the Space C2 program. We also compared Air Force development plans with interim and established DOD guidelines for software development, and GAO best practices for knowledge-based decision-making in weapons system development. We also reviewed prior GAO reports on the Cheyenne Mountain Upgrade, the Combatant Commanders’ Integrated Command and Control System, software acquisition, and cybersecurity. Additionally, we interviewed DOD officials from the Office of the Under Secretary of Defense for Acquisition and Sustainment; Joint Chiefs of Staff, Force Structure, Resources, and Assessment Directorate; U.S. Strategic Command; Air Force Combined Space Operations Center; Defense Advanced Research Projects Agency; Missile Defense Agency; Office of the former Principal DOD Space Advisor; Air Force Space Command; Air Force Research Laboratory; Defense Digital Service; Office of Cost Assessment and Program Evaluation; Air Force Rapid Capabilities Office; National Space Defense Center; and Air Force Space and Missile Systems Center. Finally, we interviewed officials from commercial companies that are known in the space community to have potential input into the development of space command and control capabilities to understand how the Space C2 program plans to integrate commercial capabilities into the program. We conducted this performance audit from January 2018 to October 2019 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. Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Rich Horiuchi, Assistant Director, Emily Bond, Claire Buck, Maricela Cherveny, Burns Eckert, Laura Hook, and Roxanna Sun made key contributions to this report. Assistance was also provided by Pamela Davidson, Kurt Gurka, Jennifer Leotta, Harold Podell, Marc Schwartz, James Tallon, Eric Winter, and Alyssa Weir.

Since the early 1980s, the Air Force has been working to modernize and consolidate its space command and control systems into a single comprehensive platform. The past three programs to attempt this have ended up significantly behind schedule and over budget. They also left key capabilities undelivered, meeting the easier requirements first and deferring more difficult work to subsequent programs. At the same time, the need for a consolidated space command and control capability has been growing. The House Armed Services Committee report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2018 contained a provision for GAO to review DOD's newest efforts to develop space command and control capabilities. This report describes the status of these efforts and identifies challenges the Air Force faces in bringing them to fruition. To conduct this work, GAO analyzed acquisition and strategy documentation, management directives, and lessons learned; and compared Air Force development plans with leading industry practices for software development, DOD guidelines, and best practices included in a draft GAO guide for assessing Agile software development programs. Given emerging and evolving threats in the space domain, as well as significant development problems in similar prior efforts, the Air Force is prioritizing the Space Command and Control (C2) program. Early prototype work on the program's software began in 2016. As of mid-2019, the program had delivered some initial capabilities; however, the capabilities delivered so far are not approved for use in operations. Because the program is still early in development, it has not yet established a time frame for certifying these capabilities for operational use. Further, the foundational elements of the program, including the infrastructure and software platform, are still being conceptualized. All Space C2 program capabilities will be significantly more automated than past development efforts and are being designed to allow operators to identify and monitor threats to U.S. space assets, identify courses of action to mitigate or eliminate those threats, communicate these actions to decision makers, and direct actions in response. To develop Space C2's technologically complex software, the Air Force is following a modernized, iterative process called Agile development—a relatively new approach for Department of Defense (DOD) programs (see figure). The Space C2 program is facing a number of challenges and unknowns, from management issues to technical complexity. Additionally, DOD officials have not yet determined what level of detail is appropriate for acquisition planning documentation for Agile software programs. They are also not certain about the best way to provide oversight of these programs but are considering using assessments by external experts. These knowledge gaps run counter to DOD and industry best practices for acquisition and put the program at risk of not meeting mission objectives. Additionally, software integration and cybersecurity challenges exist, further complicating program development. The Air Force has efforts underway to mitigate some of these challenges in the near term, but until the program develops a comprehensive acquisition strategy to more formally plan the program, it is too early to determine whether these efforts will help to ensure long-term program success.

CRS_R46271

Introduction In the past, Congress has regularly acted to extend expired or expiring temporary tax provisions. Collectively, these temporary tax provisions are often referred to as "tax extenders." This report briefly summarizes and discusses the economic impact of the 17 business-related tax provisions that are scheduled to expire before 2025. There are 13 business-related temporary tax provisions scheduled to expire at the end of 2020. Most of these business-related provisions were included in past extenders legislation. The business tax extenders are diverse in purpose, providing various types of tax relief to businesses in different industries. Most recently, Congress extended expiring provisions in the Taxpayer Certainty and Disaster Tax Relief Act of 2019, enacted as Division Q of the Further Consolidated Appropriations Act, 2020 ( P.L. 116-94 ). This law retroactively extended, through 2020, eight temporary tax provisions that had expired at the end of 2017; it also extended five provisions scheduled to expire in 2019. The estimated cost of the 13 temporary business tax provision extensions enacted in the Further Consolidated Appropriations Act, 2020 ( P.L. 116-94 ) is provided in Table 1 . The most costly of these provisions are the employer credit for paid family and medical leave ($2.2 billion), the work opportunity tax credit ($2.0 billion), and the New Markets Tax Credit ($1.5 billion). Note that all three of these provisions were scheduled to expire at the end of 2019, and thus were extended for one year. In contrast, the eight other provisions that had expired at the end of 2017 and were extended through 2020 were effectively extended for three years. Four other business-related provisions are scheduled to expire in 2021 or 2022: (1) the 12.5% increase in the annual low-income housing tax credit (LIHTC) authority for four years (2018-2021), enacted as part of the 2018 Consolidated Appropriations Act, with a cost of $2.7 billion; (2) the computation of adjusted taxable income without regard to any deduction allowable for depreciation, amortization, or depletion for purposes of the interest deduction limit, set to expire by the 2017 tax revision (the Tax Cuts and Jobs Act, P.L. 115-97 ), with no separate cost estimate for this feature; (3) the five-year extension of the rum cover over, last extended retroactively for 2017 and forward through 2021 as part of the Bipartisan Budget Act of 2018 ( P.L. 115-123 ), with a cost of $0.6 billion; and (4) the credit for certain expenditures for maintaining railroad tracks, extended through 2022 in the Taxpayer Certainty and Disaster Tax Relief Act of 2019, with a cost of $1.1 billion. There are several options for Congress to consider regarding temporary provisions. Provisions that are scheduled to expire or have expired could be extended, and the extension could be short term, long term, or permanent. Alternatively, Congress could allow the provisions to expire and remain expired. Provisions Expiring in 2020 There are 13 business-related provisions scheduled to expire in 2020. All 13 of these provisions were extended in the Taxpayer Certainty and Disaster Tax Relief Act of 2019, enacted as Division Q of the Further Consolidated Appropriations Act, 2020 ( P.L. 116-94 ). Special Business Investment (Cost Recovery) Provisions The cost of assets that provide services over a period of time, such as machines or buildings, is deducted over a period of years as depreciation. The schedule of depreciation deductions depends on the asset's life and the distribution of deductions over that life. Straight-line depreciation is used for structures, where equal amounts are deducted in each year. For equipment, deductions are accelerated, with larger amounts deducted in earlier years. Equipment is most commonly depreciated over 5 years or 7 years, but some short-lived assets are depreciated over 3 years and some longer-lived assets are depreciated over 10, 15, or 20 years. Nonresidential structures are depreciated over 39 years. Aside from the desire for economic stimulus, traditional economic theories suggest that tax depreciation should match economic (physical) depreciation of assets as closely as possible. The depreciation provisions discussed below all allow earlier deductions for depreciation, which are valuable because of the time value of money. A fixed reduction in tax liability today is worth more than that same fixed reduction in tax liability in the future. Expensing provisions allow a firm to deduct the cost of an asset the year it is placed in service. Through 2022, bonus depreciation of 100% allows for full expensing of investments in qualifying equipment and property. It is scheduled to decrease to 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% for property acquired and placed in service in 2027 and thereafter. The presence of bonus depreciation or expensing would make some temporary provisions more important (such as the benefits for motorsports complexes, which would otherwise become ineligible) and some less important (such as shortening lives for racehorses or Indian reservation property, or expensing for films and television, which would have received the benefit regardless). Special Expensing Rules for Certain Film, Television, and Live Theatrical Productions7 Investments in film and television productions are generally recovered using the income forecast method. Under this method, depreciation deductions are based on the pattern of expected earnings. The American Jobs Creation Act of 2004 ( P.L. 108-357 ) included special rules to allow expensing for certain film and television production costs. The provision's main purpose was to discourage "runaway" productions, or the production of films and television shows in other countries, where tax and other incentives are often offered. Initially, the provision was set to expire at the end of 2008. However, since 2008, the provision has regularly been extended as part of tax extender legislation—most recently in the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). Under the special expensing rules for film, television, and live theatrical productions, taxpayers may elect to deduct immediately up to $15 million of production costs ($20 million for productions produced in certain low-income and distressed communities) in the tax year incurred. Eligible productions are limited to those in which at least 75% of the compensation paid is for services performed in the United States. For productions that started before 2008, the expensing deduction is not allowed if the aggregate production cost exceeds $15 million ($20 million for productions in designated low-income and distressed communities). Qualifying live theatrical productions are those generally performed in venues with an audience capacity of not more than 3,000 (or 6,500 for seasonal productions performed no more than 10 weeks annually). The provisions would cover most theatrical productions (the largest of the Broadway theatres, for example, has a seating capacity of less than 2,000). The ability to expense (deduct immediately) certain film, television, and live theatrical production costs provides a benefit by allowing deductions to be taken earlier, thus deferring tax liability. The magnitude of the benefit depends on the average lag time from production to earning income. For many films, production costs would be deductible in the year the film is released. If the film is released one year after the production costs are incurred, which may be the case for independent and smaller productions, the provision accelerates cost recovery by one year. The benefit conferred by accelerating cost recovery deductions by one year is limited. Taxpayers with limited or no tax liability may derive little or no benefit from the expensing allowance. The primary policy objective of providing special tax incentives for film and television producers is to deter productions from moving overseas, lured by lower production costs as well as tax and other subsidies offered by foreign governments. Because live theatre is tied to audience location, runaway productions are not a concern. However, providing expensing for live theatrical production costs could encourage investment in such productions and provide parity with film and television. In evaluating this incentive, one consideration is the economic value of domestic film, television, and theatre production relative to the cost of the targeted tax benefits. Seven-Year Recovery Period for Motorsports Entertainment Complexes10 An exception from the 39-year depreciation life for nonresidential structures exists for the theme and amusement park industry. Assets in this industry are assigned a recovery period of seven years. Historically, motorsports racing facilities have been included in this industry and also allowed a seven-year recovery period. However, ambiguities in the law led to questions about whether motorsports racing facilities were correctly categorized. When the Treasury reconsidered the appropriateness of this classification in 2004, Congress made the seven-year treatment mandatory through 2007 with the American Jobs Creation Act ( P.L. 108-357 ). Since 2004, the provision has been extended as part of tax extenders legislation—most recently in the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ), which extended the provision through December 31, 2020. Without this provision, motorsports racing facilities would be depreciated over the standard 39-year life. The tax authorities presumably estimated motorsports racing facilities to have slower depreciation rates than the seven-year life that applies to amusement park facilities. If so, the seven-year-life provision for motorsports racing facilities constitutes a subsidy to the auto racing industry that does not appear to have an obvious justification. Supporters argued that the provision preserves historical treatment and provides a stimulus to business. They also argued that the benefit helps make motorsports facilities more competitive with sports facilities that are often subsidized by state and local governments. Three-Year Depreciation for Racehorses Two Years or Younger11 Racehorses are tangible property, and taxpayers using racehorses in a trade or business must capitalize the cost of purchasing racehorses. The cost can then be recovered through annual depreciation deductions over time. The cost recovery period for racehorses is seven years, although racehorses that begin training after age two have a three-year recovery period. Under the temporary provision, this three-year recovery period is extended to all racehorses. In particular, all racehorses placed in service after December 31, 2008, have a three-year recovery period as a result of the Food, Conservation, and Energy Act of 2008 ( P.L. 110-246 ), with provisions subsequently extended. This provision was extended through December 31, 2020, by the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). The industry claims that reducing the recovery period to three years more closely aligns the recovery period with the racing life of a horse. The IRS cost recovery period suggests a longer view. Some racehorses continue in productive activity after their racing career through breeding, as well as having a residual value for resale. Taking those uses into account, a Treasury study estimated an overall economic life of nine years. This provision does not affect breeders who race their own horses, because they deduct the cost of breeding and thus have no basis (capital investment) in the horses. The provision generally benefits investors who purchase horses. Accelerated Depreciation for Business Property on an Indian Reservation13 The Omnibus Budget Reconciliation Act of 1993 ( P.L. 103-66 ) contained a provision allowing businesses on Indian reservations to be eligible for accelerated depreciation (through a reduction in the applicable recovery periods) as part of an effort to increase investment in Indian reservations. Since its initial temporary enactment, this provision has regularly been extended as part of tax extenders legislation—most recently in the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ), which extended the provision through December 31, 2020. Extending the provision might encourage additional investment on Indian reservations. However, if these provisions' main objective is to improve the economic status of individuals currently living on Indian reservations, it is not clear to what extent this tax subsidy will succeed, because it is not given directly to workers but instead is received by businesses. Capital subsidies may not ultimately benefit workers. It is possible that capital equipment subsidies may encourage more capital-intensive businesses and make workers relatively worse off. In addition, workers would not benefit from higher wages resulting from an employer subsidy if the wage is determined by regulation (the minimum wage) that is set higher than the prevailing market wage. Economic Development Provisions Empowerment Zone Tax Incentives14 Empowerment Zones (EZs) are federally designated geographic areas characterized by high levels of poverty and economic distress, where businesses and local governments may be eligible to receive federal grants and tax incentives. Since 1993, Congress has authorized three rounds of EZs (1993, 1997, and 1999) with the objective of revitalizing selected economically distressed communities. EZs are similar to Enterprise Communities (ECs) and Renewal Communities (RCs), which are also federally designated areas for the purposes of tax benefits and grants. A number of studies have evaluated the effectiveness of the EZ, EC, and RC programs. Government Accountability Office and Department of Housing and Urban Development studies have not found links between EZ and EC designation and improvement in community outcomes. Other research has found modest, if any, effects and called into question these programs' cost-effectiveness. This inability to link these programs to improvements in community-level outcomes should not be interpreted as meaning that the EZ, EC, and RC programs did not aid economic development. The main conclusion from these studies is that the EZ, EC, and RC programs have not been shown to have caused a general improvement in the examined localities' economic conditions. One possible cause for this inability to empirically show the program effects on a large geographic area is that the EZ tax incentives are relatively small. Another possibility is that the EZ tax incentives are targeted at business owners and do not provide direct benefits to workers in EZs. Six tax incentives are typically related to EZs: (1) local designation of an EZ; (2) increased exclusion of gain; (3) issuance of qualified, tax-exempt zone academy bonds (QZABs) in EZs; (4) EZ employment credits under the Work Opportunity Tax Credit (WOTC); (5) increased expensing under Internal Revenue Code (IRC) Section 179 for businesses located in EZs; and (6) nonrecognition of gain on rollover of EZ investments. EZs were created by legislation enacted in 1993, and most zones expired at the end of 2009. The provisions were extended in the Protecting Americans from Tax Hikes (PATH) Act of 2015 ( P.L. 114-113 ), which also amended the requirements for tax-exempt enterprise zone facility bonds to treat an employee as a resident of a particular EZ if the employee is a resident of a different EZ, EC, or qualified low-income community. Provisions were extended after 2015, and were last extended through 2020 by the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). For more analysis of EZs, see CRS Report R41639, Empowerment Zones, Enterprise Communities, and Renewal Communities: Comparative Overview and Analysis , by Donald J. Marples. American Samoa Economic Development Credit24 The American Samoa economy is largely dependent on three sectors: public works and government, tuna canning, and the residual private sector (e.g., tourism and other services). The American Samoa economic development credit (EDC) is a credit against U.S. corporate income tax in an amount equal to the sum of certain percentages of a domestic corporation's employee wages, employee fringe benefit expenses, and tangible property depreciation allowances for the taxable year with respect to the active conduct of a trade or business within American Samoa. The credit is available to U.S. corporations that, among other requirements, (1) claimed the now-expired possession tax credit (predecessor to the EDC) with respect to American Samoa for their last taxable year beginning before January 1, 2006; or (2) have qualified production activities income after December 31, 2011, in American Samoa (akin to production activities income eligible for Section 199 tax treatment in the United States). The credit's proponents claim it encourages eligible companies to locate, retain, or expand manufacturing operations in the territory. Media reports suggest the EDC's main beneficiary, thus far, has been StarKist, which has retained its cannery operations in American Samoa. The EDC was first enacted in the Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ). This version of the EDC was only available to corporations that had previously claimed the possession tax credit, and it originally expired at the end of 2007. It has been extended numerous times. The American Tax Relief Act of 2012 ( P.L. 112-240 ) also expanded the EDC's criteria to include corporations that had not previously claimed the possession tax credit. The provision was most recently extended through 2020 by the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). New Markets Tax Credit27 The New Markets Tax Credit (NMTC) was enacted by the Community Renewal Tax Relief Act of 2000 ( P.L. 106-554 ) to encourage investors to invest in low-income communities (LICs) that traditionally lack access to capital. The NMTC is a competitively awarded tax credit overseen by the Community Development Financial Institutions (CDFI) Fund, organized within the Department of the Treasury. For each NMTC round authorized by Congress, the CDFI Fund ranks all requests for NMTC allocation authority and grants awards to those CDEs that score highest. A CDE is a domestic corporation or partnership that is an intermediary vehicle for the provision of loans, investments, or financial counseling in LICs. All taxable investors, such as banks, venture capital firms, and other private investors, are eligible to receive the NMTC. The NMTC's structure creates incentives for CDEs and private investors to participate in the program. CDEs benefit from the NMTC because they charge fees to their investors for organizing the NMTC application and for structuring the financing for a portfolio of community development projects. The private investors benefit because they receive, each year over seven years, an annual tax credit equal to 5% to 6% of the total amount paid for the stock or capital interest in the CDE that they purchase. Overall, the tax credit amounts to 39% of the cost of the qualified equity investment (less the CDE's fees) as long as the interest in the investment is retained for the entire seven-year period. Thus, even if the community development project funded by the CDE incurs some losses, the value of the tax credit could generate a positive return for the private financers. Opposition to the NMTC is partly based on the belief that corporations and higher-income investors primarily benefit from the provision or that the NMTC leads to an economically inefficient allocation of resources. For instance, while banks and other investors might benefit directly from the credit, a 2009 study found that the NMTC's benefits to selected low-income communities were modest. The study concluded that poverty and unemployment rates fall by statistically significant amounts in tracts that receive NMTC-subsidized investment relative to similar tracts that do not. From a national economic perspective, the NMTC's impact would be greatest in the case where the investment represents net investment in the U.S. economy rather than a shift in investment from one location to another. Another 2009 study found that corporate NMTC investment represented a shift in investment location, but a portion of individual NMTC investment (roughly $641 million in the first four years of the program from 2001 to 2004) represented new investment. The NMTC has been extended as a temporary tax provision since 2008, after its initial authorization expired at the end of 2007. In more recent years, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ) extended NMTC authorization through 2011 and permitted a maximum annual amount of qualified equity investments of $3.5 billion. Following several other extensions, the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ) extended the provision through 2020 with a maximum allocation authority of $5 billion. For more information on the NMTC, see CRS Report RL34402, New Markets Tax Credit: An Introduction , by Donald J. Marples and Sean Lowry; and CRS Report R42770, Community Development Financial Institutions (CDFI) Fund: Programs and Policy Issues , by Sean Lowry. Other Business Provisions Indian Employment Tax Credit33 The Indian employment tax credit is an incremental credit claimed by employers for qualified wages and health insurance costs. The credit is designed to encourage hiring of certain individuals—enrolled members of an Indian tribe and their spouses. There are restrictions limiting the benefit to services performed within an Indian reservation for individuals living on or near the reservation. The Indian employment credit is 20% of the excess of qualified wages and health insurance costs paid by an employer over base-year expenses. The credit is allowed for the first $20,000 in qualified wages and health insurance costs. The base year is 1993, such that the incentive is incremental to 1993 wages and health insurance costs (the base year has not been changed since the credit was enacted). The credit is not available for wages paid to an employee whose total wages exceed $30,000, as adjusted for inflation ($50,000 in 2019). The employer must reduce the deduction for wages by the amount of the credit. The Indian employment credit was first enacted in 1993, as part of the Omnibus Reconciliation Act of 1993 ( P.L. 103-66 ). It was initially scheduled to expire at the end of 2003, but has been regularly extended, often retroactively. Past extensions of the Indian employment credit have extended the termination date without updating the base year. Some have proposed updating the base year, in an effort to (1) eliminate the need for taxpayers to maintain tax records dating back to 1993 and (2) restore the credit's incremental design. The most recent extension was through 2020 in the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). Extending the Indian employment credit might encourage additional hiring of Indian tribe members and their spouses. Although the Indian employment credit may not increase overall employment on or near Indian reservations, it might increase employment among tribe members. Mine Rescue Team Training Credit35 Taxpayers that employ miners in underground mines located in the United States may be able to claim a tax credit for mine rescue team training expenses. The credit amount is limited to the lesser of (1) 20% of training program costs per employee (including wages paid to the employee while in training) or (2) $10,000. For a taxpayer to claim the credit for training provided to an employee, the employee must be a full-time miner who is eligible to serve as a mine rescue team member. The mine rescue team training credit was enacted in the Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ). It was initially scheduled to be effective for 2006, 2007, and 2008. It has subsequently been extended as part of tax extenders legislation, most recently through 2020 in the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). The mine rescue team training credit was enacted at the end of 2006, following the high-profile mining accident at Sago Mine. There was an uptick in coal mining fatalities in 2006—47 fatalities were reported (12 were a result of the Sago Mine disaster). From 2007 through 2019, coal mining fatalities averaged 20 per year. During this period, fatalities were highest in 2010, reflecting the Upper Big Branch Mine disaster, where there were 29 fatalities. In the year with the lowest number of fatalities, 2016, there were 8. In 2019, there were 11 coal mining fatalities. Coal mining fatalities have generally been trending downward over time. In recent years, some of this might be explained by a decline in coal production and the decline in the number of coal miners. The fatality rate, however, has also tended to decline over time. A credit for mine rescue team training can encourage mine operators and employers to invest in additional training. The credit can also reduce the cost of complying with federal regulations regarding mine rescue team training. Federal regulations are the government's primary policy instrument governing coal mine safety, with tax incentives playing a small role. Employer Tax Credit for Paid Family and Medical Leave39 The employer credit for paid family and medical leave (PFML) can be claimed by employers providing paid leave (wages) to employees under the Family and Medical Leave Act of 1993 (FMLA; P.L. 103-3 ). The credit can be claimed for wages paid during tax years that begin in 2018, 2019, and 2020. The credit amount is equal to up to 25% of PFML wages paid to qualifying employees. The credit can only be claimed for PFML provided to certain employees with incomes below a fixed threshold. For credits claimed in 2019, employee compensation in 2018 cannot have exceeded $72,000. The amount of PFML wages for which the credit is claimed cannot exceed 12 weeks per employee per year. Further, all qualifying employees must be provided at least two weeks of PFML for an employer to be able to claim the credit. Tax credits cannot be claimed for leave paid by state or local governments, or for leave that is required by state or local law. To claim the credit, an employer must have a written family and medical leave policy in effect. The policy cannot exclude certain classifications of employees, such as unionized employees. The employer credit for paid family and medical leave was added to the IRC in the 2017 tax revision ( P.L. 115-97 ; commonly referred to as the Tax Cuts and Jobs Act). Initially, the credit was effective for wages paid in 2018 and 2019. The credit was extended for one year, through 2020, by the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). Providing a tax credit for employers that provide PFML should, on the face of it, tend to increase access to this benefit. How effective the credit will be at achieving this goal remains an open question. Employers may provide PFML to qualified employees for a number of reasons; attracting high-quality talent might be one. If most of the credit's beneficiaries are employers that would have provided PFML without the credit, then the credit is not a particularly efficient mechanism for increasing PFML. There is also the possibility that employers choose to substitute credit-eligible PFML for other forms of leave. An employer could reduce the amount of paid sick, personal, or vacation time off, knowing that employees use this time for paid family and medical leave purposes. If other benefits are scaled back in favor of tax-preferred FMLA leave, employees may not be better off. For more information, see CRS In Focus IF11141, Employer Tax Credit for Paid Family and Medical Leave , by Molly F. Sherlock. Work Opportunity Tax Credit42 The work opportunity tax credit (WOTC) is a nonrefundable wage credit intended to increase job opportunities for certain categories of disadvantaged individuals. The WOTC reduces the cost of hiring specified groups of disadvantaged individuals. WOTC-eligible hires include members of families receiving Temporary Assistance to Needy Families (TANF) benefits, certain members of families receiving food stamp benefits, ex-felons, and certain veterans. For most eligible hires that remain on a firm's payroll at least 400 hours, an employer can claim an income tax credit equal to 40% of wages paid during the worker's first year of employment, up to a statutory maximum. For most WOTC-eligible hires, the wage maximum is $6,000, for a maximum credit of $2,400. For eligible veterans, the maximum eligible wage varies between $6,000 and $24,000, depending on the veteran's characteristics and work history. Eligible summer youth hires' maximum wage to which the credit can be applied is $3,000. A credit equal to 25% of a qualified worker's wages is available for eligible hires that remain employed for at least 120 hours, but fewer than 400 hours. The WOTC was created as part of the Small Business Job Protection Act of 1996 ( P.L. 104-188 ). The WOTC evolved from an earlier tax credit designed to increase employment among targeted groups, the Targeted Jobs Tax Credit (TJTC), which was available from 1978 through 1994. When first enacted, the WOTC was scheduled to expire on October 1, 1997. Since 1997, the WOTC has been expanded, modified, and regularly extended. In several instances, the WOTC was allowed to lapse before being retroactively reinstated. It was most recently extended through 2020 in the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). The WOTC is designed to encourage employers to hire more disadvantaged individuals by compensating for potential higher training costs and possible lower productivity. Because the credit is focused on hiring from targeted groups, and not net job creation, it is not necessarily intended to create new jobs or promote recovery in labor markets. Studies evaluating the credit have examined whether it increases job opportunities for targeted disadvantaged individuals, and whether the WOTC is a cost-effective policy measure for achieving this objective. Early evidence on the WOTC suggested that although the credit did offset part of the cost of recruiting, hiring, and training WOTC-eligible employees, it had a limited effect on companies' hiring decisions. More recent studies have found that the WOTC provided benefits to certain groups: increasing the wage income of disabled veterans and increasing employment among long-term welfare recipients, for example. Researchers have also explored whether the credit causes employers to "churn" their workforce to take advantage of the credit, replacing currently credit-ineligible workers with credit-certified workers. Evidence of this behavior has not been found. For more information on the WOTC, see CRS Report R43729, The Work Opportunity Tax Credit , by Benjamin Collins and Sarah A. Donovan. Look-Through Treatment of Payments Between Related Controlled Foreign Corporations45 The temporary look-through rules were originally enacted in the Tax Increase Prevention and Reconciliation Act of 2005 ( P.L. 109-222 ), for 2006 through 2008, and subsequently extended. These rules effectively allow U.S. corporations to reduce tax paid by allowing them to shift the income of certain foreign subsidiaries in high-tax countries into a lower-taxed foreign subsidiary. Depending on its source, income earned abroad by foreign-incorporated subsidiaries of U.S. parents is taxed at full rates, not taxed at full rates, or not taxed at all. Tax rules require passive income (such as interest income) and certain types of payments that can be easily manipulated to reduce foreign taxes to be taxed at the full rate (21% for a corporate shareholder) if earned by controlled foreign corporations (CFCs). This income is referred to as Subpart F income, reflecting the part of the tax code where treatment is specified. Credits against the U.S. tax imposed are allowed for any foreign taxes paid on this income, and are applied on an overall basis (so that unused foreign taxes in one country can offset taxes paid on income in another country). Other income earned abroad by CFCs is subject to the global intangible low-taxed income (GILTI) provision, which taxes this foreign-source income at half the corporate tax rate (10.5%), after allowing a deduction for a deemed return of 10% on tangible assets. Credits are allowed for 80% of foreign taxes paid. This GILTI rate is scheduled to rise to 13.125% after 2025. Thus, some income (Subpart F) is taxed at the full rate, some income (GILTI) is taxed at partial rates, and some income (the deemed return from tangible assets) is not taxed. (For a more extensive discussion of international tax rules, see CRS Report R45186, Issues in International Corporate Taxation: The 2017 Revision (P.L. 115-97) , by Jane G. Gravelle and Donald J. Marples.) Unless an exception applies, Subpart F income includes dividends, interest, rent, and royalty payments between related firms. These items of income are subject to Subpart F because affiliated firms can use them to shift income and avoid taxation. For example, without Subpart F a U.S. parent's subsidiary (first-tier subsidiary) in a country without taxes (e.g., the Cayman Islands) could lend money to its own subsidiary (second-tier subsidiary) in a high-tax country. The interest payments would be deductible in the high-tax country, but no tax would be due in the no-tax country. Thus, an essentially paper transaction would shift income out of the high-tax country. A similar effect might occur if an intangible asset were transferred to the no-tax subsidiary, and then licensed in exchange for a royalty payment by the high-tax subsidiary. Subpart F taxes this income at full rates. Methods of avoiding Subpart F taxation were made easier in 1997, when U.S. entity classification rules (to be a corporate or noncorporate entity) were simplified to allow checking a box on a form. These "check-the-box" regulations provided a way to avoid treatment of payments as Subpart F income under certain circumstances by allowing firms to elect treatment as an unincorporated entity. They were originally intended to simplify classification issues for domestic firms and the IRS, but their usefulness in international tax planning quickly became evident. The Treasury issued regulations in 1998 to disallow their use to avoid Subpart F, but withdrew them after protests from firms and some Members of Congress. In the example above, if the high-tax subsidiary is not a direct subsidiary of the U.S. parent but is a subsidiary of the Cayman Islands subsidiary (i.e., a second-tier subsidiary), the Cayman Islands (first-tier) subsidiary can elect to treat the high-tax subsidiary as if it were a pass-through entity. This treatment would effectively combine the two subsidiaries into a single firm. This outcome can be achieved simply by checking a box, making the high-tax subsidiary a disregarded entity under U.S. law. Because there are no separate firms, no income is recognized by the Cayman Islands firm, although the high-tax subsidiary (second tier) is still a corporation from the point of view of the foreign jurisdiction in which it operates and can deduct interest in the high-tax jurisdiction. The look-through rules expand the scope of check-the-box. The rules were originally enacted in the Tax Increase Prevention and Reconciliation Act of 2005 ( P.L. 109-222 ), for 2006 through 2008, and subsequently extended, most recently through 2020 in the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). The check-the-box rules do not work in every circumstance. For example, if the related firms do not have the same first-tier parent, check-the-box does not apply. In some cases, because of foreign countries' rules about corporate and noncorporate forms, the check-the-box regulations' classification of some entities as per se corporations make this planning unavailable. In addition, other undesirable tax consequences (from the firm's point of view) could occur as a side effect of check-the-box. The look-through rule effectively puts this check-the-box type of planning into the tax code, rather than implementing it as a regulation (which could be altered without legislation), but disconnects it from the check-the-box regulations' creation of a disregarded entity. Related firms do not have to have the parent-child relationship; they can be otherwise related as long as they are under common control. The main argument against the look-through rules (and check-the-box as well) is that they undermine Subpart F's purpose, which is to prevent firms from using passive and easily shifted income to avoid taxation. The main argument for the provision is to allow firms the flexibility to redeploy earnings from one location to another without having U.S. tax consequences (foreign tax rules are unchanged). Firms could, for example, accomplish much of the treatment of look-through rules (even in the absence of check-the-box), but that may involve complex planning and inconvenience. An argument can also be made that in some cases (for example, with the payment of interest), the profit shifting is not harming the U.S. Treasury, but rather reducing taxes collected by foreign governments, as income is shifted out of high-tax countries into low-tax ones. Some might view this last argument as a "beggar-thy-neighbor" argument because it facilitates U.S. firms in using tax planning to reduce taxes paid to other countries. Provisions Modifying the Excise Taxes on Wine, Beer, and Distilled Spirits47 The temporary provisions modifying excise taxes on alcoholic beverages were originally enacted through 2019 in the 2017 tax revision (the Tax Cuts and Jobs Act, P.L. 115-97 ). The first provision applies to beer, wine, and distilled spirits broadly. The provisions that apply only to beer, wine, or distilled spirits are discussed separately below. In general, the uniform capitalization (UNICAP) rules require some costs that would otherwise be immediately deductible (such as interest and overhead) to be added to inventory or to the cost of property and deducted in the future when goods are sold or assets depreciated. In the case of interest costs, the rules apply only if the asset is long-lived or has a production period over two years or a production period over one year and a cost of more than $1 million. The production period includes any customary aging period. A temporary modification to the UNICAP rules exempts the aging periods for beer, wine, and distilled spirits from the production period for the UNICAP interest capitalization rules, thus leading to shorter production periods. Beer Absent the temporary excise tax modification provisions, the excise tax rate on beer producers is $18 per barrel (31 gallons), and small brewers that domestically produce no more than 2 million barrels annually are subject to a rate of $7 per barrel on the first 60,000 barrels. The temporary provision reduces the rate for small brewers (producing no more than 2 million barrels) to $3.50 per barrel on the first 60,000 barrels and $16 per barrel on the remaining production. Beer importers and large producers meeting certain requirements may also be eligible for the reduced rate of taxation. For all other producers or importers, the excise tax rates are $16 per barrel on the first 6 million barrels. The tax on beer is due when the beer is removed from the brewery for sale. Beer can be transferred between breweries that are commonly owned (and released from customs) without paying the tax (although tax would be paid on the eventual sale). The temporary provision also allows transfer without payment of tax to an unrelated brewer if the transferee accepts responsibility for paying the tax. Wine Excise taxes are imposed at different rates on wine, depending on the wine's alcohol content and carbonation levels. Still wines are taxed at $1.07 per wine gallon (w.g.) if they are 14% alcohol or less, $1.57/w.g. if they are 14% to 21% alcohol, and $3.15 per w.g. if they are 21% to 24% alcohol. Naturally sparkling wines are taxed at $3.40 per w.g. and artificially carbonated wines are taxed at $3.30 per w.g. Absent the temporary provisions, up to a $0.90 credit against excise tax liability ($0.056 per w.g. for hard cider) may be available for the first 100,000 w.g. removed by a small domestic winery producing not more than 150,000 w.g. per year. The per wine gallon tax credit rate is phased out on production in excess of 150,000 w.g. for wineries producing not more than 250,000 w.g. per year. This small winery credit does not apply to sparkling wine. The temporary provisions modify the credit for small domestic wineries to allow it to be claimed by domestic and foreign producers, regardless of the gallons of wine produced. The credit is also made available to sparkling wine producers. Also, a $1.00 credit against excise tax liability may be available for the first 30,000 w.g. removed annually by any eligible wine producer or importer. The credit is reduced to $0.90 on the next 100,000 w.g., and $0.535 on the next 620,000 w.g. In contrast to permanent law, this credit is not phased out based on production. For hard cider, the credit rates, above, are adjusted to $0.062 per gallon, $0.056 per gallon, and $0.033 per gallon, respectively. Mead is taxed according to wine excise tax rates depending on its alcohol and carbonation content. Naturally sparkling wines are taxed at $3.40 per w.g. and artificially carbonated wines taxed at $3.30 per w.g. Under the temporary provision, mead and certain sparkling wines are to be taxed at the lowest rate applicable to still wine of $1.07 per wine gallon. Mead contains not more than 0.64 grams of carbon dioxide per hundred milliliters of wine, which is derived solely from honey and water, contains no fruit product or fruit flavoring, and contains less than 8.5% alcohol. The sparkling wines eligible to be taxed at the lowest rate contain no more than 0.64 grams of carbon dioxide per hundred milliliters of wine, which are derived primarily from grapes or grape juice concentrate and water, which contain no fruit flavoring other than grape, and which contain less than 8.5% alcohol. Distilled Sprits Producers and importers of distilled spirits are taxed at a rate of $13.50 per proof gallon (ppg) of production. Under the temporary provision, the tax rate is lowered to $2.70 ppg on the first 100,000 proof gallons, $13.34 ppg for proof gallons in excess of that amount but below 22,130,000 proof gallons, and $13.50 ppg for amounts thereafter. The provision contains rules to prevent members of the same controlled group from receiving the lower rate on more than 100,000 proof gallons of distilled spirits. Distilled spirits are taxed when removed from the distillery, or, in the case of an imported product, from customs custody or bonded premises. Bulk distilled spirits may be transferred in bond between bonded premises without being taxed, but may not be transferred in containers smaller than one gallon. The temporary provision allows transfer of spirits in approved containers other than bulk containers without payment of tax. Provisions Expiring in 2021, 2022, or 2023 12.5% Increase in Annual LIHTC Authority48 The low-income housing tax credit (LIHTC) program, which was created by the Tax Reform Act of 1986 ( P.L. 99-514 ), is the federal government's primary policy tool for the development of affordable rental housing. LIHTCs are awarded to developers to offset the cost of constructing rental housing in exchange for agreeing to reserve a fraction of rent-restricted units for lower-income households. Although it is a federal tax incentive, the program is primarily administered by state housing finance agencies (HFAs) that award tax credits to developers. Authority for states to award tax credit is determined according to each state's population. In 2020, the amount of tax credits a state can award is equal to $2.8125 per person, with a minimum small population state authority of $3,217,500. These figures reflect a temporary increase in the amount of credits each state received for 2018-2021 as a result of the 2018 Consolidated Appropriations Act ( P.L. 115-141 ). The increase is equal to 12.5% above what states would have received absent P.L. 115-141 , and is in effect through 2021. For more information on the LIHTC, see CRS Report RS22389, An Introduction to the Low-Income Housing Tax Credit , by Mark P. Keightley. Computation of Adjusted Taxable Income Without Regard to Any Deduction Allowable for Depreciation, Amortization, or Depletion49 Prior to the 2017 tax revision (the Tax Cuts and Jobs Act, P.L. 115-97 ), the deduction for net interest was limited to 50% of adjusted taxable income (income before taxes; interest deductions; and depreciation, amortization, or depletion deductions) for firms with a debt-equity ratio above 1.5. Interest above the limitation could be carried forward indefinitely. The revision limited deductible interest to 30% of adjusted taxable income for businesses with gross receipts greater than $25 million. The provision also has an exception for floor plan financing for motor vehicles. Businesses providing services as an employee and certain regulated utilities are excepted from this new limit. Also, certain real property and farming businesses can elect out of this limit but must adopt a slower depreciation method for real property or farming assets. The restrictions on interest, called thin capitalization rules , were partially enacted to address concerns about large multinational businesses locating borrowing in the United States to shift profits out of the United States and to foreign, lower-tax, jurisdictions. Under prior law and the temporary provisions of the 2017 tax revision, this interest limit applies to earnings (income) before interest, taxes, depreciation, amortization, or depletion (referred to as EBITDA). After 2021, the 2017 tax revision changes the measure of income to earnings (income) before interest and taxes (referred to as EBIT). Because EBIT is after the deduction of depreciation, amortization, and depletion, it results in a smaller base and thus a smaller amount of eligible interest deductions. The temporary broader base (EBITDA), which expires in 2021, allows more interest deductions. The current, more generous rules for measuring the adjusted taxable income base are more beneficial to businesses with depreciable assets, although affected businesses might be able to avoid some of the change in the deduction rules by leasing assets from financial institutions, such as banks, that generally have interest income. This change in base is projected to have a significant revenue consequence: the Joint Committee on Taxation estimated the revenue gain from the provision to increase from $19.2 billion in FY2021 to $30.2 billion in FY2023, when the change is fully in effect, an increase of more than $10 billion. This revenue change suggests the cost of allowing the broader measure of income (EBITDA) through 2021 is around $10 billion annually. For additional discussion of the interest limitation, see CRS Report R45186, Issues in International Corporate Taxation: The 2017 Revision (P.L. 115-97) , by Jane G. Gravelle and Donald J. Marples. The Rum Cover Over51 Under permanent law, the excise tax on rum is $13.50 per proof gallon and is collected on rum produced in or imported into the United States. Under permanent law, $10.50 per proof gallon of imported rum is transferred or "covered over" to the Treasuries of Puerto Rico (PR) and the United States Virgin Islands (USVI). Temporary provisions have increased the transfer amount to $13.25. The law does not impose any restrictions on how PR and USVI can use the transferred revenues. Both territories use some portion of the revenue to promote and assist the rum industry. The cover-over provisions for rum extend as far back as 1917 for PR and 1954 for USVI. Originally, the full amount of the tax was covered over; however, the Deficit Reduction Act of 1984 ( P.L. 98-369 ) limited the cover over to $10.50 when the federal tax rates were increased to $12.50. The cap was intended to address the question of whether the rebates were proper given the lack of rebates to the states. The Omnibus Budget Reconciliation Act of 1993 (OBRA93; P.L. 103-66 ) temporarily increased the cap to $11.30 for five years, in a law that also reduced another benefit to the possessions (the possessions tax credit). When this increase expired, the cap was increased to $13.25, and it has subsequently been extended, most recently through 2021 by the Bipartisan Budget Act of 2018 ( P.L. 115-123 ). For additional information on the rum cover over see CRS Report R41028, The Rum Excise Tax Cover-Over: Legislative History and Current Issues , by Steven Maguire. Credit for Certain Expenditures for Maintaining Railroad Tracks52 Qualified railroad track maintenance expenditures paid or incurred in a taxable year by eligible taxpayers qualify for a 50% business tax credit. The credit is limited to $3,500 multiplied by the number of miles of railroad track owned or leased by an eligible taxpayer. Qualified railroad track maintenance expenditures are amounts, which may be either repairs or capitalized costs, spent to maintain railroad track (including roadbed, bridges, and related track structures) owned or leased as of January 1, 2005, by a Class II or Class III (regional or local) railroad. Eligible taxpayers are smaller (Class II or Class III) railroads and any person who transports property using these rail facilities or furnishes property or services to such a person. The taxpayer's basis in railroad track is reduced by the amount of the credit allowed (so that any deduction of cost or depreciation is only on the cost net of the credit). The credit cannot be carried back to years before 2005. The credit is allowed against the alternative minimum tax. The amount eligible is the gross expenditures, not accounting for reductions such as discounts or loan forgiveness. The provision was enacted in the American Jobs Creation Act of 2004 ( P.L. 108-357 ) and extended numerous times. The provision relating to discounts was added by the Tax Relief and Health Care Act of 2006 ( P.L. 109-432 ). The credit was allowed against the alternative minimum tax by the Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ). It was most recently extended through 2022 by the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). This provision substantially lowers the cost of track maintenance for the qualifying short-line (regional and local) railroads, with tax credits covering half the costs for those firms and individuals with sufficient tax liability. Class II and III railroads account for 32% of the nation's freight rail miles. These regional railroads are particularly important in providing transportation of agricultural products. Although no rationale was provided when the credit was introduced, sponsors of earlier freestanding legislation and industry advocates indicated that the purpose was to encourage the rehabilitation, rather than the abandonment, of short-line railroads. These railroads were spun off in the deregulation of railroads in the early 1980s. Advocates also indicated that this service is threatened by heavier 286,000-pound cars that must be used to connect with longer rail lines. They also suggested that preserving these local lines would reduce local truck traffic. There was also some indication that a tax credit was thought to be more likely to be achieved than grants. The arguments stated by industry advocates and sponsors of the legislation are also echoed in assessments by the Federal Railroad Administration (FRA), which indicated the need for rehabilitation and improvement, especially to deal with heavier cars. The FRA also suggested that these firms have limited access to bank loans.

Thirteen temporary business tax provisions are scheduled to expire at the end of 2020. Four other temporary business tax provisions are scheduled to expire in 2021 or 2022. In the past, Congress has regularly acted to extend expired or expiring temporary tax provisions. Collectively, these temporary tax provisions are often referred to as "tax extenders." This report briefly summarizes and discusses the economic impact of the 17 business-related tax provisions that are scheduled to expire in 2020, 2021, or 2022. The provisions discussed in this report are listed below, grouped by type and scheduled year of expiration. The following special business investment (cost recovery) provisions are scheduled to expire in 2020: special expensing rules for certain film, television, and live theatrical productions; seven-year recovery period for motorsports entertainment complexes; three-year depreciation for race horses two years or younger; and accelerated depreciation for business property on an Indian reservation. The following economic development provisions are scheduled to expire in 2020: e mpowerment zone tax incentives; American Samoa economic development credit; and new markets tax credit. The following other business-related provisions are scheduled to expire in 2020: Indian employment tax credit; mine rescue team training credit; employer tax credit for paid family and medical leave; work opportunity tax credit; look-through treatment of payments between related controlled foreign corporations; and p rovisions modifying excise taxes on wine, beer, and distilled spirits. The following provisions are scheduled to expire in 2021 or 2022: 12.5% increase in low-income housing tax credit (LIHTC) authority; computation of adjusted taxable income without regard to any deduction allowable for depreciation, amortization, or depletion; the rum cover over; and c redit for certain expenditures for maintaining railroad tracks. The 13 temporary business-related tax provisions scheduled to expire at the end of 2020 were most recently extended by the Further Consolidated Appropriations Act of 2020 ( P.L. 116-94 ). Of these 13 provisions, 8 had expired in 2017 and were extended retroactively and 5 were scheduled to expire in 2019. Past tax extenders legislation had extended 11 of these 13 provisions. The other two provisions, both of which were scheduled to expire in 2019, were added to the tax code as part of the 2017 tax revision ( P.L. 115-97 ). Four other business-related provisions will expire in 2021 or 2022. This report does not include provisions that in the past have been classified as individual or energy-related. See CRS Report R46243, Individual Tax Provisions ("Tax Extenders") Expiring in 2020: In Brief , coordinated by Molly F. Sherlock; and CRS Report R44990, Energy Tax Provisions That Expired in 2017 ("Tax Extenders") , by Molly F. Sherlock, Donald J. Marples, and Margot L. Crandall-Hollick. For a general overview of tax extenders, see CRS Report R45347, Tax Provisions That Expired in 2017 ("Tax Extenders") , by Molly F. Sherlock.

GAO_GAO-19-602

Background Counting the nation’s approximately 140 million households is an enormous undertaking requiring such essential logistics as the opening of hundreds of area offices to conduct essential field activities, recruiting and hiring hundreds of thousands of temporary workers to carry out those activities, and developing an approach to training those employees. To help control costs while maintaining accuracy, the Bureau is making significant changes in each of these areas compared to prior decennials. Area Census Offices According to Bureau planning documents, the Bureau intends to use technology to efficiently and effectively manage the 2020 Census fieldwork, and as a result, reduce the staffing, infrastructure, and brick- and-mortar footprint required for the 2020 Census. The three main components of the reengineered field operations are increased use of technology, increased management and staff productivity, and streamlined office and staffing structure. The Bureau’s 2020 Operational Plan states that 2020 Census field operations will rely heavily on automation. For example, the Bureau plans to provide most listers—temporary staff who verify and update addresses and maps—and enumerators— temporary staff who follow up with households that do not respond to the census questionnaire—with the capability to receive work assignments and perform all administrative and data collection tasks directly from a mobile device allowing them to work remotely. Supervisors will also be able to work remotely from the field and communicate with their staff via these devices—precluding them from needing access to a nearby local office. The Bureau’s 2020 Operational Plan states that these enhanced capabilities will significantly reduce the number of offices required to support 2020 Census fieldwork. In the 2010 Census, the Bureau established 12 RCCs and nearly 500 ACOs. The new design for the 2020 Census field operations includes six RCCs with 248 ACOs. Those 248 will be split into two waves, with 39 of the offices opening for Wave 1 by March 2019 to support early census operations such as in-field address canvassing, and the remaining 209 opening for Wave 2 by September 2019. Recruiting and Hiring Recruiting enough workers to fill the hundreds of thousands of temporary positions needed to conduct the 2020 Census is a tremendous challenge. According to Bureau plans before hiring begins, the Bureau needs to assemble an applicant pool in the millions. For the decennial census, Bureau plans indicate the Bureau will need a large and diverse workforce to ensure the accuracy of its maps and address list, and to follow up by phone or in person with households that do not respond to the questionnaire. Making these efforts even more difficult are external factors beyond the Bureau’s control, such as low unemployment rate, which can make it harder to recruit. According to Bureau plans, recruiting of potential employees will be conducted throughout the ACOs’ geographic area, based on projected operational workloads and staffing models developed for 2020 Census operations. Selected candidates will be invited to be fingerprinted and submit selected appointment paperwork prior to attending classroom training. The candidates will be sworn in and hired during the first day of training. The ACO staff model is as follows: one ACO Manager, one Lead Census Field Manager, one Administrative Manager, one Recruiting Manager, one Information Technology (IT) Manager, and Office Operations Supervisors, Clerks, and Recruiting Assistants. For data collection, it is: multiple Census Field Managers, Census Field Supervisors, and Enumerators; specific numbers based on workload; and supervisory ratios to be determined (see fig. 1). Training According to Bureau plans, the 2010 Census approach to training was predominantly instructor-led training with some hands-on training. This primarily consisted of instructors standing in front of a room of trainees and reading training materials to them from a prepared script. For 2020, the Bureau has developed training materials that use a blended training approach including instructor-led training, computer-based training, and hands-on training. This approach is intended to maximize trainee learning and on-the-job performance during the 2020 Census. According to the Bureau’s Detailed Operational Plan for the Field Infrastructure and Decennial Logistics Management Operations, it has developed training materials based on the lessons learned from previous censuses, such as the need to provide computer-based training. The Bureau’s Detailed Operational Plan for the Field Infrastructure and Decennial Logistics Management Operations also states that this innovation to training combines multiple modes of training delivery designed to maximize training outcomes for various types of learning styles: visual, auditory, and hands-on, blending online training methods, instructor-led classroom training, and on-the-job training or role-playing to prepare field staff to effectively fulfill their duties. Blended training is intended to: Provide a standardization of training, limiting the impact of instructor interpretation. Allow for easily updateable training materials in the case of errors or operational changes, minimizing the burden of errata materials. Provide automated assessment tools to enable a more consistent and reliable way to measure learner understanding of concepts. Provide post-training support through easily accessible online manuals and job aids. Training materials are designed to maximize self-paced learning. These accompanying training materials are developed to provide the most up-to- date methodologies for recruiting, onboarding, and training-the-trainer to carry out field data collection activities. The Bureau’s Efforts to Open Area Census Offices Appear on Track, Despite Some Schedule Slippages For the 2020 Census, the Bureau plans to open 248 ACOs. Similar to the 2010 Census, the total number of ACOs for 2020 was derived from the projected workload for field operations based on the number of enumerators needed for nonresponse follow-up. The Bureau allotted a specific number of ACOs to each of its six regional offices. Regions then developed boundaries for the ACO based on seven mandatory criteria that are described in a program memorandum, including that every state have at least one ACO; federally-recognized American Indian areas and military bases (regardless of county, state, or regional boundaries) will be managed by only one ACO; and ACO areas of responsibility will not cross state boundaries (with the exception of Indian reservations and military bases). See figure 2 below for the location of the 248 offices. Requirements for Leased Office Space for Area Census Offices In addition to the criteria used to delineate boundaries for its ACOs, the Bureau also had requirements for the ACO leased space. These requirements, for example, included that the ACO have a certain amount of contiguous square footage depending on the ACO type, and that an ACO not be co-located in a building that also houses agencies with law enforcement responsibilities because of privacy and confidentiality concerns. The Bureau also designated an “area of consideration” for each of its ACOs. According to Bureau officials, the area of consideration, which is a smaller geographic range where they would like to house the office, was based on such factors as access to public transit, general centrality within the ACO work boundaries, and proximity to eating establishments. In some cases, the Bureau had to deviate from its requirements for leased space or initial area of consideration. The decision to deviate from requirements usually arose from a lack of viable options in the real-estate market coupled with the Bureau’s need to meet its time frames. According to RCC staff, any deviations from requirements were presented at weekly staff meetings and then subsequently approved by the Regional Director, and in some cases such as co-location with law enforcement Bureau Headquarters approval was needed. According to Bureau officials, co-location with law enforcement is sensitive because of concerns that census data may be shared with others. Census data are kept confidential for 72 years. However, Bureau officials told us either the law enforcement offices were deemed innocuous, for example, the office housed a public defender or the law enforcement offices operated undercover, whereby no one entering the building would have been aware of their presence. In another case, Bureau officials told us that the Philadelphia region was struggling to find space for its ACO in Frederick, Maryland. When the General Services Administration (GSA) proposed a space in Hagerstown, Maryland, 30 miles away, the Bureau accepted it, though it was outside the initial area of consideration. According to officials at the regional office, the Bureau saved time and money by using a readily available cost-effective option by choosing Hagerstown, Maryland. The Bureau also had to expand the area of consideration for more than 31 percent or 77 of its 248 ACOs. According to Bureau officials, designating an area of consideration was an iterative process based on market availability, and having to expand the area was often necessary to secure space (see table 1). In select cases, the Bureau co-located ACOs in the same building. For example, instead of having one office in North Philadelphia and one in South Philadelphia, Bureau officials in the Philadelphia Region Census Center agreed to accept space in the same building located within the boundaries of the South Philadelphia ACO. The Bureau hired staff for each ACO from the original designated areas and kept the two offices completely separated. Bureau officials provided documentation indicating that this compromise came with considerable cost savings. The Bureau also abandoned other planned requirements in a number of cases to secure space, such as access to loading docks, assigned parking, and freight elevators. When we reviewed selected ACO files at the regional offices to determine whether the files included support for when deviations from space requirements and initial areas of consideration were documented, we did not find documentation. Instead, documentation was in staff emails. Files included a checklist of documents required, such as the signed lease and design intent drawings; however, there was not a requirement that documentation of deviations from space requirements or initial areas of consideration be maintained. Bureau officials at the regional level said that all procedures for handling waivers and expansions of the area of consideration were driven by the RCCs as well as informal guidance that was not documented. Standards for Internal Control in the Federal Government calls for documentation and records to be properly managed and maintained. Based on our suggestion that the Bureau develop a procedure for documenting these deviations in ACO areas of consideration or requirements, Bureau officials sent an email requiring that staff keep documentation (electronic or paper) on deviations in ACO areas of consideration or requirements in the ACO’s lease file folders. In cases where decisions are made via telephone or email, Bureau officials asked staff to write notes and scan emails, and add them to the ACO files. Maintaining this documentation will help ensure the transparency and integrity of Bureau decision-making, and ensure the information is readily available. The Bureau Is Managing Schedule Slippage in Opening Area Census Offices The Bureau experienced some early delays when regions were trying to find space and acquire leases. The Bureau attributed some of these delays to the use of the GSA’s Automated Advanced Acquisition Program (AAAP) process. This procurement process provides building owners and their authorized representatives with the opportunity to offer general purpose office space for lease to the federal government. The AAAP process accepts bids the first week of each monthly cycle. Then the remaining three weeks of the month are used to evaluate submitted offers and identify a potential lessor. According to GSA documents, in tight real estate markets, the first cycle did not always yield a suitable lessor due to lack of available inventory, and the short lease term the Bureau was seeking. Therefore, the Bureau had to wait three weeks until the start of the next cycle to re-open the bidding process. Bureau officials stated that during these 3 weeks, the Bureau regions would conduct additional market outreach and communicate outreach efforts with GSA to find a lessor. According to GSA, they agreed that too much time was elapsing in Wave I trying to receive offers without making any changes to the requirements or areas of consideration. To address this issue for Wave 2, the Bureau stated that GSA provided additional training to the Bureau’s regional staff, increased market outreach which included dedicated support from GSA’s national office, and the development of a strategy to use all of GSA’s tools, such as using GSA’s contract brokers in regions with the greatest number of Wave 2 ACOs. Bureau regional staff also told us they were able to meet leasing milestones in part because of flexibility in their requirements and in the areas of consideration. As of June 2019, there were signed leases for 247 of 248 offices. However, during our review, the Bureau reported that it had missed several construction (meaning renovations such as new electrical layouts, heating, ventilation, and air conditioning) and deployment deadlines. According to Bureau documents, for Wave 1 offices, nine of 39 offices had missed the February 28, 2019 deadline for having furniture and IT equipment; and for Wave 2 offices, 49 of 209 offices missed the February 20, 2019 deadline for having construction drawings complete. According to Bureau officials they are managing each of these delays on an office- by-office basis, and headquarters officials meet weekly with the RCCs to discuss the status of each office. They are also actively communicating with GSA on how to best work with the landlord to meet deadlines. Agency officials also indicated that the schedule deadlines for the later phases of construction allow for more time than may be necessary, allowing them to make up time lost from early delays. For example, at the Concord, New Hampshire ACO, the Bureau plans to make up lost time in construction with actions such as using a fence to divide two office areas instead of adding a wall, and using a “cage” for badging instead of constructing a separate room inside the space. As of June 3, 2019, 38 of 39 Wave 1 offices are ready for business. Seven of 209 Wave 2 offices are still working to finish the milestone of completing construction drawings, which had an original deadline of February 20, 2019. According to Bureau officials, the seven offices without completed construction drawings are being given priority attention by both GSA and the Bureau. We will continue to monitor the opening of ACOs in ongoing work. The Bureau Has Exceeded Its Early Recruiting Goals for the 2020 Census; However, It Faces Some Challenges Going Forward The Bureau Has Exceeded Its Early Recruiting Goals According to Bureau reporting documents, as of June 2019, the Bureau is exceeding its recruiting goals for early operations. This includes field staff for in-field address canvassing where census staff verify address and map information for housing units in selected areas of the country, office staff at the 39 Wave 1 ACOs, recruiting assistants, and partnership specialists. The Bureau had a goal of recruiting approximately 205,000 individuals for its 2020 early operations efforts by the end of June 2019, and plans to recruit between 2.4 million and 2.6 million applicants for all field operations. By comparison, in 2010, the Bureau recruited about 3.9 million applicants. As of June 17, 2019, the Bureau had processed job applications and assessments for approximately 428,000 applicants which represent about 208 percent of its roughly 205,000 recruiting goal. For the 2020 Census, the Bureau plans to hire nearly 400,000 temporary field staff from its applicant pool for two key operations: in-field address canvassing and nonresponse follow-up, where census staff visit households that do not return census forms to collect data in person. In 2010, the Bureau hired approximately 628,000 temporary workers to conduct the address canvassing and nonresponse follow-up field operations. Below is the recruiting and hiring timeline for the in-field address canvassing and nonresponse follow-up operations (see fig. 3). According to Bureau officials, they are recruiting and hiring fewer temporary staff in 2020 compared to 2010, in part, because automation has made field operations more efficient. For example, there is less paper to manage and process as daily payroll records and daily field work assignments are electronic. As a result, productivity has increased and mileage and labor costs have decreased because census field staff do not meet daily with their supervisors, as was the case in 2010. Moreover, the automation of assignment routing to housing units has optimized the time spent by enumerators driving to housing units. During the 2018 End- to-End Test, the Bureau found the productivity for in-field address canvassing had exceeded its goal at all three test sites (see table 2). The Bureau attributes these efficiencies to the automation of work assignments. The Bureau Plans to Use Successful Recruitment Strategies from Prior Censuses while Leveraging Technology For the 2020 Census, the Bureau plans to use some of the same strategies it used to recruit and hire all temporary workers as during the 2010 Census—because those strategies were successful—while also leveraging technology and social media. For example, according to the Bureau, the overarching strategy for hiring enumerators is to hire people who will work in the communities where they live. This strategy provides the Bureau with enumerators who are familiar with the areas where they will be working and who speak the languages of the local community. To recruit staff, recruiting assistants are to work with local partnership staff and use paid advertisements and earned media (e.g., publicity gained through promotional efforts, news reports, etc.). The Bureau plans to also continue to use its recruiting website, http://www.2020census.gov/jobs, which provides information about the various positions, local pay rates, application materials, and job qualifications. Moreover, Bureau officials stated that a diverse multilingual workforce is needed and that the Bureau has tailored its approach to that end. For example, the website includes Spanish language pages and recruitment materials (see fig. 4). Bureau documentation indicates that similar to 2010, the Bureau will continue to use waivers and hiring exemptions to enable well-qualified individuals to work on the 2020 Census who otherwise might not have applied for jobs, particularly in hard-to-recruit areas. These waivers allow the Bureau to temporarily hire federal retirees and individuals receiving public assistance without impacting their benefits, and to hire current federal employees without impacting their job status or salary. As of February 27, 2019, the Office of Personnel Management (OPM) had given the Bureau approval to hire 44 re-employed annuitants for the 2020 Census. The Bureau also had dual employment agreements with 28 federal agencies and commissions. For the 2010 Census, the Bureau had these agreements with a total of 81 federal agencies. To obtain waivers for individuals on public assistance, the Bureau is partnering with the Office of Management and Budget and working with Health and Human Services to obtain waivers for Temporary Assistance for Needy Families and Supplemental Nutrition Assistance Program recipients. The Bureau is also working with tribal governments to acquire similar waivers. In addition to these previously used strategies, the Bureau is planning to leverage technology in its recruiting strategy for 2020. This technology includes the Bureau-developed Response Outreach Area Mapper (ROAM) application, a publicly available online mapping tool that Bureau staff can use to better understand the sociodemographic makeup of their assigned areas. The Bureau plans to use ROAM to identify areas where recruiting could be hard and to develop recruitment strategies such as hiring staff with specific language skills. The new technology also includes the MOJO Recruiting Dashboard (also referred to as MOJO Recruit), which is software for Census recruiting personnel to plan and manage recruiting activities and track recruiting progress. For example, MOJO Recruit includes an interactive mapping feature which lets the Bureau plan recruiting activities and track recruiting status for each census tract. The map draws attention to areas that may be experiencing recruiting problems (see fig. 5). Red indicates areas where the Bureau is less than 50 percent of the way toward meeting its recruiting goal. Yellow indicates areas where the Bureau is 50 to 79 percent of the way toward meetings its goal. Green indicates areas where the Bureau is 80 percent or higher of the way toward meetings its goal. Bureau officials also stated that that they plan to increase the use of social media platforms such as Facebook, Twitter, and Instagram to promote and advertise 2020 Census job opportunities. For example, the Bureau’s 2020 Census Recruitment Toolkit includes social media guidelines, tips, sample posts, and sample email messages to assist recruiting staff in providing information about 2020 Census job opportunities. It also assists recruiting staff with responding to questions and concerns or directing people to the appropriate location for more information about jobs. The Bureau Took Steps to Improve Its Application and Assessment Process for Potential Hires For the 2020 Census, the Bureau revised its application and assessment process to ease the burden on job applicants and to better assist the Bureau in identifying qualified applicants. Job candidates are to apply and take a skill assessment online, as opposed to attending recruiting sessions in person and taking a written test. The Bureau has also streamlined both the application and assessment process by asking fewer questions and requiring only one assessment for all nonsupervisory positions. According to Bureau officials, the 2020 Census job application should take 10 minutes to complete, by comparison the 2010 Census job application took 30 minutes to complete. Moreover, for prior censuses, applicants had to complete one of two 45-minute assessments to determine the appropriate skill set for either working in the office or in the field. For 2020, OPM has approved the Bureau giving one assessment for all five short-term census positions: Recruiting Assistant, Clerk, Office Operations Supervisor, Enumerator, and Census Field Supervisor, thereby eliminating the need to give separate assessments for the office and field positions. Finally, for those considering a supervisor position, a separate supervisory assessment is required. For 2020, this consists of nine questions compared to 29 questions in 2010. According to Bureau officials, this supervisory assessment should take an additional 10 minutes to complete instead of 1 hour, as it did on 2010. For 2020, the Bureau has also changed the assessment questions it asks applicants from situational-judgment questions to biodata and personality questions. In making this decision, during the 2018 End-to-End Test, the Bureau asked situational-judgment questions in the assessment questionnaire, and then administered a set of biodata and personality questions after hiring. The Bureau conducted an analysis of both types of questions and concluded that the biodata and personality questions were a better predictor of job success. Bureau officials told us they will be evaluating their new job assessment processes for 2020, including the use of biodata. Despite the Progress Made in Recruiting, the Bureau Still Faces Several Hiring Challenges The Bureau has identified challenges that exist in some areas, such as: (1) delayed background checks; (2) low unemployment; and (3) language barriers. Delayed Background Checks Employment with the Bureau is contingent upon successfully completing a background check. The Bureau found that the process for four positions (recruiting assistants, office operation supervisors, clerks, and partnership specialists) was taking longer than it expected. These positions require a full background check because employees will have access to the Bureau’s network, they will be issued expensive equipment (e.g., laptops and desktops), and their employment will likely last more than 6 months. For the full background checks, applicants must complete two security background forms—Standard Form 85: Questionnaire for Nonsensitive positions (SF85) through the Electronic Questionnaires for Investigations Processing system (e-QIP) and Optional Form 306: Declaration for Federal Employment (OF306)—and must have their fingerprints processed, in which the Federal Bureau of Investigations conducts a review for any prior arrest or convictions. Once completed, the forms are reviewed by the Census Investigative Services (CIS) where OPM-trained staff make either a favorable, unfavorable, or inconclusive precheck employment determination. According to Bureau officials, certain crimes, for example violent crimes, automatically exclude the applicant from further consideration. If the determination is inconclusive, then CIS is to send the form to the Office of Employee Relations to make a favorable or unfavorable determination. All favorable determinations are then sent to OPM for adjudication with a full background check (see fig. 6). According to Bureau officials, in December of 2018, they began to encounter a backlog of pre-employment background checks Bureau-wide as they began hiring some 800 recruiting assistants and about 1,970 office staff for the first wave of 39 ACO openings. As of March 21, 2019, Bureau officials told us that Bureau-wide there were 7,092 background clearances pending, of which, 4,900 were for field positions. In response to the backlog, Bureau leadership said it created a team to determine the cause of the backlog and started having weekly meetings to prioritize which job positions needed to be cleared first. Bureau officials stated that the delays arose, in part, because a significant number of applicants did not completely or correctly fill out the e-QIP form. This, they said, coupled with the increase in required pre- employment background checks, resulted in a growing backlog of clearances for which the Bureau did not have the resources to clear. In response, in February 2019, the Bureau began to bring on, through a combination of new hires and reassignments, about 130 temporary staff. New staff was assigned to either review the forms for accuracy and completeness prior to being submitted to the CIS office, or help the CIS offices conduct the pre-employment background checks. Additionally, Bureau officials told us that they meet weekly to reprioritize job positions for the clearance process. The CIS office is to process background checks for all Census employees requiring them, including decennial census field staff, decennial census contractors, and staff needed for nondecennial census surveys in headquarters and in the field. According to Bureau officials, the decennial census takes precedence and within the decennial census positions are also prioritized. For example, in January 2019, the 800 recruiting assistants were given priority and now the hiring of 1,501 partnership specialists has been given priority. Bureau officials told us that in December 2018 they were processing 110 background checks a week, and have set a goal that each CIS analyst process 25 pre-employment packages a week. There are 40 analysts on board, giving the Bureau the ability to process 1,000 pre-employment background check packages a week. Bureau officials also told us that they anticipate the clearance process for the positions of enumerator/lister and census field supervisor will not experience the same delays because these positions only require fingerprint processing, which is quicker. According to Bureau officials, these results can be made available within 3 hours. Moreover, although the Bureau has taken steps to address the backlog, the bulk of pre-employment background clearances has yet to be processed and Bureau officials told us that they remain concerned. In the coming months, the Bureau will need to conduct background checks for an additional 3,991 recruiting assistants and about 10,300 office staff for the remaining 209 offices. We will continue to monitor the backlog of background clearances through our ongoing work. Low Unemployment Although the Bureau has exceeded its recruiting goals for early operations, recruiting a sufficient number of job applicants for the job of partnership specialist is a challenge. Bureau officials told us that a robust economy and low unemployment rate have resulted in a smaller pool of applicants for that position. For example, as part of its 2020 Census efforts, the Bureau had planned to hire 1,181 partnership specialists by May 1, 2019 and 1,501 partnership specialists by June 30, 2019, to help increase awareness and participation in the 2020 Census in minority communities and hard-to-reach populations. The Bureau did not meet its goal to hire 1,181 partnership specialists by May 1, 2019. To hire sufficient partnership staff, Bureau officials told us they have an “open and continuous” posting for partnership specialist positions instead of discrete individual job postings, and they are selecting two candidates from each certification list of qualified applicants. Moreover, Census leadership tracks the weekly progress of the partnership specialist positions. As of July 9, 2019, the Bureau’s latest biweekly reporting indicated that it had hired 813 partnership specialists as of June 22, 2019. Moreover, as of July 10, 2019 Bureau officials told us that another 830 applicants were waiting to have their background checks completed. According to Bureau officials hiring data are based on payroll dates generated biweekly, while background check data are tracked internally. Therefore, according to Bureau officials, more current hiring data were not available as of July 10, 2019 to indicate whether the Bureau had met its June 30 hiring goal. Hiring partnership specialists in a timely manner is key to the Bureau’s ability to carry out its planned outreach efforts, especially for hard-to- count communities. In addition, several RCC officials said the pay rate and the low unemployment rate in some ACO locations initially affected their ability to recruit well-qualified staff for office positions. Atlanta RCC officials stated it was challenging to recruit managers in the Gainesville, Florida, area. According to Bureau officials, the pay rate was too low and potential recruits were seeking employment elsewhere. The Bureau increased the managers’ pay rate to be more competitive for the area. Philadelphia RCC officials stated that in rural ACO locations the pay rate is lower and potential recruits would rather travel to the metro areas to get the higher pay rates offered there. The Denver RCC reported that low unemployment rates throughout the regions make recruiting difficult, and that Census enumerators jobs are not as competitive with many other wages offered in the region. The Los Angeles RCC reported having difficulty recruiting local applicants in high-cost areas like Beverly Hills, the San Francisco Bay Area, and Silicon Valley. Bureau headquarters officials acknowledge that some ACO locations have experienced some recruiting challenges, but said that the RCCs were ultimately able to fill the office positions. Headquarters officials stated that their pay rates either match or exceed the competitive pay rate in the majority of the ACO locations. According to Bureau headquarters officials, regional offices that may be experiencing challenges recruiting staff must demonstrate or prove that the pay rate for a specific ACO is causing difficulty recruiting. The Field Division is responsible for approving or denying the request to adjust pay. For the 2010 Census, the Bureau reported 124 requests for pay rate adjustments, of which 64 were approved. The Bureau stated that it will continue to monitor how low unemployment affects its ability to recruit and hire. Language Barriers The Bureau reports that the demographic and cultural makeup of the United States continues to increase in complexity, including a growing number of households and individuals whose proficiency in English is limited. Language barriers could make it difficult to enumerate these households, whose members may have varying levels of comfort with government involvement. Several RCC officials also mentioned that language barriers could impact their recruiting efforts: Both the Los Angeles and New York RCCs reported it is hard to recruit in immigrant communities where residents speak a foreign language or dialects, and often have no organizational infrastructure (such as associations of individuals of the same national origin, print news media, or radio). The New York RCC reported challenges in locating applicants who are bilingual in English and other languages such as Chinese, Russian, Arabic, Korean, Creole, Polish, Portuguese, Bengali, Urdu, Punjabi, Gujarati, Hindi, and Hebrew, as well as Yiddish and African languages. The Atlanta RCC reported challenges related to the diverse language needs (e.g., Spanish, Chinese, Vietnamese, Creole, Portuguese, etc.) in south and central Florida. The Chicago RCC reported recruiting outreach challenges in urban areas, including Chicago, Indianapolis, Detroit, Minneapolis/St. Paul, St. Louis, and Kansas City, that have higher minority and immigrant populations as well as in rural areas with increasing diversity. Bureau officials responded that later this fall, in preparation for their peak operations effort, they will begin to focus recruiting efforts on foreign language recruiting. Specifically, partnership and recruiting staff plan to work with partners and advertise jobs locally (at the grassroots level) in places where persons with these skills are likely to look to ensure they are meeting recruiting goals in those areas. The Bureau Is Following Its Planned Training Approach for 2020, but Has Opportunities to Improve Its Ability to Assess Performance For the 2020 Census, the Bureau is following its plans to use a blended training approach combining technology-assisted training with classroom instruction. According to Bureau planning documents, on the first day of in-person classroom training, the Bureau will provide orientation information and issue devices that trainees will use to conduct census operations. The Bureau plans to use local institutions such as schools, libraries, churches, and fire halls to host training. ACO staff are to coordinate the training location setup, device deliveries to training sites, and manage other logistics for large-scale field staff training. After the first day of training, field staff will spend the next 4 to 6 days (depending on the operation) completing at-home training online using their own personal device at their own pace. This training will include, for example, operation-specific skills, use of the data collection device (smart phone or tablet), and general field processes. Trainees who complete the online portion of the training program will return to the classroom to practice what they learned through role-playing, mock interviews, or live cases (for listing operations) facilitated by managers or supervisors. According to Bureau officials, employees will also have access to just-in- time training materials on their devices for use in the field. The Bureau Took Steps to Manage Some Challenges in Implementing Its Blended Training Approach During the 2018 End-to-End Test The Bureau encountered a number of challenges in implementing and testing its blended training approach, but is taking steps to mitigate those challenges. Specifically, during the 2018 End-to-End Test, the Bureau (1) experienced problems with the proper recording of online training scores for census staff, (2) was unable to test online training for one of its operations because the operation was added late, and (3) encountered challenges with census staff not always having access to the internet, which is required to complete the training. The Bureau Is Taking Action to Ensure the Completion of Training Is Accurately Tracked The 2018 End-to-End Test of address canvassing and nonresponse follow-up training revealed some technical challenges in using the Learning Management System. The Learning Management System is the online training system for the 2020 Census; it contains online training modules and tracks final assessment scores and training certifications. In February 2019, the Department of Commerce (Commerce) Office of the Inspector General (OIG) noted that during the address canvassing operation there was no final assessment scores recorded for 23 trained listers. The Bureau was also unable to provide documentation that another three lister trainees who failed the final assessment had been observed by their supervisor before being permitted to work. Bureau officials said they provided an action plan to the Commerce OIG in April 2019. According to Bureau officials, the action plan has not been finalized because they are incorporating changes to the action plan based on Commerce OIG comments. In December 2018, we reported that roughly 100 enumerator trainees in the nonresponse follow-up operation were unable to transmit their final test scores because the Learning Management System had an erroneous setting. According to Bureau officials, this problem delayed the start of unsupervised work for these otherwise-qualified enumerator trainees by an average of 2 days per trainee, and resulted in the attrition of some who were able to quickly find other work. Bureau officials reported that they have fixed the system setting. Moreover, according to Bureau officials, they have also developed an alternative means to certify training by incorporating the employee final assessment into the final day of classroom training. The Bureau was Unable to Test All Online Training, but Has Plans in Place to Conduct Dry-Runs of the Untested Training According to Bureau officials, Update Leave online training was not tested during the 2018 End-to-End Test due to the late addition of the operation to the 2020 Census design. Officials told us that the Update Leave operation was approved in May 2017, leaving just 10 months for the development team to create and implement software and the systems to support this field operation for the End-to-End Test. This left no time to develop online training that would be ready for the End-to-End Test in March 2018. Therefore, the Bureau classroom-trained headquarters staff instead of temporary field staff for the operation. According to the Bureau’s risk register, the utilization of Bureau headquarters staff did not properly simulate training conditions or staff characteristics in which new employees have no prior knowledge of census operations. Therefore, the 2018 End-to-End Test did not allow for proper training feedback or the capture of lessons learned with regard to temporary staff or the mode of training. According to Bureau officials, the Bureau plans to conduct scheduled dry runs of training in September 2019 to collect feedback and, if necessary, make changes to Update Leave-specific training. The Bureau Has Plan to Address Trainee Access to Online Training In June 2018, we reported that some listers had difficulty accessing the internet to take online training for address canvassing. According to the Bureau, in addition to the Bureau-provided laptop, listers also needed a personal home computer or laptop and internet access at their home to complete the training. However, while the Bureau reported that listers had access to a personal computer to complete the training, we found some listers did not have access to the internet at their home and had to find workarounds to access the training. We recommended that the Bureau finalize plans for alternate training locations in areas where internet access is a barrier to completing training. The Bureau took action and in March 2019 finalized its plans for identifying alternate training locations in areas where internet access is a barrier to completing training. Specifically, Bureau officials told us that in areas of known low connectivity rates, regional staff will identify sites that trainees can access to complete online components of the training. In addition, the Bureau provided us with a training module for identifying training field staff locations that emphasized training sites need to be located in areas with a good cellular connection and also have access to the internet. The Bureau Has Generally Met the Criteria for Selected Leading Practices for Training Development, but Could Better Document Measures of Success Effective training can enhance the Bureau’s ability to attract and retain employees with the skills and competencies needed to conduct the 2020 Census. Our Guide for Assessing Strategic Training and Development Efforts in the Federal Government describes components for developing effective training in the federal government. Our strategic training guide identifies four phases of the training—planning, design/development, implementation, and evaluation. We assessed the Bureau’s training approach and found that it generally aligned with selected leading practices. This report includes the design/development and evaluation phases of training. We did not assess the implementation phase because field staff training had not yet begun during our audit, and we did not assess the planning phase because practices in that phase are more applicable to agency-wide rather than program-specific training development. Design/Development The design/development phase involves identifying specific training and development initiatives that the agency will use, along with other strategies, to improve individual and agency performance. According to the guide, well-designed training and development programs are linked to agency goals and to the organizational, occupational, and individual skills and competencies needed for the agency to perform effectively. Moreover, in response to emerging demands and the increasing availability of new technologies, agencies, including the Bureau for the 2020 Census, are faced with the challenge of choosing the optimal mix for the specific purpose and situation from a wide range of mechanisms, including classroom and online learning as well as structured on-the-job experiences (see fig. 7). In developing its training approach we found the Bureau met all five selected leading practices related to design/development. Specifically, Bureau training aligned with achieving results for the Bureau’s re- engineered field operations. Specifically, the Bureau has a formal online training program that uses the Learning Management System as a control mechanism to provide and record training results for all 2020 Census field staff who take online training. The Bureau’s training program is integrated with other strategies to improve performance such as building team relationships. For example, the training includes modules for supervisors that focus on guiding and motivating employees, communicating effectively, and resolving conduct issues. To ensure the training is properly integrated with device issuance, for larger scale operations, the Bureau plans to stagger training sessions to help ensure there is the necessary support during the first day of training when census field staff receive their devices. The Bureau also plans to use different training delivery mechanisms. For example, the Bureau will use a blended training approach which includes a mix of computer-based and instructor-led classroom training. The Bureau has measures of effectiveness in its course design. The Bureau relied on an in-house training development team that worked with the data collection operations staff to develop learning objectives. We found that that the Bureau has procedures to incorporate feedback. Specifically, the Bureau incorporated lessons learned from previous census tests, such as the refinement of procedures for reassigning work in the field and emphasizing the importance of knocking on doors to find a proxy respondent during the nonresponse follow-up operation. Finally, the Bureau’s training documents contained goals for achieving results for its new training approach. Specifically, the Operational Assessment Study Plan for Recruiting, Onboarding, and Training for the 2018 End-to-End Test contained the following measures of success for training—reduce cost and increase efficiency over what was reported in 2010. Evaluation In developing its evaluation phase for training, the Bureau met five of six selected leading practices and partially met one leading practice. The evaluation phase involves assessing the extent to which training and development efforts contribute to improved performance and results. We have previously found that it is increasingly important for agencies to be able to evaluate their training and development programs, and demonstrate how these efforts help develop employees and improve the agencies’ performance (see fig. 8). Overall, we found that the Bureau has a robust evaluation plan for the 2020 Census that gathers data from multiple sources. For example, The Bureau has a plan to evaluate the effectiveness of training for the 2020 Census. Specifically, operational and assessment study plans set priorities for evaluations and cover the methods, timing, and responsibilities for data collection, including assessment questions, metrics, data sources and expected delivery dates, and division responsibilities. The Bureau has an analytical approach to assess training programs. For example, the Field Decennial Data Collection Training Branch has developed three separate training evaluation surveys which will be administered to field staff through the Learning Management System. The three evaluations provide training feedback after the completion of the online training; after the completion of the classroom training; and near the completion of the operation. According to the Bureau, these assessments will help determine the effectiveness of training. The Bureau incorporated evaluation feedback into planning and design of training. For example, the Bureau held debrief sessions with census workers during the 2018 End-to-End Test and told us they were also incorporating recommendations made by a training vendor. Feedback from the 2018 End-to-End Test is being used to inform training for the 2020 Census. The Bureau incorporates different perspectives in assessing the impact of training. Bureau officials stated that they incorporated feedback from a variety of stakeholders when evaluating the effectiveness of its training during testing, including participant debriefs and evaluations from vendors. As previously discussed, the Bureau used three different surveys at different points in time to evaluate training, and relied on debrief sessions with census managers and staff in the field. Bureau officials said they considered the training methods of another organization. For example, Bureau officials told us they used training vendors that followed requirements, including e-learning content developed by the Department of Defense. However, we found that the Bureau does not have performance goals or measures for training in its corresponding study plan for the 2020 Census. Specifically, we found that in the Detailed Operational Plan for the Field Infrastructure and Decennial Logistics Management Operations for the 2020 Census, the Bureau had planned to include the following success measures: Process Measures that indicate how well the process works, typically including measures related to completion dates, rates, and productivity rates. Cost Measures that drive the cost of the operation and comparisons of actual costs to planned budgets. Costs can include workload as well as different types of resource costs. Quality Measures, such as, the results of the operation, typically including rework rates, and error rates. However, according to Bureau officials they decided not to include the measures from the study plan for training because the study plan was intended to provide descriptive information about operations rather than evaluate them. We have previously reported that a fundamental element in an organization’s efforts to manage for results is its ability to set meaningful goals for performance and to measure progress toward those goals. Thus, without specific performance goals and measures for its new blended training approach that considers cost and benefits when compared to 2010, the Bureau will not be able to determine whether its blended training approach reduced costs or increased efficiency. Moreover, not having goals and measures in place could inhibit the Bureau’s ability to develop meaningful lessons learned from the 2020 Census. Bureau officials agreed and stated they will consider including goals and measures on cost and efficiency in its plans; however, the Bureau has not yet provided us with documentation to reflect the goals and measures it will use to evaluate training, and has no time frame for doing so. Training for in-field address canvassing operation will begin in July 2019. Having performance goals and measures will help the Bureau assess the impact of its new training approach on cost, quality, and resources expended. Conclusions Successfully carrying out the thousands of activities needed to complete an accurate, cost-effective head count on schedule is an enormous and challenging task. However, for those activities we examined, the Bureau appears to be positioned to carry them out as planned, if implemented properly. While Bureau officials acknowledged there were some early delays when regions were trying to find office space and acquire leases, they said that the deadlines for the later phases of construction allow extra time—giving them a chance to make up lost time. Regarding recruiting and hiring, the Bureau was exceeding its recruiting goals for early operations, but identified challenges in areas such as promptly completing background checks, hiring in a time of low unemployment, and overcoming language barriers. Moreover, although the Bureau has exceeded its recruiting goal for early operations, recruiting a sufficient number of job applicants for partnership specialist is a challenge. The Bureau’s continued response to and management of these challenges will be important as it begins recruiting for its peak operation efforts later this fall. The Bureau has generally followed its training plans for 2020, but has opportunities to improve its ability to evaluate training efforts. The Bureau notes that the blended training approach is intended to maximize trainee learning and on the job performance during the 2020 Census. However, 2020 Census documents do not contain performance goals or measures for determining the cost and benefits of the training when compared to 2010. Revising plans to include goals and measures will better position the Bureau to determine how its blended training approach will impact the cost, quality, and resources expended on the 2020 Census. Recommendation for Executive Action We recommend that the Secretary of Commerce direct the U.S. Census Bureau to revise plans to include goals and measures for assessing the cost and benefits of the Bureau’s new blended training approach. These measures might include, but are not limited to, measures of cost, quality, and resources associated with training when compared to 2010. (Recommendation 1) Agency Comments and Our Evaluation We provided a draft of this report to the Secretary of Commerce. In its written comments, reproduced in appendix II, the Department of Commerce agreed with our findings and recommendation and said it would develop an action plan to address our recommendation. The Census Bureau also provided technical comments, which we incorporated. We are sending copies of this report to the Secretary of Commerce, the Under Secretary of Economic Affairs, the Director of the U.S. Census Bureau, and interested congressional committees. The report also is available at no charge on GAO’s website at http://www.gao.gov. If you have any questions about this report please contact me at (202) 512-2757 or goldenkoffr@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 major contributions to this report are listed in appendix III. Appendix I: Objective, Scope, and Methodology This report assesses the extent to which the Census Bureau (Bureau) is following its plans for space acquisition, recruiting and hiring, and training. For all of our objectives, we reviewed current Bureau planning documents and schedules, and interviewed Bureau officials including officials at the Bureau’s six regional offices. To assess the Bureau’s progress in opening area census offices (ACO), we obtained and reviewed current Bureau leasing agreement information and construction (meaning renovations such as new electrical layouts, heating, ventilation, and air conditioning) and deployment information. We also gathered information on the General Services Administration’s role in obtaining office space. To determine whether the Bureau is on track, we compared the current status of opening, construction, and deployment of ACOs to the Bureau’s plans, schedules, and timelines, and identified differences for follow-up with Bureau officials. We also reviewed a randomly selected nongeneralizable sample of ACO files at the Philadelphia RCC to determine whether justification was included when changes to ACO locations occurred. To determine the extent to which the Bureau is following its field hiring and recruiting strategy for the 2020 Census, we reviewed Bureau documentation regarding its strategy for recruiting and hiring temporary field staff for the 2020 Census. We also reviewed output and analysis from relevant Bureau human resources systems/databases, such as MOJO Recruit. We interviewed Bureau officials in both headquarters and the field who are knowledgeable about and responsible for recruiting and hiring temporary field staff to determine the extent to which the Bureau is meeting its recruiting and hiring goals, to describe their perspectives on any challenges facing the 2020 Census, and to understand the Bureau’s actions to mitigate any challenges. To understand changes from 2010, we compared the 2010 Census recruiting and hiring plans to those of the 2020 Census to determine differences, and interviewed Bureau officials to discuss what drove these changes. Finally, to determine the extent to which the Bureau has followed its plans for training field staff, and whether this training approach is consistent with selected leading practices, we examined relevant documents and interviewed Bureau officials to determine the Bureau’s planned approach for training, lessons learned from prior Census tests, the extent to which the Bureau is incorporating lessons learned as a result of its own testing, and what changes to training need to be made before the start of 2020 field operations. Additionally, we interviewed Bureau officials responsible for developing training curriculum to understand how training was developed (e.g. what courses to develop, challenges to using technology, etc.). We also reviewed federal guidance and our prior reports, and selected 11 leading practices from GAO’s Guide for Assessing Strategic Training and Development Efforts in the Federal Government (GAO-04-546G) as leading practices for training. Our strategic training guide identifies four phases of the training development process (planning/analysis, design/development, implementation, and evaluation). We assessed the approach against leading practices in two of these phases: design/development and evaluation. We did not assess the implementation phase because field staff training for the 2020 Census had not yet begun during our audit, and we did not assess the planning/analysis phase because practices in that phase are more applicable to agency-wide rather than program-specific training development, and focus on full-time permanent employees rather than temporary employees. Moreover, within the design/development phase and evaluation phase, we did not assess all best practices because some of those best practices were also more applicable to agency-wide rather than program-specific training development, or we had already evaluated such practices as cost. Moreover, this report primarily focuses on training for the address canvassing and nonresponse follow-up operations. We then compared the Bureau’s training approach to those leading practices and identified practices being followed and any differences. We conducted this performance audit from August 2018 to July 2019 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. Appendix II: Comments from the Department of Commerce Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments Other key contributors to this report include Lisa Pearson, Assistant Director; Timothy Wexler, Analyst-in-Charge; Mark Abraham; Michael Bechetti; Jessica Blackband; James Cook; Rob Gebhart; Kerstin Hudon; Kayla Robinson; and Cynthia Saunders.

The decennial census is a crucial, constitutionally mandated activity with immutable deadlines. To meet these statutory deadlines, the Bureau carries out thousands of activities that need to be successfully completed on schedule for an accurate, cost-effective head count. These activities include opening area census offices, recruiting and hiring a large temporary workforce, and training that workforce. GAO was asked to review the Bureau's plans for critical logistical support activities. This report (1) assesses the Bureau's progress in opening area census offices; (2) determines the extent to which the Bureau is following its field hiring and recruiting strategy for the 2020 Census; and (3) determines the extent to which the Bureau has followed its plans for training field staff, and whether this training approach is consistent with selected leading practices. To assess the extent to which the Bureau is following its plans for opening area census offices, recruiting and hiring, and training, GAO reviewed current Bureau planning documents and schedules, and interviewed Bureau officials, including officials at the Bureau's six regional offices. GAO used its guide to training ( GAO-04-546G ) as criteria for selected leading practices. To help control the cost of the 2020 Census while maintaining accuracy, the Census Bureau (Bureau) is making significant changes in three areas—office space, recruiting and hiring, and training—compared to prior decennials. The Bureau is reducing its use of office space, hiring fewer census field staff, and adopting a blended training approach of instructor-led, computer-based, and hands-on training (see figure). GAO found that the the Bureau generally appears to be positioned to carry out these activities as planned, if implemented properly. Opening offices. While the Bureau experienced early delays when regions were trying to find office space and acquire leases, Bureau officials said that the deadlines for the later phases of renovations will allow them to make up time lost. As of June 2019, there were signed leases for 247 of 248 offices. Recruiting and hiring. As of June 2019, the Bureau was exceeding its recruiting goals for early operations, but identified challenges in areas such as completing background checks and hiring during low unemployment, especially for partnership specialist positions. GAO will continue to monitor these challenges, as recruiting and hiring for the census continues. Training. The Bureau generally followed its training plans for 2020 and generally followed selected leading practices for its training approach. However, GAO found that the Bureau does not have goals and performance measures for evaluating its new training approach. Without goals and performance measures the Bureau will not be able to accurately assess the cost and benefits of its new training approach.

CRS_R46326

Introduction On March 13, 2020, President Donald J. Trump declared an emergency under Section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act; 42 U.S.C. §5191(b)) in response to coronavirus disease 2019 (COVID-19). The President's emergency declaration authorized assistance for COVID-19 response efforts for all U.S. states, territories, tribes, and the District of Columbia in accordance with Stafford Act Section 502. The emergency declaration authorized the Federal Emergency Management Agency's (FEMA's) Public Assistance (PA) program, which provides direct and financial assistance for emergency protective measures. The President's March 13, 2020 emergency declaration letter to the Acting Secretary of the Department of Homeland Security, the Secretary of the Department of Treasury, the Secretary of the Department of Health and Human Services, and the Administrator of the Federal Emergency Management Agency, stated that the President "believe[s] that the disaster is of such severity and magnitude nationwide that requests for a declaration of a major disaster ... may be appropriate." As of March 20, 2020, the President began approving major disaster declaration requests under the Stafford Act. As of April 22, 2020, the President had approved major disaster declaration requests for all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. This report provides answers to frequently asked questions (FAQs) regarding: Stafford Act declarations, including legal authorities, limitations on assistance, and other information related to the declaration request process; types of assistance available to state, territorial, and tribal governments, private nonprofit organizations, private entities, and individuals and households pursuant to the Stafford Act emergency and major disaster declarations for COVID-19; the Disaster Relief Fund (DRF), the source of funding for the Stafford Act emergency and major disaster declarations; and additional references. The scope of this report is limited to assistance authorized under the Stafford Act. There are, however, other types of assistance extrinsic to the Stafford Act that are activated by a Stafford declaration. This report does not address these other forms of assistance. Stafford Act Declarations The Stafford Act authorizes the President to issue two types of declarations that could provide federal assistance to states and localities in response to a public health incident, such as an infectious disease outbreak: (1) an "emergency declaration" (authorized under Stafford Act Section 501), or (2) a "major disaster declaration" (authorized under Stafford Act Section 401). The following questions relate to the Stafford Act declarations for COVID-19. The President declared an emergency for COVID-19. Do states, territories, and tribes still need to request a COVID-19 emergency declaration? The President's emergency declaration authorized assistance for COVID-19 response efforts for all U.S. states, territories, tribes, and the District of Columbia; specifically, it authorized FEMA Public Assistance (PA) emergency protective measures. Thus, states, territories, and tribes do not need to request separate emergency declarations in addition to the President's emergency declaration. If, however, a state, territory, or tribe needs supplementary federal assistance, the governor or chief executive may request that the declaration be amended to include additional areas or types of assistance. FEMA can approve a request for additional areas or forms of assistance after a presidential emergency declaration. The assistance provided pursuant to an emergency declaration is limited (see Table 1 , which lists the forms of assistance available pursuant to each type of declaration). If a state, territory, or tribe needs assistance that is only available pursuant to a major disaster declaration, they may submit a major disaster declaration request to the President (through FEMA). Although the President can declare an emergency unilaterally in certain circumstances, a major disaster declaration would need to be requested by state, territory, or tribal governments (see " Why didn't the President declare a national major disaster for COVID-19? "). Does the President have the authority to unilaterally declare an emergency under the Stafford Act? Section 501(b) of the Stafford Act allows the President to unilaterally declare an emergency for certain emergencies involving federal primary responsibility. The President's nationwide emergency declaration for COVID-19 was made under Stafford Act Section 501(b) on the grounds that the entire country is now facing a significant public health emergency ... [and] [o]nly the Federal Government can provide the necessary coordination to address a pandemic of this national size and scope.... It is the preeminent responsibility of the Federal Government to take action to stem a nationwide pandemic that has its origins abroad, which implicates its authority to regulate matters related to interstate matters and foreign commerce and to conduct the foreign relations of the United States. This is the first time a President has unilaterally declared a Stafford Act emergency for a public health incident—specifically, an infectious disease outbreak. Unilateral presidential declarations, however, have been made for incidents on a limited scale. Is there a cap on the amount of funding FEMA can spend under an emergency declaration? Although Stafford Act Section 503 sets a statutory "cap" of $5 million on spending for a single emergency, there is an exception. The $5 million limit may be exceeded when the President determines that: (A) continued emergency assistance is immediately required; (B) there is a continuing and immediate risk to lives, property, public health or safety; and (C) necessary assistance will not otherwise be provided on a timely basis. If the $5 million "cap" is exceeded, the President must report to Congress on the "nature and extent of emergency assistance requirements and shall propose additional legislation if necessary." Although the President's emergency declaration for COVID-19 covers the entire nation, each disaster-affected state and the District of Columbia, as well as some tribal governments, received a distinct emergency declaration (i.e., 57 separate emergency declarations). Therefore, it appears that each distinct emergency declaration may count as a "single emergency" for purposes of Stafford Act Section 503 and that the $5 million "cap" is not the nationwide limit on the amount of emergency assistance that FEMA can provide (see Appendix B for an example of a time when different states, territories, and tribes received presidential emergency declarations under the Stafford Act for the same incident). Major disaster declarations do not have a statutory or regulatory spending cap. As of April 22, 2020, all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands have received major disaster declarations for COVID-19. For more information on the funding available for the emergencies and major disasters declared for COVID-19, see the " Funding for Stafford Act Declarations " section. Is the COVID-19 emergency assistance time limited? The federal assistance provided must respond to the effects of the incident warranting an emergency or major disaster declaration "which took place during the incident period or was in anticipation of that incident." The emergency and major disaster declarations for COVID-19 currently list the incident period as "January 20, 2020 and continuing." In previous ongoing disasters, the "continuing" incident period has changed to a set date marking the end of the emergency or major disaster. In the case of COVID-19, the incident period may vary for each state, territorial, and tribal government as the threat of COVID-19 abates. According to federal regulations, FEMA determines the incident period in the FEMA-State Agreement. In May 2016, the agency released a fact sheet on responding to an infectious disease event, which states, "[i]n the event of an emergency declaration, FEMA would determine the incident period in coordination with HHS." The governor of each declared state or territory, or the chief executive for each declared Indian tribal government, must execute a FEMA-State Agreement in order to receive assistance pursuant to their COVID-19 emergency declaration. It is also possible to extend the incident period. Extensions of the incident period, and program extensions and end dates may be announced via news releases on FEMA's website. Why didn't the President declare a national major disaster for COVID-19? Stafford Act Section 401 states "[a]ll requests for a declaration by the President that a major disaster exists shall be made by the Governor of the affected State" or "[t]he Chief Executive of an affected Indian tribal government may submit a request for a declaration by the President that a major disaster exists.... " Although the President is not authorized by the Stafford Act to unilaterally declare a major disaster on behalf of a state, territory, or tribe, the President stated in his emergency declaration letter to the Acting Secretary of the Department of Homeland Security, the Secretary of the Department of Treasury, the Secretary of the Department of Health and Human Services, and the Administrator of the Federal Emergency Management Agency that he "believe[s] that the disaster is of such severity and magnitude nationwide that requests for a declaration of a major disaster ... may be appropriate." As of March 20, 2020, the President began approving major disaster declaration requests under the Stafford Act. As of April 22, 2020, all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands have received major disaster declarations for COVID-19. Have states, territories, and tribes ever received a major disaster declaration for an outbreak of an infectious disease, such as COVID-19? The President started approving major disaster declaration requests for COVID-19 as of March 20, 2020. These declarations are the first major disaster declarations issued under the Stafford Act for an infectious disease outbreak. Does it take a long time to approve a request for a major disaster declaration? The State of New York was the first state to receive a major disaster declaration for COVID-19. According to FEMA's "Daily Operations Briefing for Wednesday, March 18, 2020," New York requested a major disaster declaration on March 17, 2020. The President authorized New York's request on March 20, 2020. Other state requests for a major disaster for COVID-19 have also been processed within days of their submission. FEMA lists the approved presidential major disaster declarations for COVID-19 on the agency's "COVID-19 Disaster Declarations" and "Disasters" webpages. As of April 22, 2020, all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands have received major disaster declarations for COVID-19. Types of Stafford Act Assistance Different types of federal assistance are available pursuant to each type of declaration, with emergency declarations providing more limited forms of assistance than major disaster declarations. Federal assistance made available pursuant to Stafford Act declarations is intended to supplement local efforts to respond to and recover from emergencies and major disasters. Federal assistance may support state, territorial, tribal, and local governments, certain nonprofit organizations, and individuals and households. Table 1 lists the forms of assistance available pursuant to each type of declaration. The following questions relate to the federal response efforts for COVID-19, including assistance available to state, territorial, tribal, and local governments, private nonprofit organizations, private entities, and individuals and households. What is Emergency Declaration Assistance? Emergency declarations authorize some forms of Public Assistance (PA) and Individual Assistance (IA) but the assistance is generally more limited than assistance that is made available under a major disaster declaration. Table 1 lists the forms of assistance available pursuant to an emergency declaration. Emergency declarations often authorize certain forms of PA, which supplement the ability of a state, territory, or tribe to respond to an incident. Emergency declarations may authorize PA "emergency work" undertaken "to save lives, protect property and public health and safety, and lessen or avert the threat of a catastrophe, including precautionary evacuations," per Section 502 of the Stafford Act. FEMA's two categories of PA "emergency work" are debris removal (Category A) and emergency protective measures (Category B). Stafford Act emergency declarations for public health incidents have previously authorized emergency protective measures undertaken to reduce an immediate threat to life, public health, or safety, including emergency shelter and medicine, hazard communication, and provision and distribution of necessities. Individual Assistance, which helps individuals and households respond to post-disaster needs, can also be made available through an emergency declaration. One form of IA—the Individuals and Households Program (IHP) (authorized under Stafford Act Section 408) may be authorized pursuant to an emergency declaration. What assistance is available for states, territories, and tribes under the emergency declaration for COVID-19? The emergency declarations issued for COVID-19 on March 13, 2020 authorized Public Assistance (PA) in accordance with Section 502 of the Stafford Act. Under this declaration, FEMA may reimburse states, tribes, and territories for costs incurred while performing emergency protective measures. Specifically, the COVID-19 emergency declarations authorized PA Category B—Emergency Protective Measures. States, territories, or tribes will be the PA grant Recipients and administer PA awards. State, territorial, and tribal governments that have received emergency or major disaster declarations may apply to FEMA for funds as PA grant Recipients. Local governments and certain nonprofit entities may apply for funds through the PA grant Recipient. Eligible applicants are to be reimbursed for 75% of eligible costs incurred while performing emergency protective measures. FEMA cannot provide financial assistance for activities that are covered by insurance, or any other source, including activities eligible for financial assistance from the Department of Health and Human Services (HHS). For example, PA applicants cannot receive reimbursement for COVID-19 public health surveillance work or other activities already funded by the HHS Public Health Emergency Preparedness Cooperation Agreement Program. Emergency protective measures encompass a wide range of activities. According to a FEMA news release on the COVID-19 emergency declaration , reimbursable activities may include "activation of State Emergency Operations Centers, National Guard costs, law enforcement and other measures necessary to protect public health and safety." On March 19, 2020, FEMA released a non-exclusive list of eligible emergency protective measures that was later supplemented with a non-exclusive list of eligible emergency medical care. What assistance is available for private nonprofit organizations and businesses under the emergency declaration for COVID-19? Under the Stafford Act, eligible private nonprofit organizations may receive reimbursement for costs incurred while performing eligible emergency protective measures through the PA program. For-profit entities are not eligible applicants for PA. President Trump's emergency declaration for COVID-19 authorized FEMA to reimburse state, territorial, tribal, and local government entities and certain nonprofit organizations (PNPs) for eligible costs incurred while performing emergency protective measures. Under the Stafford Act, certain PNPs may be eligible for PA if they provide "critical services" or non-critical, "essential" services available to the general public. PNPs providing critical services include educational, utility, irrigation, emergency, medical, rehabilitational, and temporary or permanent custodial care facilities. PNPs providing non-critical but essential services include, but are not limited to, community centers, libraries, homeless shelters, food banks, broadcasting facilities, houses of worship, senior citizen centers, rehabilitation facilities, and shelter workshops. Religiously affiliated PNPs must meet the same eligibility criteria as other PNPs. For-profit entities are not eligible to apply for reimbursement through the PA program. For-profit entities, however, may be eligible for COVID-19 assistance through the Small Business Administration (SBA). Eligible PA applicants and PA grant Recipients may also contract for-profit entities to perform emergency work. For example, FEMA specified that eligible governments "may contract with medical providers, including private for-profit hospitals, to carry out any eligible activity described in the Eligible Emergency Medical Care Activities…." FEMA may then reimburse PA grant Recipients for the federal share of eligible costs incurred during the execution of the work. PA grant Recipients may then reimburse PA Applicants for eligible associated costs. What assistance is available for individuals under the emergency declaration for COVID-19? Individual Assistance (IA) was not authorized by the President's initial emergency declaration for COVID-19. However, IA—Crisis Counseling has been authorized for 10 states pursuant to their major disaster declarations for COVID-19 (for more information, see " What assistance is available to individuals under a major disaster declaration? "). Table A-1 includes a list of the categories of FEMA assistance—including Crisis Counseling—authorized pursuant to the major disaster declarations for COVID-19, organized by state and territory. What types of assistance for medical care will FEMA reimburse under the Stafford Act declarations for COVID-19? As of March 30, 2020, Stafford Act declarations for COVID-19 authorized FEMA to reimburse only state, territorial, tribal, and local governments and eligible nonprofits for the cost of uninsured emergency medical care. No assistance for individuals' medical costs has been authorized. All major disaster and emergency declarations issued under the Stafford Act as of March 30, 2020, authorized PA Category B—Emergency Protective Measures, through which FEMA may reimburse eligible state, territorial, tribal, and local governmental entities and eligible private nonprofit entities for the cost of uninsured emergency medical care directly related to COVID-19. Per Stafford Act Section 312, FEMA may not duplicate assistance provided by other entities, including the Department of Health and Human Services (HHS) or private medical insurers. FEMA may only reimburse medical care that is required as a result of COVID-19, and that eliminates or lessens immediate threats to life, public health, or safety. Typically, emergency medical care costs are eligible for up to 30 days from the date of an emergency or major disaster declaration. In the case of COVID-19, eligible emergency medical care costs are "eligible for the duration of the Public Health Emergency, as determined by HHS." However, the cost of long-term medical treatment is not eligible for reimbursement through PA, including the costs of medical care for COVID-19 patients admitted to a medical facility on an inpatient basis. Also not eligible are the costs of treatment for COVID-19 patients beyond the duration of the Public Health Emergency, and administrative costs associated with the treatment of COVID-19 patients. The HHS Secretary has invoked several public health emergency authorities for the COVID-19 response. Although FEMA's list of authorized medical care does not specify which public health emergency authority is meant in referring to the duration of eligibility, it probably refers to the declaration authority pursuant to Section 319 of the Public Health Service Act. The "Section 319" authority allows the HHS Secretary to carry out a specified set of actions to address public health emergencies, such as expediting or waiving certain administrative requirements that would otherwise apply to federal activities or federally administered grants. The declaration of a Public Health Emergency for COVID-19 was made on January 31, 2020. It is in effect for 90 days, and is expected by many to be renewed and remain in effect for the duration of the response. Table 3 includes the types of emergency medical care necessary to saves lives or protect public health and safety that are listed by FEMA as eligible for PA for COVID-19, as of March 31, 2020. FEMA may determine that other activities undertaken to reduce the threats to life, public health, or safety by COVID-19 are eligible emergency protective measures. To determine eligibility, FEMA's Regional Administrators may require that local, state, or federal officials certify that the work performed was necessary to cope with such threats. What measures must states, tribes, and territories take before FEMA may provide assistance for COVID-19 within their jurisdictions? According to FEMA, all U.S. states, territories, and the District of Columbia, as well as tribes that have received independent emergency declarations for COVID-19, must execute a FEMA-State/Tribal/Territory Agreement (hereinafter FEMA-State Agreement), as appropriate, and execute an applicable emergency plan in order to receive FEMA assistance. FEMA-State Agreements state the understandings, terms, and commitments under which FEMA disaster assistance is to be provided. FEMA-State Agreements describe the emergency or disaster (incident), the incident period, the type and extent of assistance to be made available, the federal and nonfederal cost share, and other terms and conditions of the declaration and provision of assistance. The state, territory, or tribe with an emergency or major disaster declaration becomes the PA grant Recipient and administers PA awards within its jurisdiction. FEMA also requires an Application for Federal Assistance and an update of a Public Assistance Plan before it will provide assistance through the PA program. Recipients may register accounts for all PA Applicants on the PA Grants portal, a FEMA maintained database. Eligible PA Applicants within the jurisdiction may then apply for PA, and awarded projects are tracked in the PA grants database. Can states/tribes request to receive certain kinds of emergency protective measures? FEMA has published guidance "on the types of emergency protective measures that may be eligible under FEMA's Public Assistance Program in accordance with the COVID-19 Emergency Declaration in order to ensure that resource constraints do not inhibit efforts to respond to this unprecedented disaster." The list of eligible emergency protective measures is not exhaustive. Moreover, FEMA stated that In accordance with section 502 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207 (the "Stafford Act"), eligible emergency protective measures taken to respond to the COVID-19 emergency at the direction or guidance of public health officials may be reimbursed under Category B of FEMA's Public Assistance program. FEMA will not duplicate assistance provided by the U.S. Department of Health and Human Services (HHS), to include the Centers for Disease Control and Prevention (CDC), or other federal agencies. FEMA and PA grant Recipients (i.e., the state, territory, or tribe that administers the PA award) both review applications for Public Assistance to determine whether costs, work, and applicants are eligible to receive PA. FEMA may approve or decline requests for assistance (see Table 2 for a list of eligible emergency protective measures for COVID-19). FEMA regulations provide procedures by which an eligible PA Applicant, Subrecipient, or Recipient "may appeal any determination previously made related to an application for or the provision of Federal assistance." May applicants receive PA for management and disposal of medical waste and human remains? PA for disposal of medical waste and interment of human remains is included in eligible work authorized for all jurisdictions under PA Category B—Emergency Protective Measures. How long does it take to receive emergency assistance? In the case of COVID-19, FEMA introduced streamlined procedures in an effort to expedite the delivery of PA emergency assistance. According to FEMA, "[f]unding is immediately available should state, tribal, territorial or local officials request expedited assistance." On March 21, 2020, FEMA reported that the agency had obligated over $100 million in 24 hours for awards authorized under the March 13, 2020 emergency declarations for COVID-19 authorized under the Stafford Act. Generally, the time elapsed during delivery of PA emergency assistance will vary by state, incident, applicant, and project. A number of different factors involved in the PA application and reimbursement process affect the delivery of PA. Relevant factors include, but are not limited to, the scope of the project and the time required for the performance of eligible work. FEMA may obligate and disburse funds for small projects (those up to $131,100 in FY2020) upon the approval of a project worksheet, the form FEMA uses to document the details of the Applicant's work and costs claimed. For large projects (those equal to or greater than $131,100 in FY2020), FEMA may obligate funds to the PA grant Recipient upon the approval of a project worksheet. Applicants may request reimbursement for work completed from the PA grant Recipient. Can declarations be amended to provide additional types of assistance? After the President declares an emergency or major disaster, the governor or chief executive may request that the declaration be amended to include additional types of assistance. FEMA can approve such a request. It is not uncommon to authorize additional types of assistance subsequent to a presidential declaration. If FEMA denies a requested amendment, the governor or chief executive may appeal the decision in writing. The request and its justification must be submitted to the Assistant Administrator for the Disaster Assistance Directorate through the appropriate FEMA Regional Administrator for the FEMA region in which the state, territory, or tribe is located. The appeal is a "one-time request for reconsideration"—FEMA's determination on the appeal is final. Can the federal cost share be adjusted? The President has the authority to adjust the federal share of Public Assistance programs. The federal cost share may be increased at FEMA's recommendation when requested by a state, territory, or tribe. The federal share is set at 75% for eligible emergency protective measures performed by states pursuant to the Stafford Act declarations for COVID-19 (authorized under Stafford Act Section 502 for the emergency declarations, and Section 403 for the major disaster declarations). A state may also receive a loan or advance to cover the nonfederal share (i.e., the portion of the costs not borne by the federal government) in certain extraordinary situations. Specifically, Stafford Act Section 319 authorizes the President to either lend or advance the nonfederal share to an eligible Applicant or a state. This may be done when— (1) the State is unable to assume its financial responsibility under such cost-sharing provisions— (A) with respect to concurrent, multiple major disasters in a jurisdiction, or (B) after incurring extraordinary costs as a result of a particular disaster; and (2) the damages caused by such disasters or disaster are so overwhelming and severe that it is not possible for the applicant or the State to assume immediately their financial responsibility under this chapter. Any loan or advance must be repaid with interest. FEMA's regulations, as a condition for making such a loan, require that the state or eligible Applicant not be delinquent in payment of any debts to FEMA. If the governor's request for an advance is denied, the governor may appeal the decision in writing. As with other appeals of federal decisions regarding assistance provided pursuant to a disaster declaration, this is a one-time request for reconsideration. Congress has, on occasion, adjusted the federal share through legislation. For example, Section 4501 of the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 ( P.L. 110-28 ) authorized 100% federal share for Public Assistance and Individual Assistance for specific states following Hurricanes Katrina, Wilma, Dennis, and Rita. What is Major Disaster Assistance? Different types of federal assistance are available pursuant to each type of declaration, with major disaster declarations providing more forms of assistance than emergency declarations. As of April 22, 2020, the President had approved major disaster declaration requests for all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands for COVID-19. The specific types of assistance that may be available under a major disaster declaration are listed in Table 1 . Additionally, Table 4 lists the categories of assistance and the Stafford Act section under which they are authorized. When the President makes a major disaster declaration under the Stafford Act, states, tribes, and local governments, as well as certain private nonprofit organizations, may receive reimbursement through Public Assistance (PA) for "emergency work" undertaken to save lives, protect property, public health, and safety, and lessen or avert the threat of a catastrophe, or for "permanent work" undertaken to repair, restore, reconstruct, or replace disaster-damaged public and eligible private nonprofit facilities. As noted previously, most assistance under the Stafford Act related to public health incidents has been delivered through PA Category B—Emergency Protective Measures, including emergency shelter and medicine, hazard communication, and provision and distribution of necessities. Individual Assistance (IA) provides aid to affected individuals and households. If a major disaster is declared, the forms of IA that may be authorized include assistance for housing and for other needs assistance through the Individuals and Households Program; crisis counseling; disaster unemployment assistance; disaster legal services; and disaster case management services. Additionally, pursuant to a major disaster declaration the Hazard Mitigation Grant Program (HMGP) may be authorized. The HMGP funds mitigation and resiliency projects, typically across the entire state or territory. State, territorial, tribal, and local governments, as well as certain private nonprofit organizations, may apply for measures that reduce loss of life or property in future disasters or emergencies. As of April 22, 2020, FEMA reported that all requests for Hazard Mitigation Assistance through the Hazard Mitigation Grant Program (HMGP) for COVID-19 are under review. What assistance is available for states, territories, and tribes under a major disaster declaration for COVID-19? Major disaster declarations issued as of April 22, 2020 for COVID-19 have all authorized Public Assistance (PA) Category B—Emergency Protective Measures. Major disaster declarations issued for some states also authorized Individual Assistance through the Crisis Counseling Program. Table A-1 includes a list of the categories of FEMA assistance authorized pursuant to the major disaster declarations for COVID-19, organized by state and territory. Major disaster declarations may authorize Hazard Mitigation Assistance through the Hazard Mitigation Grant Program (HMGP). As of April 22, 2020, FEMA reported that all requests for Hazard Mitigation Assistance through the Hazard Mitigation Grant Program (HMGP) for COVID-19 are under review. States, tribes, or territories may request that major disaster declarations be amended to include additional forms of assistance or increase the federal cost-share for PA above 75% (see " Can declarations be amended to provide additional types of assistance? " and " Can the federal cost share be adjusted? "). What assistance is available for private nonprofit organizations and businesses under a major disaster declaration? Certain private nonprofit organizations may be eligible for reimbursement for work performed for eligible emergency protective measures. Eligible PNPs may apply for PA as Applicants or may be contracted by other primary PA grant Recipients or Applicants to perform eligible work. Businesses are not eligible for assistance authorized under the Stafford Act. PNPs may be eligible for PA if they provide "critical services" or non-critical, "essential" services available to the general public. PNPs providing critical services include educational, utility, irrigation, emergency, medical, rehabilitational, and temporary or permanent custodial care facilities. PNPs providing non-critical but essential services include, but are not limited to, community centers, libraries, homeless shelters, food banks, broadcasting facilities, houses of worship, senior citizen centers, rehabilitation facilities, facilities that provide health and safety services of a governmental nature, and shelter workshops. Religiously affiliated PNPs are eligible but must meet the same eligibility criteria of other PNPs. For-profit entities are not eligible to apply directly for public assistance as authorized under the Stafford Act. However, eligible PA applicants and PA grant Recipients may contract with for-profit entities to perform emergency work. FEMA may then reimburse PA grant Recipients for the federal share of eligible costs incurred during the execution of the work, and PA grant Recipients may then reimburse PA Applicants for eligible associated costs. For-profit entities may also be eligible for SBA COVID-19 assistance. What assistance is available to individuals under a major disaster declaration? As of April 22, 2020, the FEMA Crisis Counseling Assistance and Training Program (CCP) is the only form of Individual Assistance that has been authorized for some states pursuant to their major disaster declarations for COVID-19. IA-CCP was not authorized for every state that received a major disaster declaration; nor were the territories of the Commonwealth of Puerto Rico, the U.S. Virgin Islands, American Samoa, the Commonwealth of the Northern Mariana Islands, or Guam authorized to receive IA-CCP. Table A-1 includes a list of the categories of FEMA assistance authorized pursuant to the major disaster declarations for COVID-19, organized by state and territory. The CCP provides financial assistance to state, territorial, tribal, and local government agencies through a grant or cooperative agreement, which allows them to either provide or contract for crisis counseling services. The crisis counseling services are intended to assist disaster survivors "to prevent or mitigate adverse psychological effects caused or aggravated by a major disaster." FEMA operates the CCP with the Substance Abuse and Mental Health Services Administration (SAMHSA) within the Department of Health and Human Services (HHS). An emergency declaration or a major disaster declaration may be amended to allow for additional types of IA to be authorized (see Table 1 for a list of IA programs). The governor may request that the declaration be amended to include additional types of assistance. FEMA can approve a request for additional forms of assistance after a presidential declaration. If a governor of an affected state requested types of IA be authorized in their major disaster declaration request, and those forms of IA were not authorized, the governor may appeal the decision in writing (if a request to amend a declaration to add types of IA is denied, that decision may also be appealed). Although the CCP is the only form of IA authorized to date, individual relief has been provided through other sources. For example, the supplemental appropriations acts for COVID-19 address some of the other unmet needs of individuals (e.g., Section 2102 of the CARES Act ( P.L. 116-136 ) provides pandemic unemployment assistance). How do applicants receive funds through the Public Assistance program? FEMA introduced procedures the agency says are designed to simplify the PA application process for COVID-19 response work. State, territories, and tribes that have received emergency declarations or major disaster declarations for COVID-19 are PA grant Recipients, which administer PA awards in their jurisdictions. Prior to receiving funding, PA grant Recipients must execute FEMA-State/Tribal/Territorial Agreements, submit federal grant applications, and update Recipient Public Assistance Administrative Plans (see " What measures must states, tribes, and territories take before FEMA may provide assistance for COVID-19 within their jurisdictions? "). Eligible applicants may apply for funding through the Recipient's PA award. FEMA generally refers to PA Applicants as any entity that is responsible for PA-eligible work. Applicants may be state, tribal, territorial, and local governments, as well as eligible private nonprofits. For example, the Texas Department of State Health Services applied for PA funds for COVID-19 response as a PA Applicant. Those funds were administered by the state of Texas as the PA grant Recipient. As the PA Recipient, the state of Texas also administered funds through its PA award for state and local PA Applicants including the Texas Division of Emergency Management, Harris County, and the Texas Military Department. To receive PA funds, Applicants may submit a request for grant funds, a project worksheet describing the details of the work and costs claimed, and supporting documentation though the PA Grants Portal. FEMA and the PA grant Recipient evaluate these documents for eligibility and reasonableness. Once a project worksheet is approved, Applicants may receive reimbursement for eligible costs incurred while executing eligible emergency protective measures. FEMA's fact sheet on PA Simplified Application procedures for COVID-19 notes that expedited assistance may be available in certain cases. When expedited assistance is approved for large projects (in FY2020, projects over $131,100), FEMA obligates 50% of the total expected costs as soon as the project worksheet is approved, and the PA Applicant may be reimbursed at that time. The remaining federal share may be reimbursed once the Applicant submits documentation of actual costs incurred while performing eligible work. FEMA has provided expedited PA for multiple COVID-19 response efforts. How do applicants receive financial or direct assistance through the Individual Assistance program? The FEMA Crisis Counseling Assistance and Training Program (CCP) is the only form of IA that has been authorized for some states, as of April 22, 2020 (see Table A-1 for the list of states that have been authorized for Crisis Counseling). FEMA operates the CCP with the Substance Abuse and Mental Health Services Administration (SAMHSA) within the Department of Health and Human Services (HHS). Local, state, territorial, or tribal governments may apply for a grant to administer the CCP, or may contract with local mental health service providers. The CCP supports crisis counseling services for disaster survivors, and disaster survivors receive the assistance for free. Generally, the CCP is designed to connect individuals with community resources. CCP services may be advertised to disaster survivors through media outlets, websites, community events, etc. If other forms of IA are authorized pursuant to a major disaster declaration for COVID-19, those assistance programs would include different application requirements and processes. For example, if the Individuals and Households Program (IHP) is authorized, applicants in a declared disaster area may register for FEMA IA and Small Business Administration (SBA) disaster loan assistance. Individuals and households can register for assistance online, by telephone, or in-person at a Disaster Recovery Center (DRC). Individuals and households generally have 60 days from the date of a declaration to apply for FEMA IHP assistance. Funding for Stafford Act Declarations The following questions relate to the funding sources for the federal assistance under the Stafford Act that may supplement state, tribal, and local response efforts for COVID-19. Where does funding for Stafford Act assistance come from? Many forms of assistance made available pursuant to a Stafford Act declaration are funded through the Disaster Relief Fund (DRF), which is the primary source of funding for the federal government's domestic general disaster relief programs. The DRF is managed by FEMA, but as a funding structure, it predates both FEMA and the Stafford Act, having first been funded in 1948. Is there enough funding in the DRF for COVID-19? As a result of prior-year appropriations to fund long-term recovery work from previous disasters, the DRF had about $42.6 billion in unobligated balances as of the beginning of March 2020. Division B of the CARES Act ( P.L. 116-136 ), included $45 billion more for the DRF. This put the balance of funding in the DRF at its highest level in history. DRF resources are available for past, current, and future incidents. However, the majority of its funding is specifically set aside for the costs of major disasters. $41.6 billion of what was in the DRF was specifically for the costs of major disasters, and roughly $600 million was potentially available for emergencies. Of the funding provided in the CARES Act for the DRF, $25 billion was for major disasters and $15 billion was for any Stafford Act costs, including both emergency declarations and major disasters. It is not clear what the total draw on the DRF will be, since the pandemic is an evolving situation, there are other federal programs providing resources, and there is no precedent for using the Stafford Act to respond to a public health crisis. Is DRF funding set aside for COVID-19? DRF appropriations are not provided for specific emergencies or disasters; there is no COVID-19 account within the DRF. The most recent iterations of the appropriations bill text for the DRF indicate the funds are provided for the "necessary expenses in carrying out the Robert T. Stafford Disaster Relief and Emergency Assistance Act," thus covering all past and future disaster and emergency declarations. Previous versions of the appropriations language going back to 1950 also referenced the legislation authorizing general disaster relief rather than targeting specific disasters. On a number of occasions, specific disasters have been mentioned in the appropriation, but funding was not specifically directed to one disaster over others. While many disaster supplemental appropriations bills are associated with a specific incident or incidents—such as P.L. 113-2 , "the Sandy Supplemental"—the language in such acts does not limit the use of the supplemental appropriations to specific incidents. It provides funding "for major disasters declared pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act." This is also the case with the funding provided in Division B of the CARES Act. The DRF supplemental appropriation itself includes no incident-specific direction, or reference to COVID-19. While one of the general provisions of the law states that the funds provided in the act "may only be used to prevent, prepare for, and respond to coronavirus," the last subsection of that general provision indicates that restriction does not apply to the title that included the DRF appropriation. References Additional sources of assistance may be available to support the nation's response to and recovery from the COVID-19 pandemic. CRS has developed products on various topics related to the COVID-19 pandemic, including global issues, public health, economic impacts on individuals, impacts on business and the U.S. economy, executive branch response, congressional response and legislation, and legal analysis. The CRS COVID-19 resources are available at https://www.crs.gov/resources/coronavirus-disease-2019 . Some select products CRS has developed related to the COVID-19 pandemic and Stafford Act assistance programs are included below. For more information on the President's declarations under the Stafford Act for COVID-19, see CRS Insight IN11264, Presidential Declarations of Emergency for COVID-19: NEA and Stafford Act , by L. Elaine Halchin and Elizabeth M. Webster; CRS Insight IN11251, The Stafford Act Emergency Declaration for COVID-19 , by Erica A. Lee, Bruce R. Lindsay, and Elizabeth M. Webster; and CRS Insight IN11229, Stafford Act Assistance for Public Health Incidents , by Bruce R. Lindsay and Erica A. Lee. Stafford Act major disaster declarations for COVID-19 will automatically authorize Small Business Administration (SBA) Economic Injury Disaster Loans (EIDL) for businesses in declared counties and contiguous counties. For more information, see CRS Report R46284, COVID-19 Relief Assistance to Small Businesses: Issues and Policy Options , by Robert Jay Dilger, Bruce R. Lindsay, and Sean Lowry For additional information about relief and assistance resources for small businesses, see CRS Insight IN11301, Small Businesses and COVID-19: Relief and Assistance Resources , by Maria Kreiser. For additional information about the actions taken by the U.S. federal government to quell the introduction and spread of COVID-19 in the United States, see CRS Report R46219, Overview of U.S. Domestic Response to Coronavirus Disease 2019 (COVID-19) , coordinated by Sarah A. Lister and Kavya Sekar. Appendix A. COVID-19 Approved Major Disaster Declarations and Authorized Assistance The following information is current as of April 22, 2020. Public Assistance Category B—Emergency Protective Measures has been authorized for all states and territories. Ten states have been authorized to receive Individual Assistance—Crisis Counseling Assistance and Training Program (CCP) (referred to in Table A-1 as "Crisis Counseling"). Appendix B. Example of Emergency Declarations for the Same Incident Stafford Act emergencies have been declared for different states, territories, and tribes for the same incident. For example, the states of Florida, Georgia, South Carolina, and North Carolina, the U.S. Virgin Islands, and the Florida Seminole Tribe of Florida all received emergency declarations for Hurricane Dorian in 2019. The incident period and declaration date for the emergency declarations varied by state, territory, and tribe. This information is captured in Table B-1 .

On March 13, 2020, President Donald J. Trump declared an emergency under Section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act; 42 U.S.C. §§5121 et seq.) in response to coronavirus disease 2019 (COVID-19). The declaration authorized assistance to all U.S. states, territories, tribes, and the District of Columbia. Specifically, the Stafford Act emergency declaration authorized one form of Federal Emergency Management Agency (FEMA) assistance: Public Assistance emergency protective measures (as authorized under Stafford Act Section 502). Subsequently, the President approved major disaster declaration requests under the Stafford Act for all 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands (authorized under Stafford Act Section 401). This report provides answers to frequently asked questions (FAQs) regarding the Stafford Act disaster declarations made for COVID-19, federally available assistance, and sources of funding. The subjects to be covered include: Stafford Act declarations, including legal authorities, limitations on assistance, and other information related to the declaration request process; types of assistance available to state, territorial, and tribal governments, private nonprofit organizations, private entities, and individuals and households pursuant to the Stafford Act emergency and major disaster declarations for COVID-19; the Disaster Relief Fund (DRF), the source used to fund FEMA assistance provided pursuant to Stafford Act emergency and major disaster declarations; and additional references. This report also includes the following appendices: Appendix A includes Table A-1 , which lists the categories of FEMA assistance authorized pursuant to the major disaster declarations for COVID-19, organized by state and territory. Appendix B provides an example of different states, territories, and tribes that have received presidential emergency declarations under the Stafford Act for the same incident. The scope of this report is limited to assistance authorized under the Stafford Act. There are, however, other types of assistance extrinsic to the Stafford Act that are activated by a Stafford declaration. This report does not address these other forms of assistance. The report is not a comprehensive review of all potential forms of federal assistance made available for COVID-19 response and recovery. It does not provide information on the assistance made available pursuant to the President's declaration of emergency under the National Emergencies Act (NEA; 50 U.S.C. §§1601 et seq.) or the declaration by the Secretary of Health and Human Services (HHS) of a Public Health Emergency under Section 319 of the Public Health Service Act (PHSA; 42 U.S.C. §247d). Information included in this report is current as of April 22, 2020.

GAO_GAO-20-243

Background Table 1 describes the activities that USDA’s mission areas and major staff offices perform as part of five types of administrative services that USDA business centers are to provide under the Secretary of Agriculture’s November 2017 memorandum. At USDA, eight mission areas and three of the 13 major department-level staff offices, including five sub-offices, are responsible for delivering or overseeing these five types of administrative services (see fig. 1). USDA’s eight mission areas carry out the department’s program responsibilities through 18 agencies. Five mission areas consist of multiple agencies, while three consist of a single agency, as shown below. In general, USDA’s eight mission areas deliver the administrative services, and the staff offices develop regulations, guidance, and policies describing how mission areas should deliver those services and oversee the mission areas’ performance. In addition, the staff offices deliver some administrative services on a department-wide or shared-services basis. According to USDA officials, the mission areas are to follow the regulations, guidance, and policies developed by the staff offices but are allowed considerable discretion in how they deliver administrative services based on their missions and program needs. According to USDA officials and documentation, service delivery is typically handled by a mission area’s field offices at the regional, state, or local level; however, with the establishment of the business centers, more service is being delivered at the mission area’s headquarters level. USDA Has Established Business Centers in All of Its Eight Mission Areas, and the Business Centers Vary in Establishment Date, Structure, and Services USDA has consolidated administrative services and established business centers in all of its eight mission areas in accordance with the Secretary’s November 2017 memorandum. The eight existing business centers vary in when they were established. As shown in figure 2, three mission areas had business centers before the Secretary’s memorandum. However, even the mission areas that had business centers before the Secretary’s November 2017 memorandum subsequently changed the way they provide administrative services, specifically with regard to information technology services. Two mission areas—Marketing and Regulatory Programs and Research, Education, and Economics—added information technology to their business centers during fiscal year 2019. In 2019, the Natural Resources and Environment mission area, which already included information technology in its business center, changed the position descriptions of certain employees to more accurately reflect that their major duties are considered to be information technology work. Of the five new business centers established since the Secretary’s memorandum, establishment of the FPAC Business Center entailed the most significant transformation. Typically, each business center is located within one of the mission area’s component agencies and the center’s leader reports directly to that agency’s leadership (see table 2). The FPAC Business Center is the only business center established as a separate agency within a mission area. Changes that occurred at other mission areas in transitioning to new business centers included modifying reporting structures for services that had already been consolidated. For example, according to Rural Development officials, the mission area had a business services entity prior to the Secretary’s memorandum. To establish a business center as envisioned by the Secretary’s memorandum, the mission area changed the reporting structure for administrative operations in the field. Previously, field employees associated with an administrative service reported directly to leadership in Rural Development’s state offices. These employees now report directly to headquarters leadership specific to their administrative service. However, according to Rural Development officials, no employees were physically moved. As of November 2019, most of the business centers were providing all five of the main administrative services that the Secretary’s November 2017 memorandum envisioned—specifically, financial management, human resources, information technology, procurement, and property management. Two business centers have chosen to provide financial management services differently from the other administrative services. Specifically: Food Safety. According to officials in the Food Safety mission area, as part of its reorganization, that mission area grouped all of the administrative services except financial management under the Chief Operating Officer. However, it grouped the budget office, which performs financial management services, under the agency’s Chief Financial Officer because it preferred to keep this office with mission- related program offices, which report directly to the Deputy Administrator. Natural Resources and Environment. Officials in the Natural Resources and Environment mission area said that unlike other administrative services, which are grouped under the business center, financial management responsibilities are divided between the business center’s Office of Strategic Planning, Budget, and Accountability and the Forest Service’s Office of the Chief Financial Officer. According to these officials, this arrangement strengthens internal controls by separating responsibility for allocating and spending financial resources from responsibility for accounting for how the resources are spent. One business center—in the Trade and Foreign Agricultural Affairs mission area—provides information technology and financial management services for Foreign Agricultural Service employees and has agreements in place with other USDA components to provide human resources, procurement, and property management services for the mission area. According to the Deputy Assistant Secretary for Administration, USDA accepted these mission areas’ decisions about financial management because they ensured accountability of field-level staff to the administrative service’s headquarters leadership. USDA Has Developed Metrics for Managing Administrative Services but Has Not Assessed the Effectiveness and Impact of Its Business Centers According to USDA’s Deputy Assistant Secretary for Administration, the department regularly reviews data on administrative services, including services provided by the business centers. However, the department does not use these or other data to assess the effectiveness and impact of its business centers and as of November 2019 did not plan to do so. Beginning in 2018, USDA created an online monitoring system to compile data from mission areas on the status of their administrative services. The system has “dashboards” displaying data specific to financial management, human resources, information technology, procurement, and property management, among other things. Each of the dashboards presents metrics gathered from various databases across mission areas. For example, the dashboards for human resources include the number of employees by organization, along with their geographic location, retirement eligibility, occupation, and any skills gaps. According to USDA officials, the dashboards allow department-level review of a large number of metrics on a range of administrative activities performed by the business centers—data that previously were available only to each mission area. USDA’s Deputy Secretary discusses performance on various dashboards with mission area and staff office leadership at quarterly review meetings. However, the department has not used dashboards or associated metrics to assess the effectiveness and impact of the business centers. Specifically, the department has not assessed the impact that the business centers have had on USDA’s customer service; human resources, including hiring; and overall functionality. According to the Deputy Assistant Secretary for Administration, creating new business centers and changing existing ones has contributed to positive results, such as savings from reducing the size of USDA’s vehicle fleet, but USDA’s Departmental Administration has not systematically compared USDA’s ability to deliver its administrative services before and after these reforms. For example, the department has not examined whether the reforms have enabled mission areas to reduce costs, reduce processing times, or identify previously unknown issues that need to be addressed. According to USDA officials, these business center reforms broadly addressed the first policy goal in USDA’s May 2018 strategic plan for fiscal years 2018 through 2022—namely that USDA programs be delivered efficiently, effectively, and with integrity and a focus on customer service. However, USDA officials told us that they have not yet attempted to measure how the business center reforms have met the three overarching policy goals identified in the Secretary of Agriculture’s November 2017 memorandum, which called for the business center reforms to (1) improve customer engagement, (2) maximize efficiency, and (3) improve agency collaboration. In addition, some stakeholders we interviewed expressed concern about progress toward these goals as USDA works to implement the business center reforms. For example: Staffing vacancies. Some stakeholders raised concerns about the impact of vacancy rates at business centers on customer engagement. The two largest business centers created since November 2017—in FPAC and Rural Development—had position vacancy rates above 27 percent as of September 30, 2019. Officials with one group representing farmers who are customers of the FPAC and Rural Development mission areas told us they were concerned that (1) vacancies in the business center may be leading to vacancies among program staff in the field, (2) complaints related to staffing have increased over the past few years, and (3) staffing vacancies in the field are negatively affecting customer service. An official from another group representing farmers told us that the group is hearing from its members that there have been a lot of changes within USDA lately and field offices seem to be understaffed and overwhelmed even after the creation of the business centers, which could be negatively affecting the quality of customer service. Vacancies at the FPAC and Rural Development business centers, particularly among staff responsible for hiring USDA program staff in the field, could therefore affect both access to and the quality of technical assistance. Employee concerns. In the FPAC Business Center, officials from one union representing employees told us that confusion among employees about their roles and responsibilities could affect both internal employee satisfaction and the overall ability of the business center to serve the FPAC mission and its customers. Specifically, these union officials noted employees’ confusion about how to reconcile differences among the work procedures that each of the three FPAC agencies used before the reorganization. Officials from this and one other union also stated that employees have reported that business center leadership has not taken action to address such employee concerns. As a result, according to officials from both unions, FPAC business center employees are experiencing low morale, confusion, frustration, and anxiety about the changes, affecting their ability to deliver services. In response, FPAC officials told us in November 2019 that the FPAC Business Center is working on empowering employees, hiring, establishing a culture of accountability, building trust and engagement, and addressing other issues that have arisen in the business center’s first year of operation. For example, these officials said they were reviewing the business center’s organizational structure to determine whether there is a need for adjustments to further streamline operations and improve service. USDA officials cited several reasons the department has not assessed the effect of the business center reform effort undertaken in response to the Secretary’s November 2017 memorandum. According to the Deputy Assistant Secretary for Administration, the absence of evaluation is partly attributable to the department’s strategy of delegating responsibility to the mission areas to implement business centers; this strategy aims to give the mission area leadership ownership of the reform effort and help ensure their buy-in. The Deputy Assistant Secretary for Administration also said that the department has focused on implementing the reforms called for in the memorandum rather than on evaluating the results. USDA officials also pointed out that the reform effort is relatively recent, with five of the business centers having been created since June 2018. However, the Deputy Assistant Secretary for Administration acknowledged the importance of evaluating and communicating any benefits derived from the business center reform effort as it moves forward. Our prior work has shown that a key practice to consider during agency reform efforts is the establishment of clear outcome-oriented goals and performance measures to assess the reform’s effectiveness and impact. As we have previously reported, a performance goal is a target level of performance expressed as a measurable objective; a performance measure includes an assessment of results compared with intended purpose that can be expressed quantitatively or in another way that indicates a level or degree of performance. Monitoring performance against goals allows agencies to assess progress and address problems as necessary. While USDA has not developed goals and measures to assess the effectiveness and impact of the business center reforms, the department has set goals for a limited number of administrative services, including hiring, the number of fleet vehicles, and travel and conference spending. In addition, parts of the department have developed goals and measures for the administrative services their business centers provide. For example, officials in the Research, Education, and Economics mission area reported nine key performance indicators for their administrative services, such as specific goals and measures for the timeliness of posting job opportunity announcements. Developing appropriate performance goals and measures and systematically assessing the effectiveness and impact of the business center reforms could help the department determine whether the reforms are meeting the Secretary’s overarching policy goals and improving the delivery of administrative services to support the department’s mission and program goals. Conclusions USDA has established business centers in all of its eight mission areas, and, according to USDA’s Deputy Assistant Secretary for Administration, the department regularly reviews data on administrative services, including services provided by the business centers. However, the department has not systematically assessed whether USDA’s ability to deliver its administrative services has improved since the establishment of its business center reforms or whether the reforms are meeting the policy goals that the Secretary intended them to achieve. Importantly, the department has not assessed the impact that the business centers have had on USDA’s customer service; human resources, including hiring; and overall functionality. Our prior work has shown that a key practice to consider during agency reform efforts is the establishment of clear outcome-oriented goals and performance measures to assess the reform’s effectiveness and impact. The department has set goals for a limited number of administrative services, including hiring, the number of fleet vehicles, and travel and conference spending, but it has not developed goals and measures to more broadly assess the effectiveness and impact of the business center reforms. Developing such goals and measures and using them to assess the effectiveness and impact of the business center reforms could help the department (1) determine whether the reforms are meeting the Secretary’s overarching policy goals and (2) identify whether the reforms have enabled mission areas to improve the delivery of their administrative services by, for example, reducing costs, reducing processing times, or identifying previously unknown issues that need to be addressed. Recommendation for Executive Action The Secretary of Agriculture should direct Departmental Administration to work with the mission areas to develop department-level outcome- oriented performance goals and related measures for the business centers, and use them to assess the effectiveness and impact of the business center reforms. (Recommendation 1) Agency Comments We provided a draft of this report to USDA for comment. In an email, a Senior Advisor in USDA’s Office of Operations stated that USDA agreed with our recommendation about assessing the effectiveness and impact of the business centers. In addition, in comments, reproduced in appendix II, USDA generally agreed with the findings in our draft report. USDA stated that to address our recommendation, the department is evaluating options for the development of performance metrics and inclusion of these metrics and related information as part of the regular and recurring reviews by the department’s Deputy Secretary who is identified as the Chief Operating Officer. We are sending copies of this report to the appropriate congressional committees, the Secretary of Agriculture, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions regarding this report, please contact me at (202) 512-3841 or morriss@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. Appendix I: Fu nding for the F and Conservation Business Center, Including Information Technology Modernization Since the U.S. Department of Agriculture (USDA) established the Farm Production and Conservation (FPAC) Business Center in October 2018, Congress has appropriated a total of about $294 million to USDA for necessary expenses of the FPAC Business Center. USDA has also approved $1.1 million for efforts to modernize information technology at the center through fiscal year 2020. USDA Has Funded the FPAC Business Center with Discretionary and Mandatory Appropriations USDA has supported the FPAC Business Center with discretionary and mandatory appropriations. USDA budget documents and congressional report language indicate that these appropriations have been accompanied by corresponding reductions in funding to the other three agencies within the FPAC mission area—the Farm Services Agency (FSA), Natural Resources Conservation Service (NRCS), and Risk Management Agency (RMA). For fiscal year 2018, the Consolidated Appropriations Act, 2018, provided discretionary appropriations of about $1.0 million to the FPAC Business Center and further provided for the transfer into the FPAC Business Center account of another $145,000 in mandatory appropriations. Subsequent USDA budget justification documents state that the $145,000 included funds directed towards three NRCS programs—the Environmental Quality Incentives Program (EQIP), Conservation Stewardship Program (CSP), and Agricultural Conservation Easement Program (ACEP). As shown in table 3, for fiscal year 2019, the Consolidated Appropriations Act, 2019, provided for the FPAC Business Center to receive discretionary appropriations of about $216.4 million, an amount that an accompanying conference report states was offset by reductions to the appropriations for administrative functions in FSA, NRCS, and RMA; a transfer of about $16.1 million in discretionary appropriations from FSA’s Agricultural Credit Insurance Fund Program Account; and a transfer of about $60.2 million in mandatory appropriations that, according to USDA officials, came from the same three NRCS programs as in 2018 (EQIP, CSP, and ACEP). According to USDA officials, prior to the establishment of the FPAC Business Center, these funds were used to support the salaries of FSA, NRCS, and RMA personnel performing functions and tasks similar to those provided by the business center and for general operating costs such as rents, information technology, travel, and training expenses. The FPAC Business Center plans its spending and tracks its obligations using standard categories, including personnel compensation, benefits, travel, transportation, postage, contracts, supplies, and equipment. As shown in table 4, the FPAC Business Center planned to spend funds only for personnel compensation and benefits in fiscal year 2018. According to data provided by USDA, the business center obligated about $995,000 of the nearly $1.2 million in available funds, and those obligations were entirely for personnel compensation and benefits. In fiscal year 2019, the business center planned to obligate nearly 74 percent of the $292.7 million in available funds on personnel compensation and benefits, about 18 percent on contracts, about 8 percent on travel, and the rest on other activities. According to USDA officials, through the end of the fiscal year, the business center had obligated approximately $272 million, or about 93 percent, of its available funds. USDA Has Approved $1.1 Million in FPAC Business Center Information Technology Modernization Efforts through Fiscal Year 2020 For fiscal years 2018 through 2020, USDA approved an investment of $10 million for information technology modernization across all FPAC agencies, including the following two efforts to modernize information technology in the FPAC Business Center at an estimated cost of $1.1 million: The Modernized Directives System, approved at a cost of $600,000. According to USDA officials, the FPAC Business Center is funding this project from its salaries and expenses budget. According to USDA documents, the business center’s Management Services Division wants to provide all FPAC employees an online tool to create, authorize, disseminate, and manage all of the agency’s policy directives in an FPAC Consolidated Directives Repository while minimizing the costs of operations. According to the agency, the tool would streamline the tasks performed by the division’s administrative staff. FPAC plans to gauge the success of the effort by measuring adoption of the new tool by employees, stakeholders, and the public. The National Office Information System, approved at a cost of $500,000. According to USDA officials, $41,000 of that amount is from the FPAC Business Center’s budget for salaries and expenses, while the remaining $459,000 is funded by the other three FPAC agencies. According to USDA documents, this operations support system would improve the agency’s ability to respond in a timely manner to congressional and departmental inquiries and meet reporting requirements from the Office of Management and Budget and other oversight organizations. According to FPAC Business Center officials, the business center obligated $600,000 and $41,000, respectively, toward these two projects in fiscal year 2019. Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Nico Sloss (Assistant Director), Stephen Cleary (Analyst in Charge), Ross Campbell, Caitlin Dardenne, Juan Garay, Scott Heacock, Serena Lo, Cynthia Norris, Lauren Ostrander, and Sara Sullivan made key contributions to this report.

With budget authority of $146 billion in fiscal year 2018, USDA employs nearly 100,000 people organized into 13 major staff offices and eight mission areas comprising 18 agencies. In a November 2017 memorandum, the Secretary of Agriculture called for establishment of a business center in each mission area to provide consolidated administrative services. The memorandum identified three policy goals for these reforms: (1) improve customer engagement, (2) maximize efficiency, and (3) improve agency collaboration. The Agriculture Improvement Act of 2018 includes a provision for GAO to report on USDA's business centers. Among other things, this report examines the extent to which USDA has (1) established business centers and (2) assessed the effectiveness and impact of these business centers. GAO reviewed USDA documents and interviewed officials from USDA's Office of the Assistant Secretary for Administration, Office of Budget and Program Analysis, and eight mission areas about their efforts. GAO also interviewed representatives of USDA employee unions and USDA's external customers, such as farmers, for their perspectives on the establishment of the business centers. The U.S. Department of Agriculture (USDA) has established business centers to provide consolidated administrative services such as human resources and information technology in each of its eight mission areas, in keeping with reforms called for in a November 2017 memorandum from the Secretary of Agriculture. The business centers vary in when they were established; three preceded the Secretary's memorandum (see figure). Typically, each business center is located within one of the mission area's component agencies, and the center's leader reports directly to agency leadership. According to a USDA official, the department regularly reviews data on administrative services, including services provided by the business centers. However, the department has not assessed the effectiveness and impact of its business centers and as of November 2019, did not plan to do so. Beginning in 2018, USDA created an online monitoring system to compile data on the status of administrative services, with “dashboards” displaying data specific to different administrative services, among other things. However, the department has not used dashboards or associated metrics to assess the effectiveness and impact of the business centers, including their impact on USDA's customer service; human resources, including hiring; and overall functionality. GAO's prior work has shown that a key practice to consider during an agency's reform efforts is establishing clear outcome-oriented goals and performance measures to assess the reform's effectiveness and impact. Developing appropriate performance goals and systematically assessing the effectiveness and impact of the business center reforms could help the department determine whether the reforms are meeting the Secretary's overarching policy goals and improving the delivery of administrative services to support the department's mission and program goals.

CRS_R46212

T he stagnation of real hourly wages at the lower end of the income distribution, where workers tend to be less educated, has entered into the policy debate over many issues, including trade, immigration, and institutional factors such as the minimum wage. This lack of wage growth has also contributed to an increase in overall income inequality. The first section reviews changes in the distribution of hourly wages (as well as considering the effects of fringe benefits) and overall income. Following that review, the report reviews the evidence on the main factors that might have contributed to this lack of wage growth, including technological advancement, trade, the minimum wage, unions, the large firm wage premium, immigration, and reduced labor mobility. The final section of the report explores policy options that might be considered by Congress. A Review of Long-Term Hourly Wage Growth Over the 1979-2018 period, real wages at the 10 th percentile of the wage distribution grew by only 1.6%, whereas wages at the 50 th percentile grew by 6.1% and wages at the 90 th percentile grew by 37.6%. As shown in Table 1 , these patterns varied by sex, race, and ethnicity. From 1979 to 2016, examined by quintiles of wage earners, wages fell by 1.0% for the bottom 20% but rose by 27.4% for the top quintile. Wages rose for the lower-middle quintile by 0.8%, but rose by 3.4% in the middle quintile and by 11.5% in the upper-middle quintile. The wage differentials between the 10 th and the 50 th percentile remained relatively constant after 1990 until the recession in 2009, indicating a stabilization of inequality in the bottom half of the wage distribution; this change was primarily for male workers. For female workers, a more modest growth in the differential in the bottom half occurred, largely in the early 1980s, with little change thereafter. The differential in the upper half (between the 90 th and the 50 th percentile) increased at a more modest pace during the entire period. Wages are associated with educational achievement. College graduates are 15% of the bottom quintile and almost 80% of the top quintile. The highest wages on average are earned by those with advanced degrees, and the lowest by those with less than a high school diploma. In 2016, for workers over 25, those with less than a high school diploma had median weekly earnings of $504. Median weekly earnings were $1,156 for those with a bachelor's degree, $1,380 for a master's degree, $1,745 for a professional degree, and $1,664 for a doctoral degree. The wage premium for a college degree (the ratio of average wages for those with a college degree compared to those with a high school diploma) rose from 134% in 1979 to 168% in 2016; the premium for an advanced degree rose from 154% to 213% over that same period. The wage premium for a college degree rose steeply until about 2000 then continued to rise slightly after 2000. Over the 1979-2016 period, the share of workers with a college degree also increased (from 23% to 40%). This increase in the skill premium suggests that the demand for skilled workers rose relative to the supply over this time frame. Using the CPI, real wages of men with a high school diploma or less declined significantly between 1979 and 1999, while women with a high school diploma experienced small, but generally positive, growth during that period. In addition to the wage differential growth, labor compensation as a share of income has been falling since 2001, from 64.3% in the first quarter of 2001 to 58% in the fourth quarter of 2015. Labor compensation includes fringe benefits and proprietor's labor income as well as wages. During that same period, employee wages fell from 46.8% to 42.8% of gross domestic income (GDI). While the fringe benefits (supplements) share remained constant as a share of GDI, these benefits rose as a share of employee compensation. In contrast with the increased wage inequality and the increased college wage premium, where effects largely occurred by 2000, the fall in the labor share of income occurred primarily after 2000. Because wages account for a smaller share of the income of higher-income individuals, both the increased wage inequality and the decreased labor income share have led to increased income inequality. From 1979 to 2017, the income share of the bottom quintile fell from 5.3% to 3.5%, whereas the share of the top quintile rose from 41.9% to 50.1%. Income shares also fell for the lower-middle quintile (from 11.7% to 9.0%) and the middle quintile (from 17.2% to 14.7%), and (slightly) for the upper-middle quintile (from 23.8% to 22.7%). Note that labor compensation differs from wages, as it also includes benefits that typically account for about 30% of compensation. This difference also raises the question of whether the wage differentials documented for the period from the end of the 1970s to the mid-1990s were offset or accentuated by changes in nonwage compensation. Available evidence, however, indicates that labor compensation differentials increased more than wage differentials. Some of the decline in the labor compensation share may be due to the growth of entrepreneurial income at the top of the income distribution, which in turn may partly reflect shifting to pass-through business (where wages are not paid to entrepreneurs) from the standard corporate form, due to tax incentives. Thus, this shift may be, in part, a change in the characterization of income rather than a real shift. One study has estimated a national distribution of income and how it has changed over time accounting for all national income, including the fringe benefits of workers and those not in the labor force. This study compares the growth in income over two 34-year periods: from 1946 to 1980 and from 1980 to 2014. For the postwar period through 1980, the overall income growth rate and the overall pretax income annual growth rate were 2%, with pretax income of the bottom 50% of adults growing at approximately the 2% growth rate, whereas the top 10% grew at 1.7%. For the period from 1980 through 2014, the overall annual growth rate was lower, at 1.4%, but the annual growth rate of the bottom 50% rounded to zero, whereas the top 10% grew at 2.4%. The study's statistics show that the share of income of the bottom 50% declined from about 20% in 1979 to about 12% today. This study differs from other studies of income distribution that focus on family units; rather, it looks at incomes for all adults separately to focus on individuals. Although this study uses a different approach, it shows a similar pattern to other measures. To sum up these trends, lower-income workers experienced a decline in wages relative to the median that mostly occurred in the 1980s, the median wage earners experienced a decline with respect to the top wage earners throughout the period (with both effects causing a rise in the college wage premium from the 1980s to about 2000), and since 2000, the labor share of income has declined. All of these trends resulted in a stagnation of income among less-skilled workers relative to the overall population. Factors Potentially Contributing to Wage and Income Inequality This section discusses the factors potentially contributing to the lack of wage growth at the bottom of the wage distribution: technology, globalization, wage-setting institutions (the minimum wage, the decline in unions, and the decline in the large firm wage premium), immigration, and reduced labor mobility. It also considers the decline in the labor income share that contributed to inequality. Technological Advancement Many economists see technology and international trade as the major forces affecting labor markets, and a broad conclusion of the evidence on earnings inequality is that the largest immediate contributors included a rising demand for skills along with a slowdown in the growth of the supply of new college graduates. Historically, technological advancement has led to a massive increase in the standard of living but has also caused temporary disruptions, although the groups that are adversely affected have varied. With recent technological advances, those who fail to reap the benefits appeared to be less-skilled workers, based on a number of relationships observed in the economy. First, some effects arose from the displacement of workers in well-paid factory jobs with machinery using advanced technology. One illustration of the potential impact of technology in reducing the demand for manufacturing workers is the development of the mini-mill in steel production. Although the real value of shipments was relatively constant from 1980 through 2002, steel industry employment fell from 400,000 workers to 100,000 workers. Second, numerous studies found that the surge in wage inequality that appeared in the 1980s (and had its primary effects on inequality in the lower half of the wage distribution) reflected a rise in the demand for skilled workers that had been ongoing for some time and was perhaps accelerated by the computer revolution. There also appeared to be a relationship between positive wage changes and computer use by workers that suggested a technological cause to the changes in wage patterns. A number of studies showed that the utilization of more-skilled workers was correlated with capital intensity and the implementation of new technology based on both statistical and case studies. Studies showed a diffusion of computer-based processes during this period, which could substitute for routine jobs and is likely more important in clerical and production jobs than in managerial and professional jobs. Third, a finding that points to technology rather than trade as the more important source of increased demand for skilled workers was that wage dispersion occurred within industries rather than between industries. Growing wage differentials within a particular industry suggest a largely technology-driven reason, whereas a differential that arises across workers producing different products may point to a trade-driven effect (e.g., imports being produced with less skilled labor and exports with more). That is, if increased trade led to imported goods with lower prices, wages would decline in that industry relative to other industries, whereas if technology favored more-skilled workers, differentials in wages would occur within all industries. This outstripping of demand for skilled workers (primarily via technological change) relative to supply also reflected a slowdown in the growth of the share of workers with college degrees, because the increase in the college wage premium was largely attributable to younger men. The slowdown could be in part attributed to the end of the growth in college attendance induced by the Vietnam War and in part to the decline in the college wage premium prior to the 1980s. For example, as the war in Vietnam ended in the mid-1970s, the decline in college attendance prior to that period produced ripple effects in the form of a less-educated workforce into the 1980s. The pattern of wage changes differed from 1979 to today. In the 1980s, technology and automation changes led to a decline in employment and earnings at the bottom of the skill distribution relative to the top, whereas in the 1990s and later, information technology change did not affect the very lowest-skilled workers performing manual labor but did adversely affect moderately educated workers performing clerical tasks, and benefitted highly educated workers performing abstract tasks. Employment in both the least-skilled and most-skilled occupations grew relative to that in the middle-skilled occupations. Some studies linked this effect to technological advancement in information and communication, which allowed the substitution of machines for many routine tasks carried out by middle-skilled jobs. Technological change shifted from automation affecting manufacturing to the computerization of information affecting nonmanufacturing. Despite some evidence of a transitory effect from trade due to China's rapid emergence, the evidence presented in this and the following section suggests that technology is the more important driver of changes in wage differences. Some prominent labor economists appear to hold that view. When queried about the importance of automation versus trade, as reported in the New York Times , Lawrence Katz said, "Over the long haul, clearly automation's been much more important—it's not even close." David Autor, interviewed in the same article, said automation has had a far bigger effect than globalization and stated "some of it is globalization, but a lot of it is we require many fewer workers to do the same amount or work. Workers are basically supervisors of machines." This technological advancement in favor of more-skilled workers is projected to continue in the future with increased use of industrial robots and susceptibility of jobs to computerization. Studies suggest that new technology and algorithms for big data will make computers substitutes for nonroutine cognitive tasks and an expanded range of manual tasks, while having less effect on jobs that require creative or social intelligence. A technological explanation for the decline in the labor share of income seems less likely. Even if technology led to more capital investment, such increases would not necessarily lead to a declining share of labor income. The reasons for the decline in the labor share of income are unsettled, although, as noted earlier, a recent study found that most top income is nonwage income, a primary source of which is private business profit, largely due to labor input by entrepreneurs, which could be considered labor income. Globalization, International Trade, and Import Competition Economists generally agree that the overall economy gains from international trade, even though (as is the case with technological progress) some groups may be harmed. (Trade in this section refers to international trade, consisting of imports from abroad and exports to other countries; the growth in this trade and other transactions with other countries is often referred to as globalization .) One study put the estimated increase in output from trade at 2% to 8% of gross domestic product (GDP). (Trade includes trade in final goods and services and trade in intermediate goods and services, sometimes referred to as offshoring .) Because trade largely involves a substitution of one type of production for another, there is no a priori expectation of an effect on income distribution. Although some studies have found a role for trade, most have found it a modest force compared to technology. As discussed in the previous section, one characteristic that points to a technology-based rather than a trade-based cause as the more important force is that increased wage differentials appeared within sectors rather than across sectors. If the cause were trade, such differentials would be expected to have appeared between import and export sectors. A second characteristic pointing against a trade-based cause as more important than technology is that inequality has increased in both advanced and developing countries. If the cause were trade (receiving imports from countries using low-skilled labor in exchange for exports using high-skilled labor), developing countries would likely be more, not less, equal. That both types of economies are becoming more unequal points to a technology-based explanation. Some studies also tried to directly estimate the effect of trade on the economy by examining how the lack of trade would affect prices and wages. These studies generally found a small effect on prices and income distribution, especially compared with technological change. Instances in which certain workers in local markets are adversely affected by imports may have led to the perception of an important role for trade. Studies have found an effect from China's rapid emergence in the world market, especially after 2000, when China entered the World Trade Organization (WTO); these studies found a decline in manufacturing jobs in areas producing products most competitive with imports, as well as persistent increased unemployment and a small decline in wages. These studies illustrate the adjustment costs of a large trade change on trade-impacted sectors, and especially on lower-wage workers who may find adaptation and mobility more difficult. They characterized the growth in China's imports as a shock and noted that this growth may soon be over, if it is not already, as wages in China have increased substantially. One study cited a loss of 2 million jobs in the United States over the period 1999 to 2011, which indicates an average of 166,000 jobs a year. To put the China effect in perspective, this amount is one-tenth of 1% of the U.S. workforce, and its cumulative effect over a dozen years was 1.4%. Thus, while the China shock as measured by displaced jobs may have been significant relative to other trade shocks, it did not likely have a major effect on the stagnation of wages at the lower end of the wage distribution, which has occurred over the past 40 years and was most pronounced before the increase in China trade began. The China study analysis focused only on effects in areas of high import penetration, but it did not consider overall effects in the economy. It is well known that bilateral trade balances or their effects in local markets cannot be used to infer results about the economy as a whole. An increase in imports leads to increases in output in other sectors of the economy that should be considered. A subsequent study that did so found these local effects were offset by growth in other areas and exports. Thus, trade can alter the compositional mix and location of jobs without necessarily having an effect on long-term inequality. Some research has indicated that globalization might have contributed to the increase in incomes of high-income individuals and their firms, such as high-tech multinational firms ("superstars" in their terminology), in part by expanding markets. This phenomenon could contribute to income inequality, but it did not do so by harming the wages of unskilled workers, but rather by increasing wages and profits (income) at the top of the income distribution. As for the decline in the labor share of income, that decline is unlikely to be linked to a traditional argument that the country has moved toward labor-intensive imports because the labor share has also fallen in the nontradeable sector (such as construction, sectors that involve the distribution of goods, and some services). However, the growth of highly successful multinational "superstar" firms may have made a contribution because the increased income would be capital income rather than labor income. In general, although estimating the effects of trade is complex, the current empirical evidence does not appear to support trade rather than technology as the more important cause of relative wage stagnation at the lower end of the wage distribution. Wage-Setting Institutions Technology, education, and trade explanations of the change in income and wage inequality are based on normal forces of supply and demand. However, economists studying the rise in inequality have also considered the decline of labor institutions that may have protected higher wages at the lower end of the wage distribution. This section considers three aspects of these wage-setting institutions: the minimum wage, union membership (and right-to-work laws), and the change in wage-setting norms (such as the large firm wage premium). The Minimum Wage The federal minimum wage, currently $7.25 per hour, is not indexed to inflation, and thus the real value has risen and fallen in an irregular pattern over time. For example, the minimum wage in 2015 dollars fell from $9.44 in 1979 to $6.34 in 1989. It has fluctuated since then, and declined from 1997 to 2006 to a lesser degree (from $7.58 to $6.23), and then increased. Some early studies found that the decline in the value of the minimum wage in the 1980s was responsible for the steep decline in relative wages at the bottom of the wage distribution during that time period. Some economists argued that the increase in inequality was an episodic event due to the minimum wage and was not traceable to skill-based technological change. A number of years have passed since these early studies and, while inequality at the bottom has stabilized (although with little real wage growth), the inequality increases have continued. This growth in inequality was primarily in the upper half of the wage distribution at levels where it could not have been due to the minimum wage; the study noting that point found a skill-based rather than minimum wage cause for changes through 2005. A study that extended data through 2012 and accounted for state minimum wages found negligible effects for male inequality between the 10 th and 50 th percentiles, finding a meaningful effect only for women. These findings suggest that the minimum wage may have played a relatively small role in increased inequality. The Decline in Unions Union membership in the private sector, which has been historically associated with a positive union wage premium (higher wage for union members) for blue-collar workers, declined significantly during the period of rising wage inequality. From 1973 to 1993, union membership in the private sector declined from 31% to 13%, and by 2018, it had declined to 6.4%. (Union membership in the public sector has increased slightly over that period, from 28.9% in 1973 to 33.9% in 2018.) There are two major reservations about assigning an important role to union membership in explaining increasing inequality in wages. The first is that during the period of the greatest decline in relative wages in the lower half of the distribution, the effect of unions, as determined by multiplying the differentials in the union wage premiums (increased wages due to union membership) across incomes by the change in union membership, accounted for only a small share of the difference (about 8%); the study reporting this effect also found that most of the change was due to technological change. Other studies indicate that the effect would be largely for men, perhaps up to 20% in that early period (the 1980s); over a longer time period, effects were confined to men and associated with increased inequality in the upper half of the wage distribution but reduced inequality in the bottom half. Another study, however, suggested that the union wage premium might understate the effect of unions to the extent that it establishes norms for nonunion jobs in the area or provides a threat to employers who could potentially lose workers to union jobs, finding that the decline in unions was responsible for one-third to one-fifth of the decline in wage inequality for men from 1979 to 2007, and up to one-fifth for women. This study suggests union effects could be larger than otherwise projected. Although some studies find significant effects from union membership in reducing wage differences, as acknowledged by the authors of studies finding a larger union effect, it is difficult to disentangle these effects from the effects of other factors—particularly technological change—that might have independently contributed to both wage inequality and the decline in union coverage. If technological change caused a decline in employment in industries that were typically heavily unionized, then the cause is primarily technological change, not deunionization. In addition, there is some evidence that the union wage premium (i.e., the excess of earnings of unionized versus nonunionized workers) has fallen in the private sector, which could have arisen from reduced firm profits (shared with workers) due to foreign competition or from technological advances. One policy tool that potentially affects union density as well the bargaining strength of unions is right-to-work (RTW) laws, which have been adopted in 27 states, predominantly in the southern, western, and midwestern states. Under RTW laws, workers receive the benefits of the union contract, but are not required to pay union dues. Many RTW laws have been in place for a long time, although recently, between 2012 and 2017, five states—Indiana, Michigan, Wisconsin, West Virginia, and Kentucky—adopted these laws. There is an extensive economics literature on RTW laws, although these studies are limited by an inability to control for preexisting antiunion sentiment or other unobserved variables (for example, southern states have historically had lower wages for other reasons and are more likely to have adopted RTW laws). Even so, most studies find relatively small effects on wages. A study that controlled for these potentially unrelated differences across states by examining the change in wages in states that recently adopted RTW laws found results suggesting a negligible effect. Overall, these studies suggest that RTW laws may reduce union membership and bargaining strength, with little effect on wages, particularly nationally. This reduction in wages was presumably spread over the income spectrum so that the effect on rising inequality is limited. Because most RTW laws (20 out of 27) were adopted prior to the increase in wage inequality, these laws would likely have played only a small role, if any, in the increase in inequality that began in the 1980s. The Large Firm Wage Premium and Pay for Performance Another wage-setting feature that appears to be fading is the large firm wage premium. Large firms tend to pay a premium, particularly to their lower-paid workers, compared with smaller firms. Wages paid by a firm with 10,000 employees were estimated to be 47% higher than those of smaller firms in 1980-1984 and 20% higher in 2010-2013, although researchers estimated that about a fourth of the decline was offset by increased fringe benefits. One estimate indicates that the decline in this premium accounted for 20% of the wage inequality from 1989 to 2014 (note, however, that this period postdated the major increase in inequality in the 1980s). One cause for the decreased premium is the decline of internal labor markets (ILMs) in large firms, in which wages are assigned to jobs rather than workers (that is, pay is set for doing a particular job and not for how well that job is done). ILMs were developed to curtail managerial discretion in order to reduce discrimination, favoritism, and nepotism, and were aimed at creating a sense of internal pay equity. ILMs compressed wages horizontally (across workers at similar levels) and vertically between more- and less-skilled workers, largely through raising the wage floor. The objective of ILMs was to ensure worker loyalty, reduce shirking, and discourage unionization. The decline in ILMs responded to a less certain environment where technological advancement, globalization, and deregulation increased competition. Signs of the decline in ILMs include reducing returns to tenure, more external hiring, lower tenure rates, a reduction in firm-sponsored training, and more pay-for-performance. Pay-for-performance has tended to reduce wages at the lower end and increase them at the higher end. Large firms also increased contracting with other firms and individuals to perform tasks (outsourcing), where wages can be dispersed without triggering a perception of wage inequity (this phenomenon is also referred to as the fissured workplace ). Some evidence indicates that outsourced janitors and security guards earn less than internal employees. Highly skilled employees may gain, however, from outsourcing. Other factors include the decline in unionization and a change in the view of the firm as a social institution that has occurred with global competition, technological advancement, and pressures from shareholders. Ultimately, the large firm wage premium, as with the decline in union wage effects, appears to be traced back, in part, to fundamental economic changes, which increased competition through technology and globalization. Immigration Another factor sometimes suggested as contributing to slow growth in the wages of less-skilled individuals is immigration. As with trade, the effect of immigration on wages and their dispersion cannot be determined a priori. Although immigrants increase the labor supply, they also increase the demand for goods and services. Immigrants in many cases are not close substitutes for native workers (for example, for jobs that require English language skills). Also, they may provide cost savings to firms that are passed along to consumers in the form of lower prices. There is an extensive literature estimating the effect of immigration on the wage structure by comparing wage changes in geographical locations with more immigrants to those with less or comparing occupations with more entry by immigrants to those with less. After a review of the evidence derived from two dozen studies, the National Academy of Sciences concluded in 2017 that the impact of immigration on the wages of native-born workers is small, and the effects are most likely on those who have not completed high school, for whom immigrants with low skills are the closest substitutes. Even in those cases, studies typically found effects on wages of less than 1% due to immigration. That study also indicates that there is little evidence of an effect on employment levels for the native born, although there might be effects for prior immigrants. Some evidence suggests that skilled immigrants have a positive wage effect on some groups of native-born workers, and immigration overall has a positive effect on long-term economic growth. One challenge with studies of immigration is controlling for the immigrants' choice of location or occupation (although a variety of methods have been used to do so). The findings cited above are bolstered by the results of the study of a rare natural experiment, the Mariel boatlift in 1980, where immigration occurred due to an external event when Cuban leader Fidel Castro allowed Cubans a temporary freedom to emigrate. A large share of the Cubans came to Miami, increasing the labor force there by about 7%. These immigrants were largely unskilled, with a high school or less education. No statistically significant effect was found on wages and employment of non-Hispanic workers with a high school or less education. The Mariel boatlift, although occurring many years ago, remains relevant because of the large surge of immigrants relative to the size of the labor force and the rare opportunity to examine a natural experiment that automatically controls for immigrants' choices. For income distributions, the foreign born would be included in the overall statistics and could increase inequality if they tended to have lower wages. The share of the workforce that is foreign born has been increasing, from 6.7% in 1980 to 9.2% in 1990, 12.4% in 2000, 16.5% in 2010, and 17.0% in 2016. However, little of the growth appeared in the 10 years between 1980 and 1990, when the increase in the college skill premium occurred. The foreign-born share, after a decline that began around 1910, began to increase about 10 years earlier than the increase in inequality observed from 1980 to the present. However, because immigrants are concentrated in both the upper and lower ends of the skill distribution, including them results in a small contribution to inequality. Declining Labor Force Mobility Another factor that may contribute to lower wages is the recently observed decrease in labor force mobility, in which data have shown declining interstate mobility and declining worker job changes. Although there have always been barriers to labor mobility (both social and economic), some decline might be due to an aging workforce or industry diversification (that is, more options for employment with a number of firms as compared to those with a dominant large employer) within a locality, although evidence indicates reduced mobility has also occurred among young workers and across educational types. Some effects of reduced mobility on wages may be associated with increasing employer concentration, which increases the ability of employers to set wages if there are few competing employers, such as in a one-factory town. There is some evidence of increasing employer concentration reducing the share of wages in manufacturing, but the estimated effect appears to be small. Labor mobility is an important guard against the power of employers, and some recent attention has focused on certain practices of firms and governments that limit changing jobs. Effects can arise from noncompete covenants (where employees agree not to join or start a competing firm). Employers justify noncompete contracts to recover the cost of training or protect trade secrets. Noncompete contracts are more likely to be found in high-paying jobs, but some evidence suggests they are also common in low-paying jobs. A related phenomenon is no-poaching contracts that ban other firms from hiring each other's employees; recent publicity and actions of state attorneys general about such practices in a number of large fast-food chain franchises has led to an agreement to end these practices. Other factors that might have contributed to reduced labor mobility are an increase in occupational licensing (although it is more likely to apply to more-educated workers) that increased barriers to entry and increased constraints imposed over time by high housing prices arising from land-use regulation, especially among lower-income workers. Geographic mobility may also be limited by the lack of portability of public benefits across state lines. The growth of health insurance tied to the employer may have also reduced job mobility, although this effect may be reduced due to the availability of subsidized insurance under the Affordable Care Act. Barriers to moving in the state and local public sector may occur due to defined benefit pensions. Subsidies to homeowners (such as itemized tax deductions for mortgage interest and property taxes) may benefit higher and middle incomes, but homeowners are the driving force behind zoning restrictions that make housing more expensive for relocating workers. The 2017 tax revision ( P.L. 115-97 ) has, however, significantly reduced the scope of these tax subsidies by limiting itemized deductions and increasing the standard deduction. These changes are scheduled to expire after 2025. Policy Options While some specific changes in policy may be suggested by the review of the causes of wage stagnation, it is not clear that simply reversing the causes would outweigh the benefits society accrues more broadly through technological advance and trade. This section discusses some policy options for those left behind by economic growth that might be considered if there is a desire to increase lower- and middle-income individuals' incomes or reduce inequality. Numerous targeted tools exist that the federal government could use to intervene to affect the income distribution. These policies include direct taxes and transfers that increase after-tax earnings; other policies that might increase pretax wages, such as wage subsidies and the minimum wage; and a variety of policies that might potentially provide more equality, such as education and training programs and relocation assistance. This discussion is intended to provide a review of a broad sweep of proposals. An in-depth analysis of each proposal is beyond the scope of this report. Many of these proposals would involve a cost in lost revenues from transfers, tax subsidies, and incentives, or from additional spending, which should be weighed against alternative uses of resources. Many of the regulatory changes discussed—relating, for example, to unions or to practices affecting labor mobility—are controversial and involve a trade-off between benefits to labor income and efficiency costs of intervening in a market economy. Taxes and Transfers The discussion in this report is based on pretax income, but government tax and transfer programs have affected the shape of posttax and post-transfer income. Table 2 reports estimates that show that the after-tax distribution is more equal than the pretax distribution and that tax and means-tested transfers played a bigger role in 2016 than in 1979. In 2016, taxes and transfers increased the income of the bottom quintile by 70% and increased the income of the second quintile by 6%. The third, fourth, and fifth quintiles had their income decreased via net tax payments by 9%, 16%, and 27%, respectively. These transfers provided the bottom 20% with a larger share of the income total, although some of those benefits were to those on public assistance. An increase in the income share of low-wage workers could be accomplished by a combination of reducing the taxation of lower-income workers, increasing direct transfers, and expanding refundable tax credits (which differ from ordinary transfers by being delivered through the tax system). Lower-income workers may benefit from programs providing general transfers or specific benefits, such as subsidies for food, housing, health insurance, and health care. If using transfers to address increased inequality, one consideration is whether to tie a transfer to wages or to make it a general transfer. For example, proposals for some forms of a universal basic income would provide a grant to everyone to provide a minimum income floor that could support individuals in all circumstances. Unless the plan is phased out with income, it could become quite costly, although it could substitute for targeted transfer programs. It could also be a work disincentive, particularly if phased out. Such a concern was raised in the past about a form of phased-out grant called a negative income tax where experimental studies showed work disincentives. An alternative approach is to expand the current earned income tax credit (EITC), a refundable credit based on wages that empirical studies have indicated encourages work. The EITC provides a credit for a percentage of wages up to a maximum where the credit is fixed over an income rate and then phased out. There has been particular interest in the tax treatment of childless workers who are eligible for a very small EITC. For 2018, families without children received an earned income credit of 7.65%, for a maximum credit of $519, which began phasing out below the poverty level. Families with one, two, or three or more children received credits of 34%, 40%, and 45%, respectively, and maximum credits of $3,461, $5,716, and $6,431, respectively. Childless workers can receive the credit only between the ages of 25 and 64, although some of these workers without children are noncustodial parents. Proposals have been made in the past to increase the credit and phaseout for childless workers, along with a variety of proposals to lower the minimum age to 21 or to increase credits in general, including for workers with children. The Economic Mobility Act of 2019 (Representative Richard Neal, H.R. 3300 ), ordered to be reported by the House Ways and Means Committee, would expand the EITC for childless workers for two years. It would double the credit rate to 15.3%, increase the maximum credit to $1,464, and increase the income level at which the credit phases out. It also would reduce the eligible age to 19 for those other than full-time students. Several other proposals have been advanced in the 116 th Congress to expand the earned income credit, including the LIFT the Middle Class Act (Senator Kamala Harris, S. 4 ); the Rise Credit unveiled by Senator Cory Booker; the Cost-of-Living Refund Act of 2019 (Senator Sherrod Brown and Representative Ro Khanna, S. 527 and H.R. 1431 ); and bills to expand the earned income credit and the child credit (Senator Sherrod Brown, with numerous cosponsors, S. 1138 , and Representative Daniel T. Kildee, H.R. 3157 , the latter titled the Working Families Tax Relief Act). Expanding the earned income credit would cost varying amounts depending on the proposal. The current EITC costs about $70 billion a year. The expanded EITC in H.R. 3300 for childless workers (proposed for 2019 and 2020) would cost an average of $9.7 billion a year. (This bill proposes some other minor changes in the EITC that are not included in this estimate.) In 2017, the Tax Policy Center estimated the cost of a variety of EITC proposals, with costs ranging from $0.5 billion per year (to double the credit for childless workers and reduce the age of eligibility to 21) to $21.6 billion for a general increase in credit rates. These changes would involve a modest increase in the credit. Larger increases or expanding overall benefits could cost considerably more. The LIFT the Middle Class Act, which has been proposed previously, has been estimated to cost close to $300 billion a year. The act would allow cash transfers of up to $6,000 for married couples (phased out at $100,000) and half that amount for singles. Earned income credits have the advantage of increasing income while encouraging work, but they reduce revenue and must be paid for by additional taxes or spending cuts, either now or in the future. If the object is to help low-income workers, these other changes should generally fall on higher-income individuals. One proposal that also contains a way to pay for the revision would replace the current EITC with a credit for 100% of the first $10,000 of earnings, paid for with an 11% value-added tax (VAT). Employer Wage Subsidies An alternative to credits to workers is providing employer wage credits. As with the EITC, the credit would be phased out to be targeted to lower-wage workers. Employer wage subsidies as a broad alternative to the EITC have not been adopted in the past and are not among active proposals except for narrowly targeted subsidies. The current general subsidy in place is the work opportunity tax credit (WOTC) for hiring individuals from certain targeted groups who have consistently faced significant employment barriers; it is a small program costing about $1 billion a year. Studies of this program have found a relatively low participation rate, although there is evidence that the credit results in higher wages for eligible employees and has expanded employment opportunities for long-term welfare recipients and disabled veterans. Some reasons for the low participation rate (firms may lack information or interest in a government program, or encounter high transaction costs or difficulties in identifying qualified workers) might not apply to a general wage subsidy, which could be more effective. Also, geographically targeted credits (discussed subsequently) and incremental tax credits (for increased hiring) have been used as a stimulus in past recessions, with mixed evidence on their effectiveness. An employer credit differs from an employee credit because the former cannot be based on family characteristics (including total family income). Also, in cases where the employer is paying the minimum wage and would continue to do so with the employer credit, there is no effect on wages, although the employer may be willing to hire employees who would not be hired without the subsidy. Employer subsidies have been confined to narrowly focused programs that are unlikely to have much effect on the broad issue of wage inequality. There do not appear to be any proposals for a general employer wage credit that would phase out with income. Both existing policies and proposed ones have indicated a preference for the employee-side credit (i.e., the EITC) rather than the employer credit as a generally available benefit for low-income workers, perhaps due to the desire to means test based on family income. Increasing the Minimum Wage An increase in the minimum wage would increase after-tax earnings, as a tax credit for working like the EITC does, but with some important differences. There is no explicit cost to the government (other than slightly higher wages for a small number of government employees); rather, the higher minimum wage benefits lower-wage workers and the cost is spread to other consumers through higher prices and reduced business income. Using a higher minimum wage to provide income to less-skilled workers can also cause unemployment. The trade-off depends on how responsive employer hiring is to increases in the required wage. Unlike the minimum wage, the EITC can also be based on family income and need (although this flexibility in the EITC has resulted in minimal benefits for childless workers). A generally higher minimum wage would provide benefits to teenagers and other younger individuals (such as college students) who may still be receiving support from parents or other family members and may come from higher-income families. A 2019 CBO study estimated the effects of raising the minimum wage to $15, $12, and $10. For the $15 option, the minimum wage would be indexed and exemptions for tipped, teenage, and disabled employees eliminated. While indicating that effects on employment are highly uncertain, CBO's median estimates for 2025 are reduced employment of 1.3 million for the $15 level, 0.3 million for the $12 level, and a negligible effect for the $10 level. Families below the poverty level would have incomes increased (in 2018 dollars) by $7.7 billion (a 5.3% increase in income), $2.3 billion (a 1.6% increase in income), and $0.4 billion (a 0.3% increase in income) respectively. Families with incomes between one and three times the poverty level would have incomes increased by $14.2 billion (a 3.5% increase in income), $2.3 billion (a 0.6% increase in income, and $0.3 billion (a negligible percentage increase in income), respectively. Higher-income families would have income reduced because of increased price levels. CBO's findings that a relatively small number of workers would be unemployed, especially for the smaller increases in the minimum wage, are based on its reading of the literature, although arguments have been made that the employment effects should be lower. Conflicting evidence exists on the minimum wage's effect on employment, with some studies finding no effect and others finding reductions in jobs or hours. If the minimum wage causes enough unemployment or lower hours, raising it has the potential to reduce earnings at the bottom of the income distribution, even though it increases earnings at the bottom of the wage distribution for those who remain employed. Effects found in prior research may be smaller than they were in the past. A number of states and localities have minimum wages higher than the federal minimum wage, and some have been raising them recently. In 2019, 13 states and the District of Columbia raised their minimum wages, with some of these increases stemming from ballot initiatives rather than state legislative actions. In addition, 18 states increased their minimum wages based on the cost of living. In 2020, 14 states increased their minimum wages due to previously approved legislative actions or ballot initiatives and 7 states increased levels based on the cost of living. A Federal Job Guarantee Another proposal, which has its roots further back in history, is a guaranteed job at a specified wage. Senator Kirsten Gillibrand has expressed some interest in such a plan. Senator Cory Booker has proposed a pilot program in high-need communities ( S. 2457 ). Senator Bernie Sanders has also proposed a federal job guarantee. A plan called the National Investment Employment Corps, administered by state and local governments with federal grants, would provide universal job coverage for all adult Americans with a minimum annual wage of $24,600 for full-time work and a minimum hourly wage of $11.83, indexed for inflation. The jobs would also include fringe benefits. The proponents contend that this program would set a floor in the labor market similar to a minimum wage and would provide jobs that address community needs, such as infrastructure, education, child and elder care, and other needs. They argue that the proposal would both end involuntary unemployment and eliminate working poverty. Another plan, the Marshall Plan for America, would target those without college degrees and pay $15 an hour, possibly including attendance at training programs. These types of plans are estimated to be costly, with two estimates of the more general plan at $450 billion to $670 billion per year, although some behavioral responses and declines in other transfers might reduce the cost. Aside from how to pay for a potentially large-scale program, many challenges may arise. Because there is cyclical fluctuation in unemployment, the size of the guaranteed job workforce would fluctuate, making a match between workers and needed tasks difficult. Unlike the market economy that determines jobs and products based on consumer demand, the assignment of work and output would have to be determined by fiat. When goods provided by the government are not based on the needs for collective goods or goods with public spillovers (such as a military force or highways), misallocation of resources may be more likely to occur. Some resources would be diverted from the private sector with a higher effective minimum wage through the government job alternative. There are also issues as to whether jobs would be established to match needs in local communities, and there could be considerable challenges with programs in sparsely populated rural areas. There might be a need for background checks and proper job placement because some applicants may not be suitable for certain jobs (such as home health care or child care). There are issues about how to treat workers who violate the terms of employment (such as persistent tardiness). Finally, jobs may need capital inputs (e.g., construction equipment) and supplies, and workers in rural areas may have problems finding transportation. Wage Insurance Wage insurance policies were proposed during the slowing of the economy in 2001 to relieve worker anxiety, counter the drop in earnings (estimated at an average of 16% for manufacturing workers), and encourage rapid reemployment. Wage insurance provides a payment for a period of time for part of lost wages when workers become involuntarily unemployed. Wage insurance was subsequently added to the Trade Adjustment Assistance program that currently applies to workers who are certified as having lost their jobs because of trade. This policy idea was mostly dormant until President Obama proposed wage insurance in his final State of the Union message in 2016. The proposal would apply to those making less than $50,000 and employed for three years: it would replace half of lost wages up to $10,000 for up to two years. CBO estimated a $3 billion annual cost. Canada had a temporary wage insurance pilot program, which was more generous than the Obama proposal, and some states have had wage bonuses for becoming reemployed. Some evidence suggested that subsidized workers reentered the workforce about 4% faster than those not subsidized. Concerns have been raised about eligibility and targeting in order to avoid providing incentives for workers to conduct poorer job searches and attracting workers with less stable work histories and employers that provide less stable unemployment. There is a potential benefit of the employer not being aware of the supplement (which is also the case for the EITC), thus reducing the potential stigma that some evidence suggests makes employers less likely to hire those with hiring vouchers. This lack of knowledge would also make it more difficult for the employer to offer reduced wages to those eligible for the supplement. Wage insurance would not help those permanently at the bottom of the income distribution but would help workers who lost their jobs to technological change or other factors adjust to new employment. Enhancing Skill Acquirement The government (at all levels) has a major role in providing for formal education through public schooling and subsidized state colleges and universities. The federal government provides grants (including means-tested Pell grants for students), student loans, and tax credits (which are of limited benefit to lower-income individuals because they are not fully refundable). Pell grants are available for certificates and occupational degrees, although they may not be available for short-term training because they are prorated for full versus part time and duration. Pell Grants are authorized at $22.5 billion, and tax credits cost $19.1 billion. Career technical and education services at the secondary and postsecondary levels are supported by the Carl D. Perkins Career and Technical Education Act of 2006 ( P.L. 109-270 ), which is funded at slightly over $1 billion. The Workforce Innovation and Opportunity Act (WIOA) provides employment and training for low-income and skills-deficient job seekers and workers laid off from their jobs. The workforce development programs include state formula grant programs of $3.3 billion, the Jobs Corps at $2.0 billion, and some national programs at $0.3 billion. For adult education and literacy, the amount is $0.7 billion. For rehabilitation for individuals with disabilities, $3.7 billion is available, primarily through $3.3 billion in rehabilitation grants to the states. Proposals to increase skill acquisition when young and support lifetime training to respond to changes in labor demands include expanding current higher education grant programs and making the tax credits refundable, or providing free education at community colleges or public universities. Some plans are aimed at improving the effectiveness of community colleges, where too little guidance may cause students to waste time and money, increasing the dropout rate and making the transfer of credits to four-year colleges more difficult. Another option is to expand WIOA programs. The evidence on the predecessor of WIOA, the Workforce Investment Act, indicated that the adult programs (whether they included training or not) were relatively successful in improving labor outcomes (higher wages and jobs), but not for dislocated workers. The Jobs Corp (a residential program for youths) also appeared to be relatively successful, although the Trade Adjustment Assistance program was relatively ineffective. Note that the size of spending in the United States on these programs is small (0.04% of GDP) compared to many other countries, and evidence is limited both due to data challenges and lack of interest by researchers given the program's small size. WIOA spending might be more effective if training were based on sectors and aimed at acquiring skills that could be used by multiple local employers rather than one company ; if it were planned with both labor and management input ; and if funding for labor management workforce intermediaries were provided. Apprenticeships are a proposal for those who do not wish to go to college or do not think they would succeed, largely for young entrants to the labor force. Employers may be reluctant to provide these programs because, once trained, apprentices may leave for other jobs. Apprenticeships could be funded through grants or tax credits for employers, or through funding training institutions, such as community colleges. S. 393 (Senator Tim Scott and Senator Cory Booker), introduced in the 115 th Congress and known as the LEAP Act, would have provided a credit for employers participating in qualified apprenticeship programs. The LEAP Act was introduced in the 116 th Congress by Representative Frederica Wilson ( H.R. 1660 ), Representative Rodney Davis ( H.R. 1774 ), and Representative Tom Reed ( H.R. 4238 ). Although grants are more cumbersome to administer, tax credits provide an incentive to classify all new hires as apprenticeships. Grants could be used to target apprenticeships to high-growth industries. Proposals have also been made for a general worker training tax credit for employers that would be allowed for training that led to an industry-recognized certification or training programs authorized under WIOA. President Trump has also proposed an expanded apprenticeship program that would include more industry involvement, although some have argued this proposal would weaken apprenticeships. Other options include tax subsidies and matching funds for lifetime training accounts or penalty-free withdrawals from retirement accounts, although most lower- and middle-income individuals usually do not have much in savings, retirement accounts, or, in many cases, pensions. S. 379 and S. 275 (Senator Amy Klobuchar, 116 th Congress) would allow tax-free distributions from tax-advantaged education savings plans to be used for expenses for various training and technical education. Uncertainty about work schedules is a barrier to training, especially for workers in lower-paying service-sector jobs. Senator Warren previously sponsored legislation that, among other things, would have required employers to give two weeks' notice of work schedules. Strengthening Unions It is not clear whether the decline in union membership was a reason for growing income inequality or whether the decline was itself the consequence of other factors, such as technological advancement and greater international competition. In addition, while unions act as a counterweight to the market power of employers and aid in workers sharing firms' extra profits, they can also create economic distortions by setting wages in a way that differs from how they are normally set in markets. There is, however, some evidence that unions increase blue-collar workers' wages, and increasing the size and effectiveness of unions is among proposals that could be considered. A package of these proposals has been advanced, including increasing penalties for employers who violate labor laws, prohibiting the hiring of replacement workers in a strike, establishing a mandatory arbitration process, eliminating right-to-work laws, and giving all public-sector employees the rights to organize and belong to unions. There is not much evidence about how successful these changes would be in increasing union membership. As noted in the discussion of right-to-work laws, there is some evidence that such laws reduce the bargaining strength of unions and lead to reduced wages. Another proposal does not involve government policy but would need to be undertaken by unions and union organizers: to organize multiemployer regional or local unions rather than company-wide unions. Company-wide unions face greater difficulties, as large employers are increasingly dispersed over a broad geographic area. Encouraging Labor Mobility Proposals to address the decline in labor mobility include increasing scrutiny of mergers for harmful labor market effects, banning noncompete agreements for low-wage workers, and banning no-poaching agreements. Some actions have already been taken on no-poaching by the Federal Trade Commission and the Department of Justice, in issuing regulations and pursuing cases under antitrust laws. Senators Cory Booker and Elizabeth Warren have proposed to outlaw no-poaching clauses in franchise agreements ( S. 2215 ). Other actions to encourage mobility include reducing tax subsidies for home ownership, as homeownership is a barrier to mobility itself as well as a driver of zoning restrictions (note that reductions were enacted on a temporary basis in the 2017 tax revision); providing greater enforcement against restrictive zoning that harms minorities; revising antitrust law to address state-sanctioned occupational licensing organizations; harmonizing eligibility rules for federal transfers; providing a tax subsidy for moving (a deduction for moving expenses was temporarily eliminated by the 2017 tax revision); providing cash subsidies to cities or states that relax zoning or make occupational licenses transferable across state lines; and providing penalties (e.g., disallowing the mortgage-interest deduction) in localities that do not permit enough housing construction. There are arguments for policies that discourage labor mobility, and land-use restrictions may benefit local residents even if they ultimately harm overall growth. Homeownership has benefits that may offset its negative impact on mobility. Employers also would argue that noncompete and no-poaching clauses are needed to allow a return on the cost of training and to protect trade secrets (although some question how important these concerns are for low-wage employees). Geographic Targeting An alternative to encouraging geographic labor mobility would be policies to increase economic activities in areas (often smaller cities and rural areas, but also larger cities) that face chronic unemployment. Geographically targeted subsidies have existed for many years in the income tax code, beginning with enterprise zones and currently including empowerment zones, the new markets tax credit, and the recently enacted opportunity zones. These programs are aimed at helping workers in distressed areas. These geographically targeted subsidies have generally not been found to be effective in encouraging jobs because they are of small size, they are sometimes limited to local employers, and most have encouraged investment rather than employment (investment in physical capital can take place with little additional employment or even displace labor). Three types of policies directed to high-unemployment areas might be considered: wage subsidies, training funds, and government infrastructure or facilities investment. Of these, location of public activity (e.g., military bases and veteran's facilities) and infrastructure facilities are perhaps most problematic. Infrastructure needs are determined by the population, and federal workers are a small part of the labor force. Imposing geographical restrictions could undermine other objectives as well. Another option is to adopt a guaranteed jobs programs in high-unemployment areas, such as in the pilot proposal advanced by Senator Cory Booker ( S. 2457 ). A Note on General Economic Growth Some propose to benefit low-income individuals by taking actions to generate overall economic growth, which often involves tax subsidies to investment. There are issues with this approach that suggest a consideration of the more targeted proposals. The first is that the past 40 years have shown that some groups can be left behind with economic growth that arises from technological advancement. The second is that it is difficult to formulate policies to stimulate economic growth using common approaches such as lowering marginal tax rates. Evidence suggests that tax cuts may not be particularly successful because supply responses are relatively inelastic. Additionally, a tax cut that is not financed by spending cuts adds to the deficit, which eventually crowds out private investment. Conclusion Wages at the bottom and, to a lesser extent, the middle of the wage distribution have grown slowly relative to those at the high end over the past 40 years, and this slow wage growth, along with a decline in the labor share of income, has contributed to a growing inequality of income. The evidence on the causes of wage stagnation for lower-wage workers points to technological advancement as the most direct primary cause. Globalization appeared to have smaller effects than technological advancement, although it increased overall income inequality by increasing incomes at the top. The decline in wage-setting institutions had relatively small effects and some of these effects can be traced to an indirect effect of technological change that affected unions and the large firm wage premium. Immigration changes appeared to have little or no effect. A decline in labor mobility appeared to make a small contribution. A variety of policy options have different promises and drawbacks. Perhaps the most successful policies, at least based on experience, are transfer programs, including the earned income credit, which is targeted to low-income wage earners. These programs involve potentially large costs and may require raising taxes on higher-income individuals. There is only limited evidence of the effects of a universal basic income and it would be costly if not phased out. Past evidence on a phased-out program found some negative effects on work effort. Experience with the minimum wage, at least at prior levels, has indicated an ability to transfer income with relatively small effects on unemployment, although the effectiveness of increases in the federal minimum wage is limited by widespread state adoption of higher minimum wage rates. Some policies, such as employer wage subsidies, worker training and employment programs, and geographic incentives, have had a mixed or relatively poor track record. Other proposals have been largely untried (such as a federal job guarantee and wage insurance); a job guarantee could cost several hundred billion dollars a year, according to estimates, and present some potentially problematic effects on the private economy, as well as difficulties in administering the program. Some of the more limited proposals may be successful but have small effects. Policies to benefit lower-income individuals through tax cuts to stimulate economic growth have not appeared to be particularly successful at addressing slow wage growth for low-wage workers.

Over the 1979-2018 period, real wages at the 10 th percentile of the hourly wage distribution grew by 1.6%, whereas wages at the 50 th percentile grew by 6.1% and wages at the 90 th percentile grew by 37.6%. These patterns varied by sex, race, and ethnicity. Most of the increase in wage inequality at the bottom of the distribution occurred by 1990 and leveled off by 2000, whereas inequality continued to grow at the top of the distribution after 2000. Lower wages are associated with less education, and the college wage premium (the ratio of earnings of those with a college degree over those with a high school degree) grew steeply until 2000. The labor income share of compensation has declined beginning around 2000. Both the growth in hourly wage inequality and the decline in the labor share of compensation contributed to greater inequality of before-tax income. From 1979 to 2017, the income share of the bottom quintile fell from 5.3% to 3.5%, whereas the share of the top quintile rose from 41.9% to 50.1%. Several factors potentially contributed to this change in wage inequality: technological advancement, globalization, wage-setting institutional changes (i.e., the minimum wage, presence of labor unions, and decline in the large firm wage premium), immigration, and declines in job mobility, across jobs in general and geographically. A review of the economic research suggests that a major force in causing this growing wage inequality and lower wage growth was skill-based technological change (change increasing the demand for skilled over unskilled workers). Although there is mixed evidence, most studies find a smaller, modest effect of globalization (although trade affects locations and sectors differently). The minimum wage appeared to play a relatively small role. The decline in wages has coincided with the decline in unions, but to some extent, the decline in unions was a consequence of the decline in jobs in heavily unionized sectors due to technological advancement. Given the size of the decline and the union wage premium, as well as tracing some of the decline to technology, unionization appears to be of limited importance. The decline in the wage premium for large firms may also be traced to increased competition from technological advancement and globalization. Evidence also indicates that immigration had little effect on the distribution of wages, but resulted in a slight increase in inequality because immigrants are concentrated at the upper and lower ends of the income distribution. A decline in labor force mobility has occurred in recent years and could have contributed in some way to inequality. Because the causes of the wage stagnation and growth inequality appear to be traceable largely to technological change, which is otherwise valued, other policies might be considered to increase the well-being of workers whose wages have stagnated. One policy option is to either increase transfers, including those provided through the tax structure, such as the earned income tax credit. Childless workers, in particular, have small earned income credits. Another option is to increase the federal minimum wage, although states are gradually undertaking these increases. A more far-reaching policy option is a federally guaranteed job. Proposals have also been made to expand wage insurance, which currently is available to only a narrow group of trade-affected workers. Policies to increase skill acquisition, including a greatly expanded apprenticeship program, could be considered, although they would have delayed effects on inequality. A variety of policies have been advanced to strengthen unions. In addition, a number of policies might be considered to increase labor mobility. Finally, a variety of geographically targeted provisions aimed particularly at increasing employment in chronically high unemployment areas could be considered. Transfers, including the earned income credit, have improved the distribution of after-tax income, but some other policies have a less successful track record, and some (such as a guaranteed job) are untried.

GAO_GAO-19-292

Background Air ambulance providers use either helicopters or fixed-wing aircraft, as shown in Figure 1, depending on where and how far they are transporting patients. Helicopters are generally used for transports from the scene of the accident or injury to the hospital or for shorter-distance transports between hospitals. Helicopter bases may be at hospitals, airports, or other types of helipads, and a provider may need to fly from its base to the scene or a hospital to pick up the patient being transported. Air ambulance providers typically respond to calls for helicopter transports within a certain area around their bases in part to ensure appropriate response times. Fixed-wing aircraft are generally used for longer-distance transports between hospitals. Fixed-wing bases are at airports, and the patient is transported by ground ambulance to and from the airports. Air ambulance providers respond to emergencies without knowing patients’ health insurance coverage, such as whether the patient has private insurance, Medicare, Medicaid, or no insurance. According to our previous analysis of information from eight selected air ambulance providers, in 2016, Medicare patients received 35 percent of helicopter transports, privately-insured patients received 32 percent, Medicaid patients received 21 percent, uninsured patients received 9 percent, and patients with other types of coverage such as automobile and military- sponsored insurance received a small percentage. Relatively few patients receive air ambulance transports, but those patients who do generally have no control over the decision to be transported by air ambulance or the selection of the air ambulance provider, as shown in Figure 2. For privately-insured patients, this means they cannot necessarily choose to be transported by air ambulance providers in their insurers’ network and can potentially receive a balance bill from the providers for the difference between the price charged by the provider and the amount paid by the insurer. This amount is in addition to copayments, deductibles, or other types of cost-sharing that patients typically pay under their insurance. Air ambulance providers are prohibited from sending balance bills to Medicare and Medicaid patients, while uninsured patients might be held responsible by the air ambulance provider for the entire price charged. With many types of health care services, both health care providers and insurers have incentives to negotiate and enter into contracts that specify amounts that providers will accept as payment in full, thereby avoiding the potential for balance bills for those services. Insurers can offer—and health care providers may be willing to accept—payment rates that are much lower than the providers’ charged amounts because the providers may receive more patients as an in-network provider. Furthermore, when patients are choosing insurance plans, they may consider how many or which providers are in-network, particularly for providers such as hospitals or certain physicians. The emergency nature of most air ambulance transports, as well as their relative rarity and high prices charged, reduces the incentives of both air ambulance providers and insurers to enter into contracts with agreed- upon payment rates, which means air ambulance providers may be more often out-of-network when compared with other types of providers. Decisions by first responders and physicians on which air ambulance provider to call are typically not based on the patient’s insurance plan, meaning that being in-network may not increase air ambulance providers’ transport volume. As a result, according to stakeholders we spoke to, if insurers offer payment rates that are much lower than the air ambulance providers’ charged amounts, the air ambulance providers may be less willing than other health care providers to accept those payment rates. Furthermore, given the relative rarity of air ambulance transports, patients may not anticipate needing air ambulance transports and may not choose insurance plans based on which or how many air ambulance providers are in insurers’ networks. Approaches by states or the federal government to limit balance billing may target providers, insurers, or both. Examples of approaches described in research on balance billing include a cap on the amount that providers can charge or a requirement for insurers to pay the full amount charged by providers. However, according to the research, targeting just providers or insurers can result in undesired outcomes. Capping the amount providers can charge could result in insurers that underpay for services, which could lead some providers to reduce service or exit the market altogether. Conversely, requiring insurers to pay the full amount charged by providers could result in providers that overcharge for services, which could lead to higher premiums charged to patients. The authority of states to address issues related to air ambulance balance billing is affected by the following federal laws: Airline Deregulation Act of 1978 (ADA): A provision in this law preempts state-level economic regulation—i.e., regulating rates, routes, and services—of air carriers authorized by DOT to provide air transportation. In general, courts have held that air ambulances are considered to be air carriers under the ADA’s preemption provision, and courts, DOT, and state attorneys general have determined specific issues related to the air ambulance industry that can and cannot be regulated at the state level. McCarran-Ferguson Act of 1945: This act affirmed that states have the authority to regulate the business of insurance. For example, states may review insurers’ health insurance plans and premium rates. In instances of balance billing, states can determine whether the insurer paid a provider in accordance with its policy for paying for out-of-network services. Employee Retirement Income Security Act of 1974 (ERISA): ERISA provides a federal framework for regulating employer-based pension and welfare benefit plans, including health plans. Although states may regulate health insurers, ERISA preemption generally prevents states from directly regulating self-insured employer-based health plans. In 2017, as previously mentioned, we reported on the increase in prices charged by helicopter air ambulance providers and on the lack of data on the factors that may be affecting prices charged. We also found only limited information was available related to several key aspects of the industry, ranging from basic aspects—such as the composition of the industry by type of air ambulance provider, the prices charged by air ambulance providers, and the number of overall transports—to the more complex, such as the extent of contracting between air ambulance providers and insurers or the extent of balance billing to patients. Given DOT’s authority to oversee certain aspects of the industry, we made four recommendations to DOT in 2017 to increase transparency and obtain information to better inform their oversight of the air ambulance industry: (1) communicating a method to receive air ambulance complaints, including those regarding balance billing; (2) taking steps to make complaint information publicly available; (3) assessing available federal and industry data to determine what information could assist in the evaluation of future complaints; and (4) considering consumer disclosure requirements for air ambulance providers, such as established prices charged and the extent of contracting with insurers. DOT has taken steps to respond to the first two recommendations, including adding information to its website describing how air ambulance complaints can be registered and used by DOT. It has also listed the number of air ambulance complaints filed with DOT each month starting in January 2018—23 air ambulance complaints have been filed with DOT through November 2018. DOT has not yet acted on the remaining two recommendations. Air Ambulance Providers Added Bases from 2012 through 2017 Air ambulance providers added helicopter bases from 2012 through 2017, according to our analysis of the ADAMS data. Specifically, there were 752 bases in the 2012 data and 868 bases in the 2017 data. When we compared the data for each year, there were 554 bases in both years of data (i.e., existing bases), 314 bases in the 2017 data only (i.e., new bases), and 198 bases in the 2012 data only (i.e., closed bases); the new and existing bases are shown in Figure 3. This addition in bases also increased the total area served by helicopter bases by 23 percent. Several air ambulance providers told us about their decisions to open new bases. For example, one air ambulance provider told us that one way it evaluates the need for a new base in an area is to ask hospitals in that area about the number of transports they typically require and the length of time it takes helicopters to arrive to pick up patients. Along with adding helicopter bases, air ambulance providers also added fixed-wing bases from 2012 through 2017, according to our analysis of the ADAMS data. Specifically, there were 146 bases in the 2012 data and 182 bases in the 2017 data. When we compared the data for each year, there were 114 bases in both years of data (i.e., existing bases), 68 bases in the 2017 data only (i.e., new bases), and 32 bases in the 2012 data only (i.e., closed bases); the new and existing bases are shown in Figure 4. Both the existing and new bases are more prevalent in the Western and Southern parts of the United States. Given that fixed-wing aircraft are used for longer-distance transports and that patients are brought to the base rather than picked up by fixed-wing aircraft, we did not measure the area or any changes in the area served by fixed-wing bases, which are usually airports. Based on our previous work, we further analyzed two trends related to where air ambulance providers have chosen to locate their new bases. New bases in rural areas: About 60 percent of the new helicopter bases and about half of the new fixed-wing bases in the ADAMS data were in rural areas. We previously reported that some helicopter air ambulance providers told us that the lower population density in rural areas leads to fewer transports per helicopter at rural bases. They also said that, despite the lower population density, rural areas may have greater need for air ambulance transports. This may be due to, for example, the closure of some rural hospitals and the establishment of regional medical facilities, such as cardiac and stroke centers that provide highly specialized care. New bases in areas with existing coverage: For just under half of the new helicopter bases in the ADAMS data, the area served overlapped with existing air ambulance coverage by more than 50 percent. On one hand, according to some stakeholders we spoke to, the new helicopters may help enhance available services by, for example, being able to respond to a call if the existing ambulance resources are in use or otherwise unavailable. On the other hand, as we have previously reported, some air ambulance providers told us that when helicopters are added to bases in areas with existing coverage, those helicopters are not serving additional demand. As a result, the same number of transports is spread out over more helicopters, reducing the average number of transports per helicopter. The FAA Reauthorization Act of 2018, which became law in October 2018, requires the FAA to assess the availability of information to the general public related to the location of heliports and helipads used by helicopters providing air ambulance services and to update current databases or, if appropriate, develop a new database containing such information. This could provide additional information about base locations going forward. Available Data Indicate About Two- Thirds of Air Ambulance Transports for Privately-Insured Patients Were Out-of- Network but Not Extent of Balance Billing for these Services In the FAIR Health data on air ambulance transports for privately-insured patients, about two-thirds of the approximately 13,100 and 20,700 transports with information on network status were out-of-network in 2012 and 2017, respectively. (See Table 1.) The proportions were similar for both helicopter and fixed-wing transports in each year. The proportion of out-of-network air ambulance transports in the FAIR Health data set is higher than what research shows for ground ambulance transports and other types of emergency services. For example, one study found that 51 percent of ground ambulance transports in 2014 were out-of-network, and the same study and another one found that 14 and 22 percent of emergency department visits in 2014 and 2015 involved out-of- network physicians, even at in-network hospitals. Air ambulance providers and insurers we spoke to confirmed that their proportion of out-of-network transports was high in 2017, but some also reported they have recently been entering into more network contracts. For example, one of the large independent air ambulance providers and a national insurer entered into a contract that covered patients in five states as of August 2018. These contracts could decrease the extent of out-of- network transports and balance billing in the future for these states. Increases in the prices charged for air ambulance transports may exacerbate the financial risks related to balance billing for those with private insurance. In 2017, the median price charged by air ambulance providers for a transport was approximately $36,400 for a helicopter transport and $40,600 for a fixed-wing transport, according to our analysis of FAIR Health data. The prices charged in 2017 were an increase of over 60 percent from 2012, when the median price charged was approximately $22,100 for a helicopter transport and $24,900 for a fixed- wing transport. There is limited information on what insurers pay for out- of-network services. While out-of-network transports may result in balance billing, the FAIR Health data we analyzed do not indicate the extent to which patients received balance bills and, if so, the size of the bills. In addition, as we previously reported, there is a lack of comprehensive national data about the extent and size of balance bills, and air ambulance providers are generally not required to report such data. However, some states have attempted to collect information from patients about balance billing for air ambulance services. Therefore, to provide insights into potential balance bill amounts, we reviewed data on consumer complaints that two of our selected states had received about specific incidents of balance billing for 2014 through 2018. Data for Maryland contained about two dozen complaints with information on the specific amount of balance bills, and those amounts ranged from $12,300 to $52,000. Data from North Dakota contained three dozen complaints with information on the specific amount of balance bills, and those amounts ranged from $600 to $66,600, though all but one amount was over $10,000. Given that providers may agree to reduce amounts that patients would otherwise owe or insurers may increase their payments to providers, along with limited national data, the extent to which patients actually pay the full amounts of balance bills received is also unclear. Generally, officials from air ambulance providers we spoke to said that they first encourage patients to appeal to their insurers for increased payment. If these appeals do not fully address the balance bill, the providers may offer various payment options. For example, officials from one air ambulance provider said that it offers a discount of up to 50 percent off the balance bill if the patient pays the remaining 50 percent immediately. Alternatively, the provider requests detailed financial information—such as income, obligations and debts, and medical bills—to determine whether to potentially offer other discounts or a payment plan. This process can take multiple months, and officials from another air ambulance provider said patients who do not respond to letters and calls may be more likely to be referred to a collections process. Air ambulance providers we spoke with said that they use discretion on how much assistance to offer, and not all patients receive discounts after providing all relevant documentation. Even with discounts, according to data from some air ambulance providers we spoke with, the amount patients pay can still be in the thousands of dollars. Selected States Have Attempted to Limit Potential Air Ambulance Balance Billing through Insurance Regulation and Public Attention Four of our selected states attempted to limit balance billing through the regulation of insurers (Montana, New Mexico, North Dakota, and Texas). Additionally, four states have attempted to limit balance billing through education and public pressure on stakeholders (Florida, Maryland, New Mexico, and North Dakota). Insurance Regulation Four of the six states we selected—Montana, New Mexico, North Dakota, and Texas—have attempted to limit balance billing by air ambulance providers through the regulation of insurers, as shown in Table 2. Three states have faced challenges in federal district court related to whether their attempts to limit balance billing by air ambulance providers are preempted by the federal ADA. As of January 2019, the case in New Mexico was dismissed on procedural grounds, and the cases in North Dakota and Texas have been decided. The hold-harmless requirement and dispute resolution process established by Montana’s law is an example of how states are attempting to limit balance billing by regulating the business of insurance. Under the hold-harmless requirement, the financial risk for potential balance billing is transferred from patients to the insurer by limiting the patients’ out-of- pocket costs to their cost-sharing responsibilities. However, according to state officials, the dispute resolution process established by this law had not yet been used as of December 2018. The requirement and process apply to transports for patients covered by Montana-regulated insurance plans. It does not apply to transports for individuals in most self-insured plans subject to ERISA, nor does it apply to transports for individuals, such as tourists, covered by insurance plans regulated by other states. The stated purpose of the law establishing this process is to prevent state residents from incurring excessive out-of-pocket expenses in air ambulance situations in a manner that is not preempted by the ADA. Officials in Montana and North Dakota reported receiving fewer consumer complaints about balance billing after implementing their laws to limit balance billing. One reason for this decrease in consumer complaints, according to officials in Montana, was that uncertainty over the possible effects of the law has made most air ambulance providers more willing to enter into contract negotiations with insurers. The officials added that shortly after the law’s enactment, a large insurer and a large air ambulance provider entered into a network contract. Additionally, another air ambulance provider in Montana confirmed that although it had provided out-of-network transports, it had not sent balance bills to patients since the law took effect. Officials in both states could not comprehensively report the extent to which instances of balance billing may have decreased in their state. As required by FAA Reauthorization Act of 2018, the Secretary of Transportation has taken steps to form an advisory committee on air ambulance patient billing. DOT issued a solicitation in December 2018 for applications and nominations for membership on this advisory committee. The committee is to consist of representatives from state insurance regulators, health insurance providers, patient advocacy groups, consumer advocacy groups, and physicians specializing in emergency, trauma, cardiac, or stroke care, among others. The Act directs the advisory committee to issue a report within 180 days of its first meeting and to make recommendations that address the following, among other things: The disclosure of charges and fees for air ambulance services; Options and best practices for preventing balance billing—such as improving network and contract negotiation, dispute resolutions between health insurers and air medical service providers, and explanations of insurance coverage; Steps that states can take to protect consumers consistent with current legal authorities regarding consumer protection; and The recommendations from our 2017 report, including any additional data that DOT should collect from air ambulance providers and other sources to improve its understanding of the air ambulance market and oversight of the industry. Education and Public Pressure Officials in three selected states—Florida, New Mexico, and North Dakota—have provided information to educate consumers and other stakeholders about balance billing for air ambulance transports. The Florida Office of the Insurance Consumer Advocate and the New Mexico Office of Superintendent of Insurance reviewed air ambulance transports in their states and issued public reports with recommendations to improve transparency and education, among other recommendations. Florida’s report, issued in June 2018, recommends that insurers and air ambulance providers improve transparency about the availability of in-network air ambulance providers in a given area and provide information about rate justifications and billing practices to help consumers anticipate potential out-of-network costs. New Mexico’s report, issued in January 2017, recommends educating emergency room physicians and other health care providers about the impact of air ambulance bills on consumers and on how to select in-network air ambulance providers. Additionally, since 2017, the North Dakota Insurance Department has produced a publicly available guide showing which air ambulance providers are in-network with the three insurers in the state. This guide is part of the state’s requirement that, for non-emergency transports, hospitals inform patients about the network status of air ambulance providers. Although the three large independent air ambulance providers we spoke with told us that non-emergency transports comprise only a small percentage of air ambulance transports, officials in North Dakota said some dispatchers and first responders reported using the guide to call in-network air ambulance providers when possible for emergency transports. Finally, one additional selected state—Maryland—has increased public awareness of air ambulance balance billing, which has generated public pressure on air ambulance providers and insurers to encourage the two sides to negotiate contracts. The Maryland Insurance Administration convened a public meeting in September 2015 with the goal of raising public awareness about air ambulance balance billing in the state. The meeting involved statements from patient, air ambulance, hospital, and insurer stakeholders. One of the large independent air ambulance providers said that public pressure following the meeting, as well as subsequent engagement from the state insurance commissioner, were factors in securing a contract with a large insurer in the state. Agency Comments We provided a draft of this report to the Department of Health and Human Services and DOT for review and comment. The Department of Health and Human Services told us they had no comments on the draft report, and DOT provided technical comments that we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Administrator of the Centers for Medicare & Medicaid Services, the Secretary of the Department of Transportation, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact James Cosgrove, Director, Health Care at (202) 512-7114 or cosgrovej@gao.gov or Heather Krause, Director, Physical Infrastructure at (202) 512-2834 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 I. Appendix I: GAO Contacts and Staff Acknowledgments GAO Contacts Staff Acknowledgments In addition to the contacts named above, Lori Achman (Assistant Director), Heather MacLeod (Assistant Director), Corissa Kiyan-Fukumoto (Analyst-in-Charge), William Black, George Bogart, Stephen Brown, Krister Friday, Matthew Green, Barbara Hansen, Giselle Hicks, and Vikki Porter made key contributions to this report. Related GAO Products Air Ambulance: Data Collection and Transparency Needed to Enhance DOT Oversight. GAO-17-637. Washington, D.C.: July 27, 2017. Air Ambulance: Effects of Industry Changes on Services Are Unclear. GAO-10-907. Washington, D.C.: Sept. 30, 2010.

Air ambulances provide emergency services for critically ill patients. Relatively few patients receive such transports, but those who do typically have no control over the selection of the provider, which means privately-insured patients may be transported by out-of-network providers. The Joint Explanatory Statement accompanying the 2017 Consolidated Appropriations Act includes a provision for GAO to review air ambulance services. Among other objectives, this report describes (1) the extent of out-of-network transports and balance billing and (2) the approaches selected states have taken to limit potential balance billing. GAO analyzed a private health insurance data set for air ambulance transports with information on network status and prices charged in 2017 (the most recent data available). Although this was the most complete data identified, the data may not be representative of all private insurers. In addition, GAO interviewed officials in six states (Florida, Maryland, Montana, New Mexico, North Dakota, and Texas) selected in part for variation in approaches to limit balance billing and location. GAO also interviewed air ambulance providers, health insurers, and Centers for Medicare & Medicaid Services and Department of Transportation (DOT) officials. DOT provided technical comments on a draft of this report, which GAO incorporated as appropriate, and the Department of Health and Human Services had no comments. Privately-insured patients transported by air ambulance providers outside of their insurers' provider networks are at financial risk for balance bills—which, as the figure shows, are for the difference between prices charged by providers and payments by insurers. Any balance bills are in addition to copayments or other types of cost-sharing typically paid by patients under their insurance coverage. According to GAO's analysis of the most complete data identified for air ambulance transports of privately-insured patients, 69 percent of about 20,700 transports in the data set were out-of-network in 2017. This is higher than what research shows for ground ambulance transports (51 percent in 2014 according to one study) and other emergency services. Air ambulance providers that GAO spoke with reported entering into more network contracts recently, which could lower the extent of out-of-network transports in areas covered by the contracts. While out-of-network transports may result in balance billing, the data GAO analyzed do not indicate the extent to which patients received balance bills and, if so, the size of the bills. In addition, as GAO reported in 2017, there is a lack of national data on balance billing, but some states have attempted to collect information from patients. For example, GAO reviewed over 60 consumer complaints received by two of GAO's selected states—the only states able to provide information on the amount of individual balance bills—and all but one complaint was for a balance bill over $10,000. Patients may not end up paying the full amount if they reach agreements with air ambulance providers, insurers, or both. The amounts of potential balance bills are informed in part by the prices charged. GAO's analysis of the data set with transports for privately-insured patients found the median price charged by air ambulance providers was about $36,400 for a helicopter transport and $40,600 for a fixed-wing transport in 2017. The six states reviewed by GAO and others have attempted to limit balance billing. For example, the six states have taken actions to regulate insurers, generate public attention, or both. As required by recent federal law, the Secretary of Transportation has taken steps to form an advisory committee to, among other things, recommend options to prevent instances of balance billing.

CRS_R46067

Overview The Chief Financial Officers Act of 1990 (CFO Act) requires annual financial audits of federal agencies' financial statements to "assure the issuance of reliable financial information ... deter fraud, waste and abuse of Government resources ... [and assist] the executive branch ... and Congress in the financing, management, and evaluation of Federal programs." Agency inspectors general (IGs) are responsible for the audits and may contract with one or more external auditors. The Department of Defense (DOD) completed its first agency-wide financial audit in FY2018 and recently completed its FY2019 audit. Comprehensive data for the FY2019 audit are not currently available. Therefore, this report focuses on DOD's FY2018 audit. Congressional interest in DOD's audits is particularly acute because DOD accounts for about half of federal discretionary expenditures and 15% of total federal expenditures. The Department of Defense Inspector General (DOD IG) contracted with nine Independent Public Accounting firms (IPAs) to conduct the FY2018 and FY2019 audit. The IPAs conducted 24 separate audits within DOD (see Table 1 for each of the component-level audit opinions). In both FY2018 and FY2019 audits, the DOD IG issued the overall agency-wide opinion of disclaimer of o pinion —meaning auditors could not express an opinion on the financial statements because the financial information was not sufficiently reliable. DOD components that received a disclaimer of opinion represent approximately 56% of the reported DOD assets and 90% of the reported DOD budgetary resources. DOD expected to receive a disclaimer of opinion for FY2018 and FY2019. The department has stated it could take a decade to receive an u nmodified (clean) audit opinion. The federal government as a whole is unable to receive a clean opinion on its financial report because agencies with significant assets and budgetary costs, such as DOD, the Department of Housing and Urban Development, and the Railroad Retirement Board, have each received a disclaimer of opinion in recent years. The federal government as a whole potentially could receive a clean audit opinion without all government agencies receiving a clean audit opinion; however, the size of the DOD budget—$708 billion in FY2019—prevents an overall clean opinion without DOD receiving a clean audit opinion. DOD employs 2.9 million military and civilian employees at approximately 4,800 DOD sites in 160 countries. DOD IG personnel and auditors from IPAs visited over 600 sites, sent over 40,000 requests for documentation, and tested over 90,000 sample items. DOD spent $413 million to conduct the FY2018 audit: $192 million on audit fees for the IPAs and $221 million on government costs to support the audit. DOD spent an additional $406 million on audit remediation and $153 million on financial system fixes. What Is a Financial Audit? Financial statements are the primary way for an entity to communicate its financial performance to its stakeholders. How each line item on a financial statement (e.g., property) should be valued and reported is based on Generally Accepted Accounting Principles (GAAP), an agreement among practitioners (i.e., accountants, auditors, and regulators). In a financial audit, a private or public entity hires an independent auditor to provide reasonable assurance to all stakeholders that its financial statements are free of material misstatement, whether caused by error or fraud. Auditors form opinions by examining the types of risks an organization might face and the controls in place to mitigate those risks. Auditors give unbiased professional opinions on whether financial statements and related disclosures are fairly stated in all material respects for a given period of time in accordance with GAAP. As mentioned previously, the CFO Act requires federal agencies' financial statements to be audited annually. The CFO Act assigns responsibility for audits to agency inspectors general (IGs), but an IG may contract with one or more external auditors to perform an audit. The annual audit can inform Congress and the agency about its business processes and areas for improvement. An audit of DOD can provide benefits, such as (1) effective and efficient internal operations that can lead to reducing costs and improving operational readiness; (2) improved allocation of assets and financial resources that can enhance DOD's decisionmaking and ability to support the Armed Forces; and (3) improved compliance with statutes and financial regulations. For each line item on a financial statement and notes to the financial statement, an auditor will examine a sample of the underlying economic events to determine the reported information's accuracy. The Federal Accounting Standards Advisory Board (FASAB) promulgates financial reporting and accounting standards for federal government entities, and GAO establishes federal auditing standards, including for federal grant recipients in state and local governments. GAO issues the Generally Accepted Government Auditing Standards (GAGAS), also commonly known as the Yellow Book , to provide a framework for conducting federal government audits. The Yellow Book requires auditors to consider the visibility and sensitivity of government programs in determining the materiality threshold. Similar to requirements in the private sector, GAGAS requires federal financial reporting to disclose compliance with laws, regulations, contracts, and grant agreements that have a material effect on financial statements. Before auditors examine an entity's financial statement, they first evaluate its Enterprise Resource Planning (ERP) systems' (information technology systems') access control and reliability, as well as internal controls. ERP refers to an enterprise-wide information system used to manage and coordinate all of an entity's resources, information, and functions from shared data stores, including financial information. Auditing ERP systems is a critical aspect of evaluating an entity's internal controls. Internal Control in the Federal Government Internal control is a series of integrated actions that management uses to guide an entity's operations. Under GAO standards, effective internal controls should require management to use dynamic, integrated, and responsive judgment rather than rigidly adhering to past policies and procedures. The success or failure of an entity's internal controls depends on its personnel. Management is responsible for designing effective internal controls, but implementation depends on all personnel understanding, implementing, and operating an effective internal control system. Federal agencies have been required to report to Congress on internal controls since the Federal Managers' Financial Integrity Act of 1982. In addition, the Federal Financial Management Improvement Act of 1996 requires agencies to report to Congress on the effectiveness of internal control over financial management systems. GAO's Standards for Internal Control in the Federal Government (also known as the Green Book ) provides the overall framework for designing, implementing, and operating an effective internal control system. An audit of an entity's internal controls includes computer systems at the entity-wide, system, and application levels. GAGAS recommends using specific frameworks for internal control policies and procedures, including certain evaluation tools created specifically for federal government entities. Office of Management and Budget (OMB) Circular No. A123, Management's Responsibility for Enterprise Risk Management and Internal Control , provides additional guidance. The federal government's internal control framework is based on the framework created by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), which is widely used in the private sector. The COSO framework is dedicated to improving organizational performance and governance through effective internal control, enterprise risk management, and fraud deterrence. The COSO framework, depicted in Figure 1 , was created to help practitioners assess internal controls not as an isolated issue, but rather as an integrated framework for how internal controls work together across an organization to help achieve objectives as determined by management. It represents the integrated perspective recommended by COSO for practitioners who are creating and assessing internal controls. The cube may be best understood by examining each set of components separately: Categories of objectives. Operations, Reporting, and Compliance are represented by the columns. The objectives are designed to help an organization focus on different aspects of internal controls to help management achieve its objectives. Components of internal control. Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities are represented by the rows. The components represent what is required to achieve the three objectives. Levels of organizational structure. Entity-Level, Division, Operating Unit, and Function are represented by the third dimension. For an organization to achieve its objectives, according to COSO, internal control must be effective and integrated across all organizational levels. Internal Control at DOD Internal controls can help DOD leadership achieve desired financial results through effective stewardship of public resources. Effective internal controls can increase the likelihood that DOD achieves its financial objectives, including getting a clean (i.e., unmodified) audit opinion. Properly designed internal controls can help reduce the amount of detail an auditor will examine, including the number of samples examined. Good internal controls could reduce the amount of time required to conduct an audit, thus reducing its cost. At DOD, auditors identified 20 agency-wide internal control material weaknesses and 129 DOD component-level material weaknesses that range from issues with financial management systems to inventory management. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting that results in a reasonable possibility that management will not prevent, or detect and correct, a material misstatement in the financial statements in a timely manner. Many of these material weaknesses are discussed later in this report under " Issues for Congress ." Properly designed internal controls can also serve as the first line of defense in safeguarding assets. Internal controls help private and public entities achieve objectives, such as enterprise risk management, fraud deterrence, and sustained and improved performance, by designing processes that control risk. The DOD IG identified multiple DOD components that do not have sufficient entity-level internal controls . The lack of entity-level internal controls directly contributed to an increased risk of material misstatements on the components' financial statements and the agency-wide financial statements. Until DOD resolves the many issues surrounding internal controls and establishes a better record-keeping system, it might be difficult for auditors to identify other material weaknesses that could prevent DOD from receiving a clean audit opinion. When the current set of internal control issues is resolved, and auditors are better able to analyze DOD records, they might discover additional issues, including new material weaknesses, that need to be resolved—a cascading effect—before DOD receives a clean audit opinion. This cycle might repeat a few times. FY2018 Audit Results The DOD auditors issued 2,377 notices of findings and recommendations (NFRs) that resulted in 20 agency-wide material weaknesses and 129 DOD component-level material weaknesses. Appendix A provides an overview of the 20 agency-wide material weaknesses. An auditor creates an NFR to capture issues that require corrective action. DOD then creates a corrective action plan (CAP) to address one or more NFRs. The NFR is later retested, and if the CAP sufficiently addresses the NFR, the auditor is to validate that the issue has been resolved. As of June 2019, the majority of NFRs were related to three critical areas: approximately 48% were related to financial management systems and information technology; 30% were related to financial reporting and DOD's fund balance with Treasury; and 16% were related to property. Although the overall number of NFRs increased slightly between December 2018 and June 2019, the number has decreased significantly in certain categories (see Table 2 , Other column). The increase in NFRs in certain categories is an expected result of the audit process. As auditors learn more about DOD and how it functions, they may continue to identify new NFRs, while DOD continues to address some of the previously identified NFRs. The Office of the Under Secretary of Defense (Comptroller) has established an audit NFR database. DOD uses the database to consolidate and track the status of all auditor-issued NFRs and prioritize and link them to CAPs. The NFR and CAP component-based metrics are reported and reviewed monthly in the National Defense Strategy meeting with the Deputy Secretary of Defense and Military Service financial management leadership teams. The military service branches—Army, Navy, Marine Corps, and Air Force—account for over 60% of NFRs identified in the FY2018 audit (see Table 3 ). For DOD to receive a clean audit opinion, civilian leadership and uniformed Armed Forces personnel may need to improve collaboration. According to DOD, it is prioritizing CAPs that align with the National Defense Strategy and provide the greatest potential value to DOD operations and the warfighter. DOD has established actionable financial statement audit priorities at many levels within the department, including at the command level. Those FY2019 priorities include the following: Real Property; Government Property in the Possession of Contractors; Inventory, and Operating Materials and supplies; and Access Controls for IT Systems. Given the complexity of DOD operations, auditors began their work for the FY2019 financial audit in late 2018. Comprehensive data for the FY2019 audit are not currently available. However, the auditors issued an overall agency-wide disclaimer of opinion for FY2019. Most financial statement audits stop as soon as the auditor determines the reporting entity is not auditable. DOD, however, has asked the auditors to continue such audits to identify as many problems as possible, with the goals of identifying systemic issues and making faster progress toward business reform. Issues for Congress Although the CFO Act required annual audits of federal agencies' financial statements, DOD did not complete an agency-wide audit until 2018—28 years later. One of DOD's strategic goals is to reform its business practices for greater performance and affordability. According to DOD, the annual audit process helps it reform its business practices consistent with the National Defense Strategy (NDS): The financial statement annual audit regimen is foundational to reforming the Department's business practices and consistent with the National Defense Strategy. Data from the audits is driving the Department's strategy, goals, and priorities and enabling leaders to focus on areas that yield the most value to the warfighter. The audits are already proving invaluable and have the potential to support long-term, sustainable reform that could lead to efficiencies, better buying power, and increased public confidence in DoD's stewardship of funds. Continued congressional oversight of DOD's plan to achieve a clean audit opinion could help DOD achieve a clean audit opinion. As more components receive a clean audit opinion, audit costs might eventually decrease. For FY2018, DOD incurred nearly $1 billion in total audit costs, which was less than 0.25% of DOD's FY2018 budget. Although the cost of an audit is a consideration, the more impactful benefits from an annual financial audit, arguably, are the changes in DOD business practices that directly impact the NDS while increasing transparency. The audits identified three critical areas of improvement that are consistent with the NDS: (1) financial management systems and information technology (IT), (2) financial reporting and fund balance with Treasury, and (3) property (real property, inventory, and supplies, and government property in the possession of contractors). Addressing the issues in these critical areas not only could help DOD improve its business practices, but it might also help resolve many of the NFRs, which could enable some audit components to receive clean audit opinions in the next few years instead of in another decade or more. Financial Management Systems and Information Technology According to DOD, its financial management systems and information technology provide a broad range of functionality to support agency financial management, supply chain management, logistics, and human resource management. Reliable systems are mission critical to DOD meeting its NDS and supporting the warfighter. Also, DOD is required to comply with laws and regulations, such as the Federal Managers' Financial Integrity Act of 1982, the Federal Financial Management Improvement Act of 1996, and OMB Circular A-123. These laws and regulations collectively require DOD to maintain a system of internal controls that can produce reliable operational and financial information. The challenges DOD faces in financial management systems and information technology are twofold and compromise nearly half of all NFRs (see Table 2 or Table 3 ). First, DOD's initiatives to address the issues related to access controls for IT systems are partially implemented. A fully implemented plan to address access control issues would potentially restrict access rights to appropriate personnel, monitor user activity, and safeguard sensitive data from unauthorized access and misuse. As part of its corrective action plan, DOD is requiring financial system owners and owners of business systems that contribute financial information to review and limit access only to those who need it and only to the specific areas within the systems that they need to access. DOD has developed security controls and standardized test plans that align with the Federal Information Systems Control Audit Manual methodology used to test systems during an audit. Further, DOD management has directed components without a proper software maintenance policy to establish a baseline policy for those software systems and maintain a record of all software system changes. In addition to requiring components to develop reports on privileged users and transactions, including privileged user activities, the department has directed components to periodically review user access rights and remove unauthorized users. Second, the number and variety of financial systems complicate DOD's financial statement audits. In 2016, DOD reported more than 400 separate information technology systems were used to process accounting information to support DOD's financial statements. Many of these legacy systems were designed and implemented to support a particular function, such as human resource management, property management, or logistics management, and were not designed for financial statement reporting. These systems include newer ERP systems and custom-built legacy systems, financial systems, and nonfinancial feeder systems. Also, aging systems and technology that predate modern data standards and laws, as well as nonaccounting feeder systems, affect data exchange with modern ERPs to facilitate auditable financial reports. DOD's IT modernization program is investing in ERPs and aims to migrate 51 legacy systems to core modern ERPs by the end of 2023. How the remediation plans evolve and how they are implemented as DOD migrates to the new ERPs could be a significant determiner of DOD's ability to address nearly half of the NFRs. Financial Reporting and Fund Balance with Treasury According to DOD's auditors, its policies and procedures for compiling and reporting financial statements are not sufficient to identify, detect, and correct inaccurate and incomplete balances in the general ledger. Without an adequate process to identify and correct potential misstatements in the general ledger, balances reported on financial statements, accompanying footnotes, and related disclosures may not be reliable or useful for decisionmaking for Congress, including appropriating the DOD budget. The lack of accurate numbers, arguably, also presents challenges for DOD leadership in making agency financial decisions. DOD's assets increased by nearly $200 billion in FY2018 over FY2017. Fund Balance with Treasury, one of the assets, increased by $78.6 billion. According to DOD, the increase in Fund Balance with Treasury resulted from additional appropriations received in FY2018. DOD is unable to effectively track and reconcile collection and disbursements activity from its financial systems, which resulted in DOD being unable to reconcile its general ledger and Treasury accounts. The fund balance with the Treasury Department is an asset account reported on DOD's general ledger, which shows a DOD component's available budget authority. Similar to a personal checking account, the fund's balance increases and decreases with collections and disbursements of new appropriations and other funding sources. Each DOD component should be able to perform a detailed monthly reconciliation that identifies all the differences between its records and Treasury's records. The reconciliations are essential to supporting the budget authority and outlays reported on the financial statements. The auditors identified several deficiencies in the design and operation of internal controls for fund balance with the Treasury that resulted in DOD-wide material weakness. DOD has undertaken business process improvements to streamline reporting, reduce differences to an insignificant amount, and support account reconciliations. Property and Inventory The auditors report that DOD faces challenges with properly recording, valuing, and identifying the physical location of real property, inventory, and government property that is in the possession of contractors. DOD's challenges with property and inventory complicate Congress's ability to perform effective oversight and budget appropriations. Without accurate real estate counts and values, DOD will continue to face challenges in meeting the National Strategy for Efficient Use of Real Property. DOD faces similar issues with inventory. It is unable to provide assurance that inventory recorded in the financial statements exists and is valued properly. Without accurate inventory counts, DOD might not be able to support its missions without incurring additional costs. Some appropriated funds could be used to purchase extraneous inventory that DOD might already have on hand, or DOD might rely on inventory that appears in an inaccurate count but does not actually exist. Real Property The auditors report that DOD is unable to accurately account for all of its buildings and structures. This includes houses, warehouses, vehicle maintenance shops, aircraft hangars, and medical treatment facilities, among others. As an example, during the FY2018 audit, the Air Force identified 478 buildings and structures at 12 installations that were not in the real property system. DOD faces issues with demonstrating the right of occupancy or ownership through supporting documentation and with incomplete or out-of-date systems of record. Accurate property records, valuation, and right of ownership could potentially help inform DOD leadership as it considers any future base realignment and closure. According to DOD, military departments are executing real property physical inventories to reconcile with the systems of record. The Army has the largest real property portfolio in the department. All branches of the Armed Forces are facing challenges with obtaining source documents, establishing value for properties, and assessing and reporting expected maintenance costs. The Air Force is focused on correcting its records for buildings, which account for more than 90% of its real property value, first addressing its building inventory at its most significant bases. The Navy has completed its physical inventory and corrected its records. Initial results showed a 99.7% accuracy rate. The Marine Corps has undertaken a process of accurately counting and recording its physical inventory. The Armed Forces will be unable to obtain a clean audit opinion without determining the value of their real property and other assets. Inventory, Materials, and Supplies DOD manages inventory and other property at over 100,000 facilities located in more than 5,000 different locations. The military services and DOD components report inventory ownership on their financial statements, but this inventory can be in the custody of or managed by the military service or another DOD component. For example, as of FY2017 year end, the military services reported that the Defense Logistics Agency held approximately 46% of the Army's inventory, 39% of the Navy's inventory, and 45% of the Air Force's inventory, ranging from clothes to spare parts to engines. Given the vast geographic dispersion of DOD resources and the complexity of how they are managed, the system of records and physical inventory must agree with each other for DOD leadership to have an accurate understanding of available resources. GAO highlighted a few examples in its latest high-risk series: The Army found 39 Blackhawk helicopters that were not recorded in the property system; 107 Blackhawk rotor blades could not be used but were still in the inventory records; 20 fuel injector assemblies for Blackhawk helicopters did not have documentation to indicate ownership by any specific military service; and 24 gyro electronics for military aircraft that should not be used were still in the inventory records. Accurate inventory, materials, and supplies help DOD avoid purchasing materials it does not need and help ensure that the right parts, supplies, and other inventory are available to support mission readiness. Ensuring that parts, supplies, and inventory are usable not only helps with mission readiness but also helps avoid unnecessary warehousing costs. Many of the parts, supplies, and inventory are unique to DOD and require long lead times to contract and manufacture. An accurate physical count and system of records could help shorten the time before items are available for the warfighter. Government Property in the Possession of Contractors At times, DOD might provide contractors with property for use on a contract, such as tooling, test equipment, items to be repaired, and spare parts held as inventory. The government-provided property and contractor-acquired property should be recorded in DOD's property system, and at the end of the contract, it might be disposed of, consumed, modified, or returned to DOD. The auditors report that the DOD property system should be able to accurately distinguish DOD property ownership and possession between DOD and the contractor. For DOD to receive a clean audit opinion, it should consider requiring its contractors to maintain and provide auditors with accurate records. Transferring property from DOD to contractors, and from contractors to DOD, requires an accurate real-time system of record keeping. Audit Costs Total DOD audit-related costs for FY2018, including the cost of remediating audit findings, supporting the audits and responding to auditor requests, and achieving an auditable systems environment, were $973 million (see Table 4 ). DOD predicts that audit-related costs will remain relatively consistent for a few more years until more components begin to achieve unmodified opinions. In addition to the issues previously discussed, there are three agency-level issues or approaches that contribute to DOD audit costs remaining relatively constant in the near term: more substantive testing, completion of audit procedures even for those components that are likely to receive a disclaimer of opinion, and expansion of DOD service provider examinations. While DOD's annual audit costs (i.e., excluding remediation costs) might remain close to FY2018 costs (nearly $413 million) or increase in the near term, the cost is expected to decrease after the first few years, as more components achieve a clean audit opinion. Eventually, DOD audit costs might increase as costs for travel and accounting increase with economic growth. Substantive Testing To reduce the risk of potential material misstatement without reliable internal controls, auditors seek other ways of validating financial information. Reliance on internal controls is not a pass-or-fail approach; rather, it is incremental. DOD received 20 agency-wide material weaknesses and 129 component-level material weaknesses in internal controls in the FY2018 audit; until those are resolved, DOD auditors must rely on substantive testing, which will keep audit costs relatively high. There are two categories of substantive testing: Analytical P rocedures . Substantive testing through analytical procedures might include comparing current-year information with the prior year, examining trend lines, or reviewing various financial ratios. Because FY2018 was the first full financial audit of DOD and many systems of records are not reliable, auditors may have difficulty performing analytical procedures and must rely more on tests of details. Tests of Details. An auditor selects individual items for testing and applies detail procedures, such as verifying that invoiced items from a vendor match payments made by DOD, physically locating an inventory item that is recorded in DOD's financial systems, and verifying mathematical accuracy by recalculating certain records. Completion of Audit Procedures To gain a detailed understanding of the underlying issues that prevent DOD components from receiving clean audit opinions, the department has requested comprehensive completion of audit procedures even after auditors have determined components will receive disclaimers of opinion. While this approach might initially incur higher audit costs, in the long run it might enable DOD to resolve the component-specific issues more quickly and to gain a holistic perspective of system-wide issues. These benefits might help DOD lower its financial audit costs in the long run. Service Provider Examinations Some DOD organizations provide common information technology services to other organizations within DOD, such as the Defense Information Systems Agency's (DISA's) Automated Time Attendance and Production System. For FY2018, auditors completed 20 DOD service provider examinations; 14 resulted in unmodified opinions and 6 resulted in qualified opinions. See Table B-1 for more information, including auditors' opinions and the number of FY2018 NFRs issued. Service provider examinations assess whether information technology control activities were designed, implemented, and operated effectively to provide management reasonable assurance that control objectives function as designed or intended in all material respects. The procedures performed by the auditors for examinations are not meant to provide the same level of assurance as a full audit. These examinations' results can be used to reduce redundant testing of control by component-level auditors, saving time and money; see Table 1 for the list of audited DOD components. For FY2019, DOD expects to complete 23 common service provider examinations, compared to 20 in FY2018. The expanded service provider examinations for FY2019 might incrementally increase DOD audit costs over FY2018. Financial Audit Limitations and Benefits Since passing the CFO Act of 1990, Congress has continued to express interest in DOD completing an annual financial audit. Financial audits can help DOD increase transparency and accountability, improve business processes, and improve the visibility of assets and financial resources, but by design, audits are meant to accomplish a specific purpose, and therefore there are some inherent limitations on the benefits they can provide. Financial audits' limitations and benefits are discussed below. Limitations of Financial Audits A financial audit is a tool to help improve business processes and readiness on an annual basis. It does not address program effectiveness or efficiency, but it does consider whether an entity's assets, including its budget authority, are used to accomplish its programmatic purpose. To communicate the annual audit's benefits to Congress and other stakeholders, DOD may attempt to measure cost savings or business process improvements, but it may struggle to fully quantify the benefits, as many of the daily operational improvements are likely to be organic and informal. Only the most significant issues will be identified in auditors' reports. DOD will likely benefit from auditors' NFRs, as well as ongoing informal dialogue between auditors and DOD personnel. When an auditor identifies an issue, DOD could seek to address the issue immediately rather than wait for a written report. It is inefficient for auditors or DOD to capture and write a report on all issues, large and small. In the private sector, generally, only critical audit matters that involve especially challenging or complex auditor judgments are included in audit reports. Many other issues are addressed in the normal course of business. Reporting or recording every instance of savings or process improvement based on auditors' informal feedback arguably detracts from the audit's purpose. Allowing a degree of flexibility to identify and report the cost savings and process improvements that DOD determines are the most significant may help the department focus effectively on responding to audit findings. Independent audit opinions do not fully guarantee that financial statements are presented fairly in all material respects, but provide reasonable assurance for the following reasons: Auditors use statistical methods for random sampling and look at only a fraction of economic events or documents during an audit. It is cost- and time-prohibitive to recreate all economic events. Some line items on financial statements involve subjective decisions or a degree of uncertainty as a result of using estimates. Audit procedures cannot eliminate potential fraud, though an auditor may identify fraud. Financial audits are not specifically designed to detect fraud, but an auditor assesses the potential for fraud, including evaluating internal controls designed by management to prevent and identify potential fraud, waste, and abuse. Auditors are required to consider whether financial statements could be misstated as a result of fraud. Effective internal controls could prevent or mitigate risks for fraudulent financial reporting, misappropriation of assets, bribery, and other illegal acts. Fraud risk factors do not necessarily indicate fraud exists, but risk factors often exist when fraud occurs. In a few years, if DOD has improved its current business practices, future improvements might be less significant and more incremental. Even so, annual audits could potentially be a valuable tool to help DOD continue to improve its business processes. Benefits of an Annual Financial Audit The annual audit gives Congress an independent opinion on DOD's financial systems and business processes. It provides a way for DOD to continue to improve its performance and highlights areas that need to be fixed. DOD has identified four categories of how the annual audit improves its operations, along with some examples: Increases Transparency and Accountability. Holds DOD accountable to Congress and the taxpayers that DOD takes spending taxpayer dollars seriously through efficient practices. Auditing DOD helps improve public confidence in DOD operations, similar to other Cabinet-level agencies that conduct an annual financial audit. Streamlines Business Processes. Audits help reduce component silos and help leadership better understand interdependencies within DOD. The department might be able to improve its buying power and reduce costs, as well as improve operational efficiencies. Improves Visibility of Assets and Financial Resources. More accurate data could enhance DOD readiness and decisionmaking. Getting the appropriate supplies to warfighters helps improve their fighting posture. If a service does not know whether it has enough spare parts to ensure that aircraft are able to fly, it may spend significant amounts of money to get spare parts quickly to meet operational requirements. Accurate cost information related to assets, such as inventory and property, can help DOD make more informed decisions on repair costs and future purchases. Strengthens Internal Controls. Strengthened internal controls help minimize fraud, waste, and abuse. In addition, they help improve DOD's cybersecurity and enhance national security. In addition to the previously described identification of Blackhawk helicopters and parts, DOD is starting to see gains by eliminating recurring annual costs. For example, strengthening internal controls to improve operations at the U.S. Pacific Fleet has freed up purchasing power to fund $4.4 million in additional ship repair costs. Also, the Army has implemented a materiality-based physical inventory best practice to count assets at Army depots. The Army estimates this process improvement could help avoid approximately $10 million in future costs. Conclusion Since passing the CFO Act of 1990, which required 24 agencies to conduct an agency-wide annual financial audit, Congress has continued to express interest in DOD completing an annual audit. DOD completed its first agency-wide audit in FY2018 and a subsequent audit in FY2019. Both audits resulted in a disclaimer of o pinion . The ongoing independent assessment of DOD's financial systems, arguably, provides Congress and DOD leadership with an independent third-party assessment of DOD's financial and business operations. Reliable systems that produce auditable financial information, including an accurate count and valuation of real estate and inventory, could help Congress provide better oversight and ultimately determine how funds appropriated for DOD should be spent in support of the NDS. Further, the annual financial audit of DOD by independent auditors might provide DOD with a competitive advantage when compared to other countries' defense agencies. In many other countries, financial information—including a financial audit of defense agencies—is nonexistent or opaque at best and not readily available to legislators or citizens. Many of DOD's financial management systems are also used for operational purposes. Testing of the financial management systems and other systems that interface with each other as part of the annual audit process can help identify and improve cybersecurity vulnerabilities and the conduct of military operations. DOD's efforts to fix its vulnerabilities and reduce wasteful practices, arguably, could enable it to respond to future threats more effectively. The implementation of new ERP systems and the complexity of auditing DOD might result in DOD not achieving a clean audit opinion within the next decade. Without each of the Armed Forces receiving a clean audit opinion, DOD will not be able to receive an agency-wide clean audit opinion even if all other DOD components receive a clean audit opinion. Appendix A. DOD Agency-Wide Material Weaknesses Weaknesses and inefficiencies in internal controls are classified based on severity. Auditors identified 20 material weaknesses at DOD (see Table A-1 ) related to internal controls that range from issues with financial management systems to inventory management. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting that results in a reasonable possibility that management will not prevent, or detect and correct, a material misstatement in the financial statements in a timely manner. In addition to material weaknesses, the auditors issue two types of deficiencies—a significant deficiency or a control deficiency — that are less severe than a material weakness, but a combination or multiple instances of either deficiency can result in material weaknesses. A significant deficiency is a deficiency or a combination of deficiencies that are less severe than a material weakness, but important enough to merit management's attention. A control deficiency is a noted weakness or deficiency that auditors typically bring to management's attention, but that does not have an impact on the financial statement unless a combination of them results in a material weakness. Improvements in either type of deficiency could improve the business process and help prevent waste, abuse, and fraud. Appendix B. Common Service Providers Some organizations within DOD provide common information technology services to other organizations at DOD. These organizations report to higher-level organizations. For FY2018, auditors completed 20 DOD service provider examinations—14 resulted in unmodified opinions and 6 resulted in qualified opinions. See Table B-1 for more information, including auditors' opinions and the number of FY2018 NFRs issued. Service provider examinations provide a positive assurance as to whether information technology control activities were designed, implemented, and operate effectively to provide management reasonable assurance that control objectives function as designed or intended in all material respects. Examination procedures are limited in scope as compared to a financial audit. Component-level auditors can use these examinations' results to reduce redundant testing, saving time and money; see Table 1 for the list of audited DOD components. For FY2019, DOD expects to complete 23 common service provider examinations.

The Chief Financial Officers Act of 1990 (CFO Act, P.L. 101-576 ) requires annual financial audits of federal agencies' financial statements to "assure the issuance of reliable financial information ... deter fraud, waste and abuse of Government resources ... [and assist] the executive branch ... and Congress in the financing, management, and evaluation of Federal programs." Agency inspectors general (IGs) are responsible for the audits and may contract with one or more external auditors. Congressional interest in the Department of Defense's (DOD's) audits is especially acute because DOD's expenditures represent about half of federal discretionary spending and about 15% of total spending by the federal government. Also, DOD's financial management has been on the Government Accountability Office's high-risk list since 1995. Those on the high-risk list are considered more vulnerable to fraud, waste, abuse, and mismanagement. DOD completed its first-ever agency-wide financial audit in FY2018 and recently completed its FY2019 audit. As expected, DOD received an agency-wide disclaimer of o pinion from the DOD IG in both audits—meaning auditors could not express an opinion on the department's financial statements because the financial information was not sufficiently reliable. DOD has stated it could take up to 10 years to receive a clean audit opinion. Some reasons for a disclaimer of opinion can include inadequate internal controls (i.e., a series of integrated actions that management uses to guide operations), financial statements not conforming to Generally Accepted Accounting Principles (GAAP), insufficient property and inventory records, and financial management systems that do not provide sufficient evidence for the auditor to express an opinion. The FY2018 audit included 2,358 notices of findings and recommendations (NFRs), which capture issues that require corrective action. Approximately 94% of the NFRs were related to three critical areas: financial management systems and information technology; financial reporting and DOD's fund balance with Treasury; and property. These NFRs resulted in 20 agency-wide material weaknesses and 129 component-level material weaknesses. All material weaknesses were related to issues with internal control. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting that results in a reasonable possibility that management will not prevent, or detect and correct, a material financial misstatement. Comprehensive data from the FY2019 audit are not currently available. However, DOD has announced that auditors validated that DOD had resolved over 550 findings, more than 23%, from the department's FY2018 audit and that the audits have helped DOD "target and prioritize corrective actions as we strive to achieve an unmodified audit opinion." After describing what a financial audit entails, this report examines the FY2018 audit in detail and addresses several issues for Congress, including the audit's cost (approximately $413 million in FY2018) and the challenges the material weaknesses identified in the FY2018 audit may create for congressional oversight of DOD.

GAO_GAO-20-265

Background Established by the Communications Act of 1934, FCC regulates interstate and international communications by radio, television, wire, satellite, and cable in all 50 states, the District of Columbia, and U.S. territories. FCC is responsible for, among other things, making available nationwide worldwide wire and radio communication service. More recently, it has been responsible for promoting competition and reducing regulation of the telecommunications industry in order to secure lower prices and higher quality services for consumers. FCC’s functions include: issuing licenses for broadcast television and radio; overseeing licensing, enforcement, and regulatory functions of carriers of cellular phones and other personal communication services; regulating the use of radio spectrum and conducting auctions of licenses for spectrum; investigating complaints and taking enforcement actions if it finds that there have been violations of the various communications laws and commission rules that are designed to protect consumers; addressing issues related to public safety, homeland security, emergency management, and preparedness; educating and informing consumers about communications goods and reviewing mergers of companies holding FCC-issued licenses. FCC Relies on Information Technology to Support Its Operations FCC relies extensively on computerized systems to support its mission- related operations, and on information security controls to protect the commission’s data. FCC’s Information Technology Center, within the Office of the Managing Director, uses IT to perform the commission’s business operations. Through its computer network and systems, the commission collects and maintains nonpublic information, including proprietary information of businesses regulated by the commission, as well as information available to the public through rulemaking proceedings. FCC Has Defined Organizational Roles and Responsibilities for Information Security FCC’s Chairman, chief information officer (CIO), and chief information security officer (CISO) each have specific responsibilities for information security. Specifically, the FCC Chairman has responsibility for, among other things: 1. providing information security protections commensurate with the risk and magnitude of harm resulting from unauthorized access, use, disclosure, disruption, modification, or destruction of the commission’s information systems and information; 2. ensuring that senior officials provide security for the information and systems that support the operations and assets under their control; and 3. delegating to the CIO the authority to ensure compliance with the information security requirements imposed on the commission. In addition, the CIO is responsible for establishing and enforcing policies and procedures for protecting information resources. Toward this end, the CIO has designated and assigned responsibilities to the CISO for managing the cybersecurity program. The CISO, among other things, is responsible for providing information security protections commensurate with the risk and magnitude of the harm resulting from unauthorized access, use, disclosure, disruption, modification, or destruction of information and information systems that support the operations and assets of the commission. Federal Law and Guidance Establish Security Requirements to Protect Federal Information and Systems The Federal Information Security Modernization Act of 2014 (FISMA) provides a comprehensive framework for information security controls over information resources that support federal operations and assets. The law also requires each agency to develop, document, and implement an agency-wide information security program to provide risk-based protections for the information and information systems that support the operations and assets of the agency. Such a program should include assessing risks; developing and implementing policies and procedures to cost-effectively reduce risks; developing and implementing plans for providing adequate information security for networks, facilities, and systems; and providing security awareness and specialized training. Further, the program should include testing and evaluating the effectiveness of controls; planning, implementing, evaluating, and documenting remedial actions to address information security deficiencies; developing and implementing procedures for detecting, reporting, and responding to security incidents; and ensuring continuity of operations. FISMA requires agencies to comply with the federal information processing standards (FIPS) publications issued by NIST and Office of Management and Budget (OMB) Circular A-130 requires agencies to comply with the information security guidelines prescribed in NIST special publications. Consequently, NIST FIPS publications and special publications contain many of the cybersecurity-related requirements for federal agencies. For example, NIST FIPS Publication 199 requires agencies to categorize their information and information systems according to the potential harm and impact to agency assets, operations, or individuals should the confidentiality, integrity, or availability of its information and information systems be compromised through unauthorized access, use, disclosure, disruption, modification, or destruction. In addition, NIST FIPS Publication 200 requires agencies to meet minimum security requirements by selecting the appropriate security controls, as described in NIST Special Publication 800-53. This special publication provides a catalog of 18 security control areas for federal information systems and a process for selecting controls to protect organizational operations and assets. The publication provides baseline security controls for low-, moderate-, and high-impact systems, and agencies have the ability to tailor or supplement their security requirements and policies based on agency mission, business requirements, and operating environment. Further, in May 2017, the President issued an executive order requiring agencies to immediately begin using NIST’s cybersecurity framework for managing their cybersecurity risks. The framework, which provides guidance for cybersecurity activities, is based on five core security functions: Identify: Develop an organizational understanding to manage cybersecurity risk to systems, people, assets, data, and capabilities. Protect: Develop and implement the appropriate safeguards to ensure delivery of critical infrastructure services. Detect: Develop and implement the appropriate activities to identify the occurrence of a cybersecurity event. Respond: Develop and implement the appropriate activities to take action regarding a detected cybersecurity incident. Recover: Develop and implement the appropriate activities to maintain plans for resilience and to restore any capabilities or services that were impaired due to a cybersecurity incident. According to NIST, these five functions occur concurrently and continuously, and provide a strategic view of the life cycle of an organization’s management of cybersecurity risk. Within the five functions are 23 categories and 108 subcategories that include information security program-related controls and technical controls for achieving the intent of each function. Appendix II provides a description of the framework categories and subcategories of controls. FCC Experienced a Service Disruption in May 2017 On May 7 and 8, 2017, FCC experienced a dramatic surge in the number of comments sent to the commission through its ECFS during a public comment period. This surge led to a disruption of services, which prevented the system from being able to accept additional comments for a period of time. The FCC Office of Inspector General determined that the system service disruption was likely due to a combination of the sudden increase in traffic from commenters all trying to access the system’s website over a short period of time and system design deficiencies that negatively impacted the capacity and performance of the system to collect and process the increase in traffic. Figure 1 presents a timeline of the May 2017 ECFS service disruption and subsequent related events. Additional details on the timeline are provided in appendix III. FCC Increased ECFS’s Capacity and Performance to Reduce Risk of Future Service Disruptions In response to the ECFS service disruption that occurred on May 7 and 8, 2017, FCC Information Technology Center officials took four key actions to reduce the risk of future service disruptions to the system. 1. Conducted Internal Assessments In response to the service disruption, in early May 2017, the FCC CIO initially stated that the cause was a cyberattack on the ECFS. However, upon further assessment, FCC Information Technology Center officials later determined that the disruption was caused by a surge in comment traffic to the system and existing system performance and capacity deficiencies. In response to multiple congressional inquiries, in late July 2017, FCC Information Technology Center officials assessed the extent to which malicious intent was involved in causing the disruption based on whether: (a) internet protocol (IP) addresses from foreign sources were present on the commission’s network at the time of the May 2017 event; (b) comment submissions were denied (i.e., dropped) from the commission’s network, (c) observable botnet traffic was present; and (d) duplicate comment submissions were accepted into ECFS. The assessment concluded that the commission did not have sufficient information and tools to determine whether there was any malicious intent. 2. Deployed Additional Virtual Hardware Following the disruption, in early May 2017, FCC deployed additional virtual hardware to address system performance issues and support system stabilization efforts of ECFS during the period in which service was disrupted. In early July 2017, the commission installed security sensors and forwarding agents on the ECFS virtual servers. These devices are intended to provide additional layers of security capability for the system. In mid-July 2017, FCC automated the process for deploying virtual hardware resources to support system availability subsequent to the May 2017 service disruption. 3. Optimized and Acquired System Software From late May 2017 to early June 2017, FCC acquired a diagnostic tool to measure system performance. According to the commission, this tool is used to determine the maximum amount of simultaneous user capacity within ECFS during periods of high web traffic. In early June 2017, the commission optimized the search functionality within the ECFS database to reduce the system response time. In mid-June 2017, FCC removed redundant internal processes for ECFS web requests to increase the responsiveness of the system. During late July 2017, the commission acquired a security information and event management tool to collect and analyze security-related events that may indicate a cybersecurity incident. In late August 2017, FCC established rate control limits within ECFS to safeguard against potential distributed denial-of-service attacks aiming to flood one target with network traffic. 4. Updated Incident Response Policy and Procedures In January 2018 and March 2018, during its annual policy review, FCC Information Technology Center officials updated the commission’s incident response and reporting policy and procedures to incorporate lessons learned from the May 2017 ECFS service disruption and clarify their processes. For example, FCC Information Technology Center officials revised the commission’s incident response procedures to document internal escalation time frames for notifying management of potential security incidents and reporting the incidents to the United States Computer Emergency Readiness Team within 1 hour of identification of an incident. Figure 2 shows a chronological sequence of the hardware and software improvements that FCC officials implemented after the May 2017 event. FCC provided evidence that indicated its actions to add additional hardware and software resources increased ECFS’s capacity and performance and demonstrated that the system was stable from June 2017 through December 2017. For example, FCC acquired a performance diagnostic tool in late May 2017, which was designed to determine the maximum number of potential simultaneous public users within ECFS during periods of high web traffic. Using the diagnostic tool, FCC Information Technology Center officials determined in June 2017, that the system became unstable when the number of simultaneous simulated public users reached 500. However, by December 2017, the system had demonstrated that it could accept a capacity of over 3,000 simultaneous public users without a service disruption. FCC data showed that the increased capacity and improved performance of the ECFS prevented further service disruptions during periods of sharp spikes in the volume of comments received. For example, on May 8, 2017, service was disrupted on the system when it received a peak of about 249,000 comments in 1 day, whereas on July 12, 2017, the system accepted and processed at least 1.4 million comments in 1 day without a reported service disruption. Similar spikes in traffic volumes that occurred through December 2017 also did not result in service disruptions. Figure 3 shows the daily comment submissions to ECFS from May 2017 through December 2017 and demonstrates FCC’s ability to accept a higher volume of comments without a service disruption. FCC Did Not Consistently Implement Security Controls, Which Placed Selected Systems at Risk We reported in September 2019 that FCC had implemented numerous security controls for the three systems we reviewed, but it had not consistently implemented the NIST cybersecurity framework’s five core security functions to effectively protect the confidentiality, integrity, and availability of these systems and the information maintained on them. Deficiencies existed in the FCC information security program and technical controls for the five core functions that were intended to (1) identify risk, (2) protect systems from threats and vulnerabilities, (3) detect cybersecurity events, (4) respond to these events, and (5) recover system operations when disruptions occur. These deficiencies increased the risk that sensitive information could be disclosed or modified without authorization or be unavailable when needed. As shown in table 1, deficiencies existed in all five core security functions for the FCC systems we reviewed. Also shown are the numbers of recommendations we made to FCC to rectify the deficiencies. FCC Generally Identified Risks and Developed Security Plans for Selected Systems, but Shortcomings Remained Activities associated with the identify core security function are intended to help an agency to develop an understanding of its resources and related cybersecurity risks to its organizational operations, systems, and data. Essential elements of a FISMA-mandated information security program include assessing risks, developing system security plans, and authorizing information systems to operate. NIST guidance states that agencies should assess risks and authorize systems on an ongoing basis. Additionally, FCC requires that security plans, risk assessments, and system authorizations be reviewed annually or whenever significant changes occur to the information system, computing environment, or business operations. Consistent with its guidance, FCC had developed system security plans for each of the three systems we reviewed and had updated the risk assessments for two of the systems in 2017 and 2018, respectively. However, as of March 2019, the commission had not reviewed or updated the risk assessment for the third system reviewed since May 2017—a lag of about 22 months. Commission officials stated that they had not reviewed or updated the system’s risk assessment because the commission had implemented a new risk assessment process and officials had not yet had time to review and update documentation for this system. In addition, FCC continued to operate two of the three selected systems on expired authorizations to operate. Although FCC granted a full authorization to operate to one system in May 2018, the commission allowed the authorizations for the other two systems we reviewed to expire. Both of these systems had received a conditional authorization to operate so that the systems could continue to operate while the commission mitigated known system vulnerabilities. However, in December 2018, the conditional authorizations for both systems expired because, according to FCC officials, the commission had not mitigated the vulnerabilities. Nevertheless, FCC continued to operate the systems. By not regularly updating the risk assessment of one system and continuing to operate another system without a current authorization to operate, FCC unnecessarily exposed the information on these systems to increased risks of unauthorized changes and access to information. Subsequent to our September 2019 report, FCC reviewed and updated the system’s risk assessment in accordance with its new risk assessment process. In addition, FCC granted a full authorization to operate to one of the systems in October 2019, but does not expect to grant a full authorization to operate for the other system until later in 2020. FCC’s Contract Provisions with Its Cloud Service Provider Did Not Reflect All Applicable Security Requirements NIST SP 800-144, Guidelines on Security and Privacy in Public Cloud Computing, states that a service-level agreement should define the terms and conditions for access and use of the services offered by the cloud service provider. In addition, FedRAMP Control Specific Contract Clauses provides security control specifications that may need to be included in the task order for the service and specified in the service level agreement. These contract clauses include specifications related to data jurisdiction, audit records storage, time frames for reporting security incidents, and system boundary protection. FCC’s task order and service level agreement with its cloud service provider specified activities the provider was to perform, such as providing access and support for products and services, and completing performance deliverables to ensure service availability. However, FCC had not documented specific contract clauses associated with implementing security control requirements related to retaining audit records, meeting reporting incident time frames, and protecting system boundaries in accordance with FedRAMP. According to FCC’s associate chief information officer, the commission relied on FedRAMP’s oversight to ensure that its cloud provider implemented security controls that comply with federal data requirements. However, FedRAMP assesses and monitors only the security controls that the program and cloud service provider agree that the provider will implement. These agreed-upon controls may not include an agency’s specific security requirements. Thus, responsibility falls on FCC to ensure that its information security requirements are being implemented in cloud computing environments. Nevertheless, by not specifying its specific control requirements when procuring services from its cloud provider, FCC increased the risk that its data and sensitive regulatory information will not be adequately protected in the event that its cloud service provider experiences a security breach. Subsequent to our September 2019 report, FCC developed a plan of action and milestones (POA&M) for this deficiency and stated that it plans to rectify the deficiency by May 2020. FCC Did Not Consistently Implement Appropriate Safeguards to Protect Information on Selected Systems Activities associated with the protect core security function are intended to help agencies develop and implement appropriate system safeguards. These activities include limiting access to computing resources to authorized users, processes and devices; encrypting data to protect its confidentiality and integrity; configuring devices securely; and updating software to protect systems from known vulnerabilities. FCC implemented activities that established multiple layers of technical controls, including access controls and firewalls, encryption of sensitive data, and system configuration management. However, we reported in September 2019 that implementation of these technical controls were not consistent. For example, 37 technical control deficiencies and an information security program-related deficiency diminished the effectiveness of the controls protecting the systems we reviewed. A brief summary of the results of our tests of FCC’s controls for protecting the three systems we reviewed follows. FCC Did Not Consistently Implement Effective Access Controls FCC policy states that, in accordance with NIST SP 800-53 guidelines, users should not share the same identifier and the commission should configure its information systems to require users to create complex passwords. FCC’s policy also stipulates that the commission employ the principle of “least privilege” and enforce approved authorizations for controlling the flow of information within the system and between interconnected systems. However, FCC did not consistently implement technical controls to effectively limit access to the systems we reviewed, as the following examples illustrate. Although FCC policy states that individual user accounts are not to be shared, the commission allowed multiple users to share the credentials of several privileged accounts. While FCC policy established minimum requirements for password complexity and account lock-out provisions, the commission did not routinely enforce these requirements. While FCC policy requires limiting access rights for users to only those they need to perform their work, the commission inappropriately granted excessive permissions to users to access server configuration files. Although FCC established a policy for monitoring and controlling access between systems, it did not securely configure network devices to effectively control access and communications between systems. Access control deficiencies existed primarily because FCC network administrators did not adequately monitor configuration settings and did not implement sufficient controls to enforce consistent authentication and authorization across all of the commission’s systems that we reviewed. However, until FCC fully implements those actions and remediates related technical deficiencies, the commission remains at increased risk that unauthorized individuals or attackers could obtain inappropriate access to its network devices, firewalls, and servers, and compromise its network. As of November 2019, FCC had acted to address several technical control deficiencies related to access control. FCC Did Not Consistently Encrypt Sensitive Data NIST SP 800-53 recommends that organizations employ cryptographic mechanisms to prevent the unauthorized disclosure of information during transmission and establish a trusted communications path between users and security functions of information systems. NIST also requires that, when agencies use encryption, they use an encryption algorithm that complies with FIPS Publication 140-2. In addition, FCC’s System and Communication Protection Policy states that confidentially sensitive data must be encrypted before being transmitted using any nonprotected communication method and that all passwords must be encrypted. However, in seven instances, the commission did not consistently deploy strong encryption capabilities to protect sensitive data or establish a secure communications path between users and information systems. For example, FCC sometimes sent data in clear text over the network and did not enable FIPS 140-2 compliant encryption algorithms on certain devices. These deficiencies existed primarily because commission personnel did not adequately monitor configuration settings. By not consistently deploying strong encryption capabilities, FCC limits its ability to protect the confidentiality and integrity of its sensitive information. According to Information Technology Center officials, as of November 2019, the commission was still working toward full compliance with federal encryption standards. FCC Did Not Consistently Configure Servers Securely or Update Software in a Timely Manner NIST SP 800-53 states that agencies should configure security settings to the most restrictive mode consistent with operational requirements and disable services within the information system deemed to be unnecessary or non-secure. FCC policy on risk assessment states that systems and devices should be scanned periodically and software patches should be applied for all known critical security vulnerabilities. In addition, OMB Circular A-130 states that agencies are to implement current updates and patches for all software components of information systems, and prohibit the use of unsupported systems and system components. Although FCC established policies for applying software patches on a prescribed basis, it did not update software in a consistent or timely manner to effectively protect the three systems we reviewed. For example, FCC did not apply software patches in a timely manner to resolve known security vulnerabilities, and used unsupported or out-of- date system software on multiple network devices, firewalls, and servers. Patching control deficiencies existed because FCC did not adequately monitor configuration settings of devices on its network. According to Information Technology Center officials, as of February 2019, the commission was in the process of (1) migrating and modernizing its systems’ portfolio and (2) implementing an application monitoring and testing tool to reduce patching times. However, until FCC applies software patches in a timely manner, and replaces unsupported software and devices, it will remain at increased risk that individuals could exploit known vulnerabilities to gain unauthorized access to its computing resources. As of November 2019, FCC had taken corrective actions to address certain technical control deficiencies related to configuring servers securely and updating software in a timely manner. Although FCC Had Documented Security Policies, It Had Not Documented Operational Procedures Developing, documenting, and implementing information security policies and procedures are essential elements of an agency’s FISMA-mandated information security program. FCC’s Policy for Information Security and Privacy states that FCC shall implement procedures and controls at all levels to protect the confidentiality and integrity of information stored and processed on the commission’s systems, and to ensure that the systems and information are available to authorized persons when required. Although FCC developed and documented commission-wide policies addressing the 18 control areas—such as access control, configuration management, security awareness training, and contingency planning— identified in NIST SP 800-53, the commission had not fully developed or documented the detailed operating procedures that are needed to effectively implement its security policies. For example, FCC had not documented detailed procedures for implementing the following NIST- specified control areas: (1) access control, (2) configuration management, (3) identification and authentication, (4) system maintenance, (5) media protection, (6) physical and environmental protection, (7) information security program management, (8) risk assessment, (9) system and services acquisition, (10) system and communication protection, and (11) system and information integrity. The lack of detailed operating procedures likely was an underlying cause for many of the technical control deficiencies we identified. According to the FCC CISO, as of February 2019, the commission was in the process of reviewing and revising its information security policies and had issued POA&Ms to develop and document the missing procedures. Nevertheless, until FCC fully develops and documents detailed operating procedures for implementing its security policies, the commission faces increased risks that it will not effectively protect its information systems and information from cyber threats. FCC Had Not Effectively Implemented Controls Intended to Detect Cybersecurity Events or Deficiencies The detect core security function is intended to allow for the timely discovery of cybersecurity events and deficiencies. Controls associated with this function include logging and monitoring system activities, and assessing security controls in place. NIST SP 800-53 states that agencies should enable system logging features and retain sufficient audit logs to support the investigations of security incidents and monitoring of select activities for significant security-related events. Additionally, NIST SP 800-53 and industry leading practices state that organizations should increase their situational awareness through enhanced monitoring capabilities to analyze network traffic data over an extended period of time at external boundaries and inside their internal network to identify anomalous, inappropriate, or unusual malicious activities. Lastly, FISMA requires each agency to periodically test and evaluate the effectiveness of its information security controls in place applicable to policies, procedures, and practices. In September 2019, we reported that FCC had implemented security monitoring controls, such as performing regular vulnerability scanning and deploying a system information and event management tool, to detect the presence of potential malicious threats. However, six technical control deficiencies in these capabilities diminished the effectiveness of the controls to detect cybersecurity events in the systems we reviewed. For example, FCC did not fully capture system log data on certain devices and had limited network monitoring visibility into portions of its data center environment. According to Information Technology Center officials, FCC had deficiencies in logging, retention, and monitoring because the commission had not fully configured its security information and event monitoring tool to capture and monitor sufficient system log and network traffic data to adequately detect cybersecurity events. As a result, FCC may not be able to detect or investigate anomalous activities inside its network. In addition, although the commission established a process for assessing the effectiveness of the security controls for its systems, its control tests and evaluations were not sufficiently robust. For example, the commission’s evaluations did not identify many of the security control deficiencies we identified. Consequently, FCC had limited assurance that the security controls were in place and operating as intended. As of November 2019, FCC had acted to address several technical control deficiencies, and associated recommendations, such as capturing network traffic data and providing for real-time network monitoring; however, other technical control deficiencies remain. FCC Did Not Fully Implement Its Incident Response Controls and Remediate Deficiencies in a Timely Manner The respond core security function is intended to support the ability to contain the impact of a potential cybersecurity event. Controls associated with this function include implementing an incident response capability and remediating newly identified deficiencies. We reported in September 2019 that, as part of its information security program, FCC had implemented controls for incident response by developing, documenting, and annually updating its incident handling policy and procedures, along with its guidelines for remediating deficiencies. However, two information security program-related deficiencies and a technical control deficiency diminished the effectiveness of the controls to respond to cybersecurity events for the systems we reviewed. For example, the commission did not adequately address security incidents and mitigate known deficiencies in a timely manner. FCC Had Developed and Documented an Incident Response Capability, but Did Not Report Several Incidents in a Timely Manner NIST SP 800-53 and SP 800-61 state that agencies should develop, document, and implement incident response policy and procedures, and keep them updated according to agency requirements. FCC incident response policy also states that all employees are required to report suspected security incidents to the FCC Network Security Operations Center (NSOC) group within 1 hour of discovery or detection, and all other incidents within 24 hours of discovery. Further, FCC’s incident response procedures require internal escalation and external notification to the United States Computer Emergency Readiness Team (US-CERT) within 1 hour. FCC had developed, documented, and updated its incident response policy and procedures on an annual basis to address security incidents. The commission also established a NSOC group as the single point of contact for potential security incidents. However, FCC did not report internally to the NSOC group or externally to US-CERT in a timely manner for three of 10 security incidents we reviewed. Specifically, A FCC employee took 2 days to report the existence of an information spillage incident to the NSOC instead of the required 1-hour reporting time frame. The NSOC group took approximately 4 hours to report a December 2017 distributed denial-of-service attack incident and a February 2018 malicious attack incident to the US-CERT, instead of the 1 hour required for each. According to the FCC CISO, the commission plans to review its incident response policy and procedures, as well as re-train its staff, to ensure that staff consistently follow the commission’s policy and US-CERT incident notification guidelines. Subsequent to the issuance of our September 2019 report, FCC indicated that it plans to address these matters by October 2020. Until it does so, the commission may impede its ability to receive timely assistance from appropriate federal agencies and mitigate any harm. FCC Had Action Plans to Remedy Identified Deficiencies for Selected Systems, but Did Not Implement Them in a Timely Manner NIST 800-53 states that agencies are to develop a POA&M for an information system to document the agencies’ planned remedial actions to correct identified deficiencies. FCC’s Plan of Action and Milestone Guide also states that the maximum completion time frames for implementing POA&M items related to critical and high severity level deficiencies are 30 and 60 days, respectively. Although FCC developed a remedial action process and maintained a management system to document and track the status of POA&M items, it did not complete remedial actions in a timely manner for the three systems we reviewed. Specifically, FCC did not remedy critical and high severity level deficiencies within the required time frames as stated in its policy. For example, FCC took an average of approximately 3 months to implement four critical severity level POA&M items for one system. FCC took an average of more than 1 year to remediate three critical and nine high severity level POA&M items for another system. Additionally, as of October 2018, this system had seven open critical and four open high severity level POA&M items that exceeded the remediation threshold on average by 1 year, 4 months, and 5 months, respectively. FCC took an average of more than 3 years to implement two critical and seven high severity level POA&M items for the third system. FCC officials attributed these delays to operational priorities and resource constraints, such as financial, personnel, and technological factors. However, such longstanding delays in remediating weaknesses pose a significant threat to the overall security posture of the commission, since the delays could allow intruders to exploit critical and high severity level deficiencies to gain access to FCC’s information resources. As of November 2019, FCC stated that it planned to address security program deficiencies related to remediating weaknesses in a timely manner by October 2020. FCC Developed Contingency Plans, but Had Not Developed Restoration Procedures or Conducted Annual Disaster Recovery Testing The recover core security function is intended to support timely recovery of system operations to reduce the impact from a cybersecurity event. Controls associated with this function include developing and testing contingency plans to ensure that, when unexpected events occur, critical operations can continue without interruption or can be promptly resumed, and that information resources are protected. In September 2019, we reported that, as part of its information security program, FCC had developed contingency plans for selected systems and established priorities for application disaster recovery. However, two information security program-related deficiencies diminished the effectiveness of the controls to recover the systems we reviewed. Specifically, the commission did not document detailed procedures for restoring two of the three systems conduct an annual test of its disaster recovery plan for the three selected systems in fiscal year 2018. FCC Established Contingency Plan Restoration Procedures for One System, but Had Not Fully Documented Restoration Procedures for Two Other Systems Reviewed NIST SP 800-34 Contingency Planning Guide for Federal Information Systems states that an information system contingency plan should provide detailed procedures to restore the information system or components to a known state. In addition, FCC’s Policy for Contingency Planning states that system contingency plans should reflect the restoration activities required for information systems to recover after an incident. FCC developed and documented a contingency plan for one system that specified detailed procedures for restoring system operations, data, and supporting applications. However, FCC did not include detailed procedures for restoring the other two systems we reviewed in their respective contingency plans—both of which are major application systems. For example, the contingency plans for these two systems did not specify procedures for restoration activities such as restoring critical operating system, application software, and system data to a known state. According to Information Technology Center officials, they did not consider the two systems as supporting mission essential functions, which would necessitate the inclusion of the applications in the detailed restoration procedures. However, both of the systems are major application systems and support mission essential functions at FCC. Subsequent to our September 2019 report, FCC documented detailed restoration procedures in the two other systems’ contingency plans that included activities associated with restoring critical operating system, application software, and system data to a known state. By doing so, FCC increased the likelihood that it will be able to restore operations to its mission essential functions in the event of a disaster. FCC Had Not Tested Disaster Recovery Capabilities on an Annual Basis NIST SP 800-84 states that a disaster recovery test should assess the ability of an agency to restore IT processing capabilities in the event of a disruption. Moreover, FCC’s policy for contingency planning states that all information system and facility disaster recovery plans should be tested annually to determine the effectiveness of the plan and the organizational readiness to execute the plan. In September 2019, we reported that FCC did not conduct test exercises of the disaster recovery plans for the three systems we reviewed during fiscal year 2018, nor did it test system backup, recovery, restoration, and reconstitution procedures for these systems. According to FCC officials, the test exercise did not take place in fiscal year 2018 because other business operation activities took precedence over the exercise since the test exercise requires all mission-essential function applications to be unplugged. As a result, FCC had limited assurance that it would be able to recover from unexpected disruptions in a timely and efficient manner. While it did not complete the exercise in fiscal year 2018, FCC did subsequently conduct a disaster recovery exercise at the beginning of fiscal year 2019. By doing so, FCC increased its assurance that it would be able to recover use of its systems from unexpected disruptions in a timely and efficient manner. FCC Has Implemented Most Recommendations in Our September 2019 Report and Plans to Implement the Remainder In our September 2019 report, we made 136 recommendations to FCC to bolster its agency-wide information security program and strengthen its technical security controls. Specifically, we recommended that FCC take nine actions to improve its information security program by, among other things, authorizing systems to operate, documenting operating procedures, resolving known vulnerabilities and reporting security incidents in a timely manner, and testing disaster recovery plans. We also recommended that FCC take 127 actions to address technical control deficiencies by implementing stronger access controls, encrypting sensitive data, configuring network devices securely, strengthening firewall rules, implementing audit and monitoring controls more effectively, among other actions. Since the issuance of our September 2019 report, FCC has made significant progress in implementing the recommendations we made to improve its information security program and resolve the technical control deficiencies in the information systems we reviewed. Specifically, as of November 2019, FCC had implemented 85 (63 percent) of the 136 recommendations we made in the September 2019 report and had effectively resolved the underlying deficiencies associated with the recommendations. The commission also had partially, but not fully, implemented 10 recommendations. In these instances, FCC provided evidence that it had resolved a portion of the underlying control deficiency, but had not completed all of the actions necessary to fully resolve the underlying control deficiencies. FCC did not provide any evidence that it had begun implementing the remaining 41 (30 percent) recommendations. The status of our recommendations to FCC is illustrated in figure 4. Table 2 provides additional details on the status of FCC’s actions to implement our recommendations to improve its information security program and the technical controls for the systems we reviewed. By implementing 85 recommendations, FCC (as of November 2019) had reduced risks associated with certain key activities. Specifically, FCC’s actions to implement four information security program-related recommendations included conducting a disaster recovery test exercise, documenting detailed system restoration procedures, and updating risk assessments to reflect the commission’s current computing environment. Regarding the technical controls, the commission had implemented 81 of our recommendations to rectify technical control-related deficiencies. For example, FCC strengthened firewall rules and access controls on its information system servers and internal networks—that we highlighted in our September 2019 report as being particularly vulnerable and requiring the commission to take immediate corrective actions. FCC also had developed a POA&M for each of the identified information security program-related and technical control deficiencies that remained open as of November 2019. The POA&M items contained required elements, such as severity levels (i.e., high, medium, and low) for identified weaknesses; identified estimated costs; designated points of contact; and established time frames for resolving those weaknesses and fully implementing the related recommendations. The commission’s plans called for it to implement the majority of the remaining information security program and technical control-related recommendations by May 1, 2020, and all recommendations by April 30, 2021, as shown in figure 5. Fully implementing the remaining recommendations is essential to ensuring that the commission’s systems and sensitive information are adequately protected from cyber threats. Key actions that remain include: documenting operational procedures, applying security patches and software updates, and enhancing network monitoring capabilities. Until FCC fully implements all of our recommendations and resolves the associated deficiencies, its information systems and information will remain at increased risk of misuse, improper disclosure or modification, and loss. Agency Comments We received written comments on a draft of this report from FCC. In its comments, which are reprinted in appendix IV, the commission expressed its commitment to protecting the confidentiality, integrity, and availability of its information systems. FCC noted our evaluation of its efforts to implement 85 of the 136 recommendations made in our September 2019 report and stated that it had also addressed nine additional recommendations. The commission further stated that it plans to address the remaining recommendations over the next 14 months with full mitigation anticipated by April 2021. 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. We are sending copies of this report to the appropriate congressional committees, the Federal Communications Commission, the commission’s Office of the Inspector General, and interested congressional parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, our primary point of contact is Vijay A. D’Souza at (202) 512-6240 or dsouzav@gao.gov. You may also contact Seto J. Bagdoyan at (202) 512-4749 or bagdoyans@gao.gov. GAO staff who made key contributions to this report are listed in appendix V. Appendix I: Objectives, Scope, and Methodology Our objectives were to determine 1) the actions FCC took to respond to the May 2017 event that affected the Electronic Comment Filing System (ECFS), and 2) the extent to which FCC implemented security controls to effectively protect the confidentiality, integrity, and availability of selected systems. In September 2019, we issued a report which detailed the findings from our work in response to these two objectives. In the report, we made 127 recommendations to FCC to resolve the technical security control deficiencies in the information systems we reviewed and nine additional recommendations to improve its information security program. We designated that report as “limited official use only” (LOUO) and did not release it to the general public because of the sensitive information it contained. This report publishes the findings discussed in our September 2019 report, but we have removed all references to the sensitive information. Specifically, we deleted the names of the information system software, network devices, and resource tools that we examined, disassociated identified control deficiencies from named systems, deleted certain details about information security controls and control deficiencies, and omitted an appendix that was contained in the LOUO report. The appendix contained sensitive details about the technical security control deficiencies in the FCC’s information systems and computer networks that we reviewed, and the 127 recommendations we made to mitigate those deficiencies. We also provided a draft of this report to FCC officials to review and comment on the sensitivity of the information contained herein and to affirm that the report can be made available to the public without jeopardizing the security of the commission’s information systems and networks. In addition, this report addresses a third objective that was not included in the September 2019 report. Specifically, this objective was to determine the extent to which FCC had taken corrective actions to address the previously identified security program and technical control deficiencies and related recommendations for improvement that we identified in the earlier report. To address the first objective, we reviewed FCC’s security and incident response policies and procedures, examined related reports prepared by the commission and its Office of Inspector General, reviewed an internal assessment of the May 2017 event that was performed by the FCC Information Technology Center, and reviewed artifacts associated with system enhancement and performance such as change requests and email. We also extracted comment submission data derived from the data.gov application programming interface between May 1, 2017 and December 31, 2017 to identify the peak periods of increased comment submissions during and after the May 2017 event. In addition, we examined the aforementioned documents to assess whether the updated incident response policy and procedures, along with system enhancement and performance artifacts, were directly related to changes made subsequent to the May 2017 event. Lastly, we interviewed FCC Information Technology Center officials, including system and security staff, and Office of Inspector General officials to identify FCC’s actions to respond to the May 2017 event. To address the second objective, we reviewed FCC’s overall network environment, identified interconnectivity and control points, and examined controls for the commission’s networks and facilities. We performed this work at FCC facilities located in West Virginia, Pennsylvania, and Washington, D.C. As noted in our September 2019 report, we determined the extent to which FCC had implemented security controls to effectively protect the confidentiality, integrity, and availability of selected systems. To do so, we selected three of the commission’s information systems for review. We selected these systems because they (1) are essential to FCC’s mission and (2) were assigned a Federal Information Processing Standards Publication 199 rating of moderate or high impact. The results of our review of these systems is not generalizable to the commission’s other systems. To evaluate FCC’s controls for its information systems, we used GAO’s Federal Information System Controls Audit Manual, which contains guidance for reviewing information system controls that affect the confidentiality, integrity, and availability of computerized information. We based our assessment of controls on requirements of the Federal Information Security Modernization Act of 2014 (FISMA), which establishes key elements for an effective agency-wide information security program; National Institute of Standards and Technology (NIST) guidelines and standards; FCC policies and procedures; and standards and guidelines from relevant security organizations, such as the National Security Agency, and the Center for Internet Security. For reporting purposes, we categorized the security controls that we assessed into the five core security functions described in the NIST cybersecurity framework. The five core security functions are: Identify: Develop the organizational understanding to manage cybersecurity risk to systems, assets, data, and capabilities. Protect: Develop and implement the appropriate safeguards to ensure delivery of critical infrastructure services. Detect: Develop and implement the appropriate activities to identify the occurrence of a cybersecurity event. Respond: Develop and implement the appropriate activities to take action regarding a detected cybersecurity event. Recover: Develop and implement the appropriate activities to maintain plans for resilience and to restore any capabilities or services that were impaired due to a cybersecurity event. These core security functions are described in more detail in appendix II. For each of the five core security functions, we examined selected FCC security controls and related documentation: For the identify core security function, we examined FCC’s reporting for its hardware and software assets; analyzed risk assessments for the three selected systems to determine whether threats and vulnerabilities were being identified; analyzed FCC policies and procedures to determine their effectiveness in providing guidance to personnel responsible for securing information and information systems; and analyzed security plans for the three selected systems to determine if those plans had been documented and updated according to federal guidance. For the protect core security function, we examined access controls for the three systems. These controls included the password complexity and settings to determine if password management was being enforced; administrative users’ system access permissions to determine whether their authorizations exceeded the access necessary to perform their assigned duties; and firewall configurations, among other things, to determine whether system boundaries had been adequately protected. We also examined configurations for providing secure data transmissions across the network to determine whether sensitive data were being encrypted. In addition, we examined configuration settings for routers, network management servers, switches, and firewalls to determine if settings adhered to configuration standards, and we inspected key servers and network devices to determine if critical patches had been installed and/or were up to date. For the detect core security function, we analyzed security control assessments, and centralized logging and network traffic monitoring capabilities for key assets connected to the network. For the respond core security function, we reviewed FCC’s implementation of incident response practices, including an examination of incident tickets for 10 incidents the commission considered most significant from January 1, 2017 to May 29, 2018; and examined the commission’s process for correcting identified deficiencies for the three selected systems. For the recover core security function, we examined contingency and disaster recovery plans for the three selected systems to determine whether those plans had been developed and tested. For the core security functions, as appropriate, we evaluated elements of FCC’s information security program. For example, we analyzed risk assessments, security plans, remedial action plans, and contingency plans for each of the three selected systems. We also evaluated FCC’s security policies and procedures. In assessing FCC’s controls associated with these core functions, we interviewed FCC’s Information Technology Center personnel, chief information officer, chief information security officer, general counsel, inspector general, and Public Safety and Homeland Security Bureau officials, as needed. To determine the reliability of FCC’s computer-processed data for incident response records, we evaluated the materiality of the data to our audit objective and assessed the data by various means, including reviewing related documents, interviewing knowledgeable FCC officials, and reviewing internal controls. Through a combination of these methods, we concluded that the data were sufficiently reliable for the purposes of our work. To accomplish our third objective—on FCC’s actions to address the previously identified security program and technical control deficiencies and related recommendations—we requested that the commission provide a status report of its actions to implement each of the recommendations. For each recommendation that FCC indicated it had implemented as of November 2019, we examined supporting documents, observed or tested the associated security control or procedure, and/or interviewed the responsible agency officials to assess the effectiveness of the actions taken to implement the recommendation or otherwise resolve the underlying control deficiency. Based on this assessment and FCC status reports, we defined the status of each recommendation according to three categories: fully implemented—FCC had implemented the recommendation (i.e., the commission provided evidence showing that it had effectively resolved the underlying control deficiency); partially implemented—FCC had made progress toward, but had not completed implementing the recommendation (i.e., the commission provided evidence showing that it had effectively resolved a portion of the underlying control deficiency); and not started—FCC did not provide evidence that it had acted to implement the recommendation (i.e., the commission provided no evidence showing that it had effectively resolved the underlying control deficiency). We conducted the performance audit for the first two objectives from February 2018 through September 2019 in accordance with generally accepted government auditing standards. We conducted work supporting the third objective and, where applicable, included updates to our work in the second objective, from October 2019 through March 2020 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. Appendix II: National Institute of Standards and Technology’s Cybersecurity Framework The National Institute of Standards and Technology’s cybersecurity framework consists of five core functions: identify, protect, detect, respond, and recover. Within the five functions are 23 categories and 108 subcategories of security-related controls (see table 3). Appendix III: Timeline of May 2017 Event Involving the FCC Electronic Comment Filing System Below is a timeline of the Federal Communications Commission’s (FCC) May 2017 Electronic Comment Filing System (ECFS) event and subsequent related events: On April 27, 2017, FCC issued the Restoring Internet Freedom Notice of Proposed Rulemaking in the Federal Register. The notice directed interested parties to submit comments via FCC’s ECFS. On the evening of May 7, 2017, a late night talk show aired a segment on the Restoring Internet Freedom notice and encouraged viewers to submit comments via ECFS. On the evening of May 7, 2017, according to a report by the FCC Office of Inspector General (IG), ECFS experienced a significant increase in the level of comment traffic attempting to access the system, resulting in the disruption of system availability. A contractor providing web performance and cloud security solutions to FCC identified a 3,116 percent increase in traffic to ECFS between May 7 and May 8, 2017. In the early morning of May 8, 2017, ECFS became unavailable to commenters. FCC’s vendor sent automated alerts indicating a spike in network traffic, in addition to preliminary network statistical data, to FCC. During the mid-morning of May 8, 2017, FCC’s Information Technology Center responded to the alerts from the vendor and initiated stabilization efforts to ECFS. During the afternoon of May 8, 2017, FCC issued a press release in which FCC’s chief information officer (CIO) at that time provided a statement about the cause of delays experienced by commenters trying to file comments on the ECFS. The CIO’s statement said that FCC was subjected to multiple distributed denial-of-service attacks. He further stated that, “these were deliberate attempts by external actors to bombard the FCC’s comment system with a high amount of traffic.” During May 9-10, 2017, FCC restored ECFS but still experienced response-time problems relating to system performance. On May 10, 2017, FCC’s Information Technology Center responded to inquiries from the Federal Bureau of Investigations and FCC OIG via email and phone. On June 21, 2017, the FCC OIG opened a full investigation into the event because of, according to the OIG, the importance of FCC’s cybersecurity posture and the possibility that cybercrimes had been committed that had the potential of being ongoing threats to the integrity of FCC’s computer systems. On January 4, 2018, FCC OIG referred the investigation to the Justice Department. On August 7, 2018, the FCC OIG published an investigative report on the ECFS event. According to the OIG report, the allegations of multiple distributed denial-of-service attacks alleged by the FCC CIO at that time were not substantiated. The FCC OIG concluded that the spikes in web traffic to ECFS had coincided exactly with the timing of the late night television show where the host discussed the FCC’s Restoring Internet Freedom proceeding and encouraged viewers to visit the commission’s website and file comments. The FCC OIG’s report also indicated that the commission did not define the event (i.e., any observable occurrence in a network or system) as a cybersecurity incident (i.e., an imminent threat or violation of computer security policies, or security practices). Therefore, according to the OIG report, FCC did not take actions to: refer the matter to the United States Computer Emergency Readiness Team (US-CERT) in accordance with federal policy, implement internal incident handling procedures in accordance with its incident handling policy, or conduct a thorough analysis before or after the event to determine if it was an incident. On August 16, 2018, the FCC Chairman testified at a Senate Committee on Commerce, Science and Transportation oversight hearing on the conclusions of the FCC OIG investigative report on the ECFS event. Appendix IV: Comments from the Federal Communications Commission Appendix V: GAO Contacts and Staff Acknowledgments GAO Contacts Staff Acknowledgments In addition to the contacts named above, Gary Austin, David Bruno, Tammi Kalugdan, Duc Ngo, and Christopher Warweg (assistant directors); David Hong (analyst-in-charge); Breanne Cave; Chris Businsky, Jr.; Saar Dagani; Marshall Williams, Jr.; Corey Evans; Andrew Howard; Elizabeth Kowalewski; Priscilla Smith; Henry Sutanto; and April Yeaney made significant contributions to this report.

FCC relies extensively on information systems to accomplish its mission of regulating interstate and international communications in the United States. FCC uses one such system, ECFS, to receive public comments about proposed changes in FCC regulations. In May 2017, a surge in comments caused a service disruption of ECFS during a public comment period. GAO was requested to review ECFS and the reported disruption. In September 2019, GAO issued a limited official use only report on the actions FCC took to respond to the May 2017 event, and the extent to which FCC had effectively implemented security controls to protect the confidentiality, integrity, and availability of selected systems. This current report is a public version of the September 2019 report with sensitive information removed. In addition, for this public report, GAO determined the extent to which FCC has taken corrective actions to address the previously identified security program and technical control deficiencies and related recommendations for improvement. In the prior report, GAO compared FCC's policies, procedures, and reports to federal cybersecurity laws and policies. GAO examined logical access controls and security management controls for three systems selected based on their significance to FCC. For this report, GAO examined supporting documents regarding FCC's actions on previously identified recommendations, observed controls in operation, and interviewed personnel at FCC. As GAO reported in September 2019, the Federal Communications Commission (FCC) bolstered the capacity and performance of the Electronic Comment Filing System (ECFS) to reduce the risk of future service disruptions. FCC also implemented numerous information security program and technical controls for three systems that were intended to safeguard the confidentiality, integrity, and availability of its information systems and information. systems from threats and vulnerabilities, detecting and responding to cyber security events, and recovering system operations. GAO made 136 recommendations to address these deficiencies (see table). As of November 2019, FCC had made significant progress in resolving many security deficiencies by fully implementing 85 (about 63 percent) of the 136 recommendations GAO made in September 2019. FCC had also partially implemented 10, but had not started to implement the remaining 41 recommendations (see figure). Additionally, FCC has created remedial action plans to implement the remaining recommendations by April 2021. Until FCC fully implements these recommendations and resolves the associated deficiencies, its information systems and information will remain at increased risk of misuse, improper disclosure or modification, and loss.

CRS_R44835

Introduction Paid family leave (PFL) refers to partially or fully compensated time away from work for specific and generally significant family caregiving needs, such as the arrival of a new child or serious illness of a close family member. Although the Family and Medical Leave Act of 1993 (FMLA; P.L. 103-3 ) provides eligible workers with a federal entitlement to unpaid leave for a limited set of family caregiving needs, no federal law requires private-sector employers to provide paid leave of any kind. Currently, employees may access PFL if offered by an employer. In addition, some states have created family leave insurance (FLI) programs, which provide cash benefits to eligible workers who engage in certain (state-identified) family caregiving activities. In these states, workers can access PFL by combining an entitlement to unpaid leave with state-provided insurance benefits. Some Congressional proposals to expand national access to paid family leave expand upon these existing mechanisms. A new tax credit, created in December 2017 ( P.L. 115-97 ), seeks to expand voluntary employer-provided PFL, and—similar to the state insurance approach—the Family and Medical Insurance (FAMILY Act; S. 463 / H.R. 1185 ), which proposes to create a national wage insurance program for persons engaged in family caregiving activities or who take leave for their own serious health condition. The New Parents Act ( S. 920 / H.R. 1940 ) would allow parents of a new child to receive Social Security benefits, to be repaid at a later date, for the purposes of financing parental leave. Others proposals, such as the Working Parents Flexibility Act of 2019 ( H.R. 1859 ) and the Freedom for Families Act ( H.R. 2163 ), would amend the tax code to provide tax-advantages to individuals with caregiving responsibilities. Members of Congress who support increased access to paid leave generally cite as their motivation the significant and growing difficulties some workers face when balancing work and family responsibilities, and the financial challenges faced by many working families that put unpaid leave out of reach. In general, expected benefits of expanded access to PFL include stronger labor force attachment for family caregivers and greater income stability for their families, and improvements to worker morale, job tenure, and other productivity-related factors. Potential costs include the financing of payments made to workers on leave, other expenses related to periods of leave (e.g., hiring a temporary replacement or productivity losses related to an absence), and administrative costs. The magnitude and distributions of costs and benefits will depend on how the policy is implemented, including the size and duration of benefits, how benefits are financed, and other policy factors. This report provides an overview of paid family leave in the United States, summarizes state-level family leave insurance programs, notes PFL policies in other advanced-economy countries, and notes recent federal legislative action to increase access to paid family leave. Paid Family Leave in the United States Throughout their careers, many workers encounter a variety of family caregiving obligations that conflict with work time. Some of these are broadly experienced by working families but tend to be short in duration, such as episodic child care conflicts, school meetings and events, routine medical appointments, and minor illness of an immediate family member. Others are more significant in terms of their impact on families and the amount of leave needed, but occur less frequently in the general worker population, such as the arrival of a new child or a serious medical condition that requires inpatient care or continuing treatment. Although all these needs for leave may be consequential for working families, the term family leave is generally used to describe the latter, more significant, group of needs that tend to require longer periods of time away from work. As defined in state law and federal proposals, family caregiving activities that are eligible for PFL or leave insurance benefits generally include caring for and bonding with a newly arrived child and attending to the serious medical needs of certain close family members; some also allow leave or benefits for workers with certain military family needs. In practice, day-to-day needs for leave to attend to family matters (e.g., a school conference or lapse in child care coverage), minor illness (e.g., common cold), or preventive care are not included among family leave categories. Employer-Provided Paid Family Leave Employer-provided PFL in the private sector is voluntary. According to a national survey of employers conducted by the Bureau of Labor Statistics (BLS), 16% of private-industry employees had access to PFL (separate from other leave categories) through their employer in March 2018. These statistics, displayed in Table 1 , further show that PFL was more prevalent among managerial and professional occupations; information, financial, and professional and technical service industries; high-paying occupations; full-time workers; and workers in large companies (as measured by number of employees). Recent announcements by several large companies suggest that access may be increasing among certain groups of workers. Among new company policies announced in recent years, some emphasize parental leave (i.e., leave taken by mothers and fathers in connection with the arrival of a new child), and others offer broader uses of family leave. A 2017 study by the Pew Research Center (Pew) examined U.S. perceptions of and experiences with paid family and medical leave; its results provide insights into the need for such leave among U.S. workers and its availability for those who need it. Pew reports, for example, that 27% of persons who were employed for pay between November 2014 and November 2016 took leave (paid and unpaid) for family caregiving reasons or their own serious health condition over that time period, and another 16% had a need for such leave but were not able to take it. Among workers who were able to use leave, 47% received full pay, 36% received no pay, and 16% received partial pay. Consistent with BLS data, the Pew study indicates that lower-paid workers have less access to paid leave; among leave takers, 62% of workers in households with less than $30,000 in annual earnings reported they received no pay during leave, whereas this figure was 26% among those with annual household incomes at or above $75,000. State-Run Family Leave Insurance Programs Some states have enacted legislation to create state paid FLI programs, which provide cash benefits to eligible workers who engage in certain caregiving activities. Four states—California, New Jersey, New York, and Rhode Island—have active programs. Three additional programs—those in the District of Columbia (DC), Washington State, and Massachusetts—await implementation. Table 2 summarizes key provisions of state FLI laws and shows the following: The maximum weeks of benefits available to workers and wage replacement rates vary across states. Existing state FLI programs offer between 4 weeks (Rhode Island) and 10 weeks (New York) of benefits. Starting July 1, 2020, New Jersey is to increase benefit weeks from 6 to 12. When its plan is implemented, DC is to offer 8 weeks of paid family leave in 2020, and Washington State is to offer 12 weeks of paid family leave in the same year. New York's entitlement is to increase to 12 weeks of benefits when its plan is fully implemented in 2021. Massachusetts is to provide up to 12 weeks for family leave, unless leave is used to provide care to a seriously ill or injured military service member, when up to 26 weeks may be used. Program eligibility typically involves in-state employment of a minimum duration, minimum earnings in covered employment, or contributions to the insurance funds. All state FLI programs currently in operation are financed entirely by employee payroll tax receipts; however, when implemented, the DC program is set to be financed by employers. Massachusetts' and Washington State's programs are to be jointly financed by employers and employees, with some exceptions. Some FLI programs (e.g., Rhode Island) provide job protection directly to workers who receive FLI benefits, meaning that employers must allow a worker to return to his or her job after leave has ended. Workers in other states may receive job protection if they are entitled to leave under federal or state family and medical leave laws, and coordinate such job-protected leave and FLI benefits. Paid Family Leave in OECD Countries Many advanced-economy countries entitle workers to some form of paid family leave. Whereas some provide leave to employees engaged in family caregiving (e.g., of parents, spouse, and other family members), many emphasize leave for new parents, mothers in particular. As of 2016, the Organization for Economic Co-operation and Development (OECD) family leave database counts 34 of its 35 members as providing some paid parental leave (i.e., to care for children) and maternity leave, with wide variation in the number of weeks and rate of wage replacement across countries. This is shown in Figure 1 , which plots the OECD's estimates of weeks of full-wage equivalent leave available to mothers. Weeks of full-wage equivalent leave are calculated as the number of weeks of leave available multiplied by the average wage payment rate. For example, a country that offers 12 weeks of leave at 50% pay would be said to offer 6 full-wage equivalent weeks of leave (i.e., 12 weeks x 50% = 6 weeks). A smaller share (27 of 35) of OECD countries provides paid leave to new fathers. In some cases, fathers are entitled to less than a week of leave, often at full pay (e.g., Greece, Italy, and the Netherlands), whereas others provide several weeks of full or partial pay (e.g., Portugal provides five weeks at full pay, and the United Kingdom provides two weeks at an average payment rate of 20.2%). Some countries provide a separate entitlement to fathers for child caregiving purposes. This type of parental leave can be an individual entitlement for fathers or a family entitlement that can be drawn from by both parents. In the latter case, some countries (e.g., Japan, Luxembourg, and Finland) set aside a portion of the family entitlement for fathers' use, with the goal of encouraging fathers' participation in caregiving. Figure 2 summarizes paid leave entitlements reserved for fathers in OECD countries in 2016; it plots the OECD's estimates of weeks of full-wage equivalent paternity leave and parental leave reserved for fathers. The OECD examined the availability of family caregiver leave among its member countries in 2011 and found that of the 25 countries for which it could identify information, 14 had polices providing paid leave to workers with ill or dying family members; these are summarized in Table 3 . Qualifying needs for leave, leave entitlement durations, benefit amounts, and eligibility conditions varied considerably across the countries included in the OECD study. Recent Federal PFL Legislation and Proposals The overarching goal of PFL legislative activity in the 116 th Congress has been to increase access to leave by reducing the costs associated with providing or taking leave. The Strong Families Act, which became law in December 2017 ( P.L. 115-97 ), allows employers to claim tax credits for a portion of wages paid to certain employees taking family or medical leave; this approach potentially increases access to PFL for workers while reducing the costs to employers of providing the leave. A second approach addresses costs incurred by workers taking leave. For example, the establishment of a national family leave insurance program, such as that proposed in the Family and Medical Insurance Leave Act (FAMILY Act; S. 463 / H.R. 1185 ), would provide cash benefits to eligible individuals who are engaged in certain caregiving activities, potentially making the use of unpaid leave (e.g., as provided by FMLA or voluntarily by employers) affordable for some workers. Proposals such as the New Parents Act ( S. 920 / H.R. 1940 ) would allow eligible new parents to receive to up to three months of Social Security benefits, in return for deferring retirement (or early retirement) by a period of time determined by the Social Security Administration to cover the costs of the parental benefit. Other approaches include proposals to create tax-advantaged parental leave savings accounts (e.g., the Working Parents Flexibility Act of 2019, H.R. 1859 ) and tax-advantaged distributions from health savings accounts for family and medical leave purposes (e.g., the Freedom for Families Act, H.R. 2163 ). In addition, the President's FY2020 budget proposes to provide six weeks of financial support to new parents through state unemployment compensation (UC) programs. A similar approach was taken in 2000 by the Clinton Administration, which—via Department of Labor regulations—allowed states to use their UC programs to provide UC benefits to parents who take unpaid leave under the FMLA, other approved unpaid leave, or otherwise take time off from employment after the birth or adoption of a child. The Birth and Adoption Unemployment Compensation rule took effect in August 2000, and it was later removed from federal regulations in November 2003.

Paid family leave (PFL) refers to partially or fully compensated time away from work for specific and generally significant family caregiving needs, such as the arrival of a new child or serious illness of a close family member. Although the Family and Medical Leave Act of 1993 (FMLA; P.L. 103-3) provides eligible workers with a federal entitlement to unpaid leave for a limited set of family caregiving needs, no federal law requires private-sector employers to provide paid leave of any kind. Currently, employees may access paid family leave if it is offered by an employer. In addition, workers in certain states may be eligible for state family leave insurance benefits that can provide some income support during periods of unpaid leave. As defined in state law and federal proposals, family caregiving activities that are eligible for PFL or family leave insurance generally include caring for and bonding with a newly arrived child and attending to serious medical needs of certain close family members. Some permit leave for other reasons, but in practice, day-to-day needs for leave to attend to family matters (e.g., a school conference or lapse in child care coverage), minor illness, and preventive care are not included among "family leave" categories. Employer provision of PFL in the private sector is voluntary. According to a national survey of employers conducted by the Bureau of Labor Statistics, 16% of private-industry employees had access to PFL through their employers in March 2018. The availability of PFL was more prevalent among professional and technical occupations and industries, high-paying occupations, full-time workers, and workers in large companies (as measured by number of employees). Recent announcements by several large companies indicate that access may be increasing among certain groups of workers. In addition, some states have enacted legislation to create state paid family leave insurance (FLI) programs, which provide cash benefits to eligible workers who engage in certain caregiving activities. California, Rhode Island, and New Jersey currently operate FLI programs, which offer 4 to 10 weeks of benefits to eligible workers. Three other states and the District of Columbia have enacted FLI programs, but they are not yet fully implemented and paying benefits. The New York program began phased implementation in 2018. The District of Columbia FLI legislation took effect in April 2017, and Washington State's FLI law took effect in July 2017; benefit payments start in 2020 for both programs. Massachusetts' family leave program was signed into law in June 2018; its benefit payments are to begin in January 2021. Many advanced-economy countries entitle workers to some form of paid family leave. Whereas some provide leave to employees engaged in family caregiving (e.g., of parents, spouses, and other family members), many emphasize leave for new parents, mothers in particular. The United States is the only Organization for Economic Co-operation and Development (OECD) member to not offer paid leave to new mothers. In December 2017, Congress passed H.R. 1 (P.L. 115-97), which included tax incentives to employers to voluntarily offer paid family and medical leave to employees. Proposals to expand national access to paid family leave have been introduced in the 116th Congress, such as the Family and Medical Insurance Leave Act (FAMILY Act; S. 463/H.R. 1185), which proposes to create a national wage insurance program for persons engaged in family caregiving activities or who take leave for their own serious health condition (i.e., a family and medical leave insurance program), and the New Parents Act (S. 920/ H.R. 1940) which would allow parents of a new child to receive Social Security benefits for the purposes of financing parental leave. Others have proposed using the tax code to provide tax advantages to individuals with caregiving responsibilities.

CRS_R45800

Introduction Historic preservation is the practice of protecting and preserving sites, structures, objects, landscapes, and other cultural resources of historical significance. Various federal, state, and local government programs, as well as privately funded activities, support historic preservation in the United States. This report provides an overview of the federal role in historic preservation, including background and funding information for some of the major preservation programs authorized by Congress. In addition to establishing national policies governing historic preservation, Congress considers the federal government's role in financing many of these programs through the annual appropriations process. Some programs also periodically come before Congress for reauthorization. As a result, issues related to historic preservation are of perennial interest to Congress. Some Members of Congress support proposals to eliminate the federal role in historic preservation, leaving such programs to be sustained by other levels of government or by private support. Other Members feel federal support for historic preservation should be maintained or increased. The heavy toll of recent natural disasters such as Hurricanes Harvey and Irma on historic resources has contributed to increased support for incorporating preservation needs in federal disaster relief planning and aid. This report includes a summary of the federal government's role in historic preservation activities, from its early efforts in the late 1890s to today. The report contains a list of many of the federal grant programs funded through the annual appropriations process (see Appendix ). It also includes overviews of historic preservation grants for tribal historic preservation, African American civil rights, historically black colleges and universities (HBCUs), Japanese American confinement sites (JACS), Native American Graves Protection and Repatriation Act (NAGPRA) programs, the Save America's Treasures grant program, and the American Battlefield Protection Program (ABPP). The appendix includes eligibility requirements, matching fund guidelines, and statutory authorization for each program. It also includes an overview of federal funding for historic preservation activities from FY2016 to FY2020, along with requested totals for FY2021. Finally, the report outlines some potential issues facing the 116 th Congress in determining whether and how to address historic preservation needs at the federal level. Background on Federal Historic Preservation Legislation The federal role in historic preservation was limited for much of the country's early history, with no formal federal policy in place. The two most significant early efforts at federal historic preservation came in the 1890s. First, Congress passed laws intended to protect ancient Puebloan sites in the American Southwest. Soon thereafter, Congress acquired thousands of acres of private land to establish five Civil War national battlefield parks to be administered by the Department of War. These two distinct federal efforts—commemorating very different moments in American history—are often marked as the genesis of the United States' federal preservation program. In the 20 th century, a legislative campaign for a comprehensive historic preservation policy bolstered these efforts. Antiquities Act of 19065 The Antiquities Act of 1906 provided the executive branch with authority to identify and protect cultural resources on federal lands in an expeditious manner. Prior to its passage, federal law provided no means to preserve national cultural and historic resources that had not received specific legislative authorization from Congress. The Antiquities Act authorized the President to proclaim national monuments on federal lands that contain "historic landmarks, historic and prehistoric structures, and other objects of historic or scientific interest." The law also established guidelines around the future excavation of objects of antiquity found on land owned or controlled by the federal government. Since its passage in 1906, the Antiquities Act has been used to create more than 150 national monuments. Historic Sites Act of 1935 With the passage of the Historic Sites Act of 1935, Congress established a national policy on historic preservation. The act outlined a policy to "preserve for public use historic sites, buildings, and objects of national significance for the inspiration and benefit of the people of the United States" while also providing the Secretary of the Interior the authority to develop a program aimed at identifying and evaluating cultural resources. It placed the primary responsibility for administering federal historic preservation activities with the National Park Service (NPS). Efforts to survey and evaluate cultural resources of national historical significance eventually led to the designation of national historic landmarks (NHLs)—a federal recognition for historic properties that exists today. (See " National Historic Landmarks Program " section for more information on NHL designation.) National Historic Preservation Act of 1966 In the aftermath of World War II, the United States saw an unprecedented transformation of the natural and built environment, thanks in part to a rapid growth in federal infrastructure projects. The construction of interstate highways, urban renewal projects, and large-scale development led to the destruction of numerous historic buildings, archaeological sites, and cultural resources not previously protected under the Historic Sites Act of 1935. In response, President Lyndon B. Johnson convened a special committee on historic preservation in 1965. The following year, the committee released its report, With Heritage So Rich , which called for a comprehensive national historic preservation program. The same year, Congress passed the National Historic Preservation Act of 1966 (NHPA), which incorporated nearly every major recommendation included in the report. Broader than its two predecessors, NHPA is the most comprehensive piece of legislation addressing federal historic preservation. Among its many provisions, the law established the National Register of Historic Places and the procedures by which historic properties are placed on the register, funded the National Trust for Historic Preservation, created a grant program for state and tribal historic preservation, required federal agencies to manage and preserve their historic properties, and created a process for federal agencies to follow when their projects may affect a historic property. Congress has amended and expanded NHPA multiple times since its passage, most recently in 2016. Selected Historic Preservation Programs and Entities Various federal programs and federally established entities support historic preservation across the United States. Many of these programs and entities were established in NHPA and its subsequent amendments; however, Congress has authorized through separate legislation several other programs that also support activities related to historic preservation. Although it is beyond the scope of this report to discuss all federal programs and entities that support historic preservation, selected major programs and entities are highlighted. Advisory Council on Historic Preservation Created by NHPA, the Advisory Council on Historic Preservation (ACHP) is an independent agency consisting of federal, state, and tribal government members, as well as experts in historic preservation and members of the public. ACHP oversees the Section 106 review process, a process federal agencies must follow when their projects may affect a historic property. Federal agencies are required to review the potential impacts of their actions on historic sites, a process that is to be concluded before federal funding is provided or a federal license is issued. Section 106 applies only to federal or "federally assisted" undertakings, such as those receiving federal funding or a federal permit. As an independent agency, ACHP receives funding as part of the "Related Agencies" portion of the annual Department of the Interior, Environment, and Related Agencies appropriations bill. Historic Preservation Fund The Historic Preservation Fund (HPF) is the primary source of funding for federal preservation awards to states, tribes, local governments, and nonprofit organizations. Although federal funding for historic preservation was available under the 1966 NHPA and subsequent amendments in 1970 and 1973, Congress did not officially establish the HPF to carry out the activities specified in NHPA until 1976. The HPF is funded through revenue generated by outer continental shelf mineral receipts, and it has been periodically reauthorized by Congress. Most recently, in 2016, Congress authorized the HPF to receive deposits of $150 million annually through FY2023. The funding is available only to the extent appropriated by Congress in discretionary appropriations laws. Since the HPF's establishment, Congress has never appropriated the full $150 million for the fund in a single fiscal year. The HPF funds historic preservation activities in two ways: (1) formula-based apportionment grants and (2) competitive grant programs. Most HPF appropriated funds are used to provide formula-based matching grants-in-aid to state historic preservation offices (SHPOs) and tribal historic preservation offices (THPOs) and sub-grants to certified local governments (CLGs). Congress also has provided appropriations for additional competitive grant programs that fund specific historic preservation activities. The Appendix to this report provides an overview of the various grant programs that have been funded through the HPF, eligibility requirements, and program goals. State Historic Preservation Office Program HPF grants are awarded annually to SHPOs of the 50 states plus the District of Columbia and the territories. SHPOs are appointed officials responsible for administering and managing federal funds to conduct historic preservation activities. These activities may include surveys and inventories, nominations to the National Register of Historic Places, preservation education, architectural planning, historic structure reports, community preservation planning, and physical preservation of historic buildings, among others. States conducting these activities are statutorily required to provide a 40% match to the funds provided by the HPF. Guidelines allow each state the flexibility to design and shape its historic preservation program as long as the program meets the overall responsibilities outlined by NHPA. Typically, SHPOs do not use these funds to issue sub-grants to other entities for individual historic preservation projects; rather, SHPOs generally use these funds for their own operational and administrative costs, as well as programmatic activities (listed above) carried out directly by the SHPO. Under federal regulations, at least 10% of the allocations to SHPOs are sub-granted to assist CLGs with local preservation needs (see " Certified Local Government Program " below). Congress appropriated $49.7 million in FY2019 and $52.7 million in FY2020 for SHPO grants-in-aid. Tribal Historic Preservation Office Program Since 1996, NPS has awarded annual formula-based grants to Tribal Historic Preservation Offices (THPOs). Eligibility for grants under the THPO grant program is limited to federally recognized tribes that have signed agreements with NPS designating them as having an approved THPO. To become an approved THPO, a tribe submits a request to assume responsibilities from the SHPO and provides a program plan demonstrating how SHPO duties will be conducted. Once a program plan is completed and approved, an agreement between the tribe and the Secretary of the Interior is executed and the THPO becomes eligible for HPF grant support. Similar to SHPO grants, the THPO grant program requires at least a 40% nonfederal match. Activities funded through the program include staff salaries, archeological and architectural surveys, review and compliance activities, comprehensive preservation studies, National Register nominations, educational programs, and other preservation-related activities. Grants are not awarded competitively but instead are determined according to a formula in consultation with tribes. Congress appropriated $11.7 million in FY2019 and $13.7 million in FY2020 for THPO grants-in-aid. Certified Local Government Program NHPA requires that at least 10% of the annual HPF funding provided to each SHPO be sub-granted to local government entities known as certified local governments (CLGs). A CLG is a unit of local (town, city, or county) government that has undergone a certification process administered by NPS and the respective state SHPO, involving demonstration of a commitment to historic preservation. Under this certification process, local governments must meet NPS guidelines that include the establishment of a "qualified" historic preservation commission, inventory maintenance and surveys of local historic resources, and enforcement of state or local historic preservation laws, as well as additional requirements that may be established at the state level. Although CLGs receive at least 10% of the total annual apportionment from their respective SHPOs, states may provide more than the required minimum 10% pass-through should they choose to do so. States typically award grants to individual CLGs through a competitive application process established by the SHPO. National Register of Historic Places The National Register of Historic Places (or National Register) stands as the United States' "official list" of properties significant in "American history, architecture, archeology, engineering and culture." The National Register is maintained by the Department of the Interior (DOI) and in particular by NPS under the authority of NHPA, as amended. NHPA requires the Secretary of the Interior to maintain the register, develop guidelines and regulations for nominations, consider appeals, make determinations of eligibility of properties, and make the National Register accessible to the public. NPS has developed standards and guidelines to help federal, state, and local governments prepare nominations for the register. SHPOs, THPOs, or federal historic preservation offices typically coordinate nominations for the National Register. Property owners, historical societies, preservation organizations, government agencies, and other interested parties work through these offices to determine whether a given property meets the requisite criteria for listing, at which point a completed nomination and recommendation are submitted to NPS for review. NPS is to decide whether a property should be listed within 45 days after receiving a completed nomination. Benefits of listing on the National Register include honorary designation, access to federal preservation grant funds for planning and rehabilitation activities, possible tax benefits, and required application of Section 106 review should a federal or federally assisted action affect the property. Listing of a property places no restrictions on what nonfederal owners may do with their property, up to and including destruction of the property. Under federal regulations, should a property no longer meet the criteria for listing, the property shall be removed from the National Register. Currently, more than 94,000 properties are listed on the National Register. National Historic Landmarks Program The National Historic Landmarks (NHL) program—like the National Register—is a federal recognition program administered by NPS. The agency is responsible for overseeing the nomination process for new NHLs and providing technical assistance to existing landmarks. NHLs are places of national significance to the history of the United States (as opposed to National Register properties, which, according to NPS, "are primarily of state and local significance"). The Historic Sites Act of 1935 created the NHL program, and the National Historic Preservation Act Amendments of 1980 clarified the role of NPS as the entity responsible for overseeing the designation of NHLs. All NHLs are also listed in the National Register. Funding for the NHL program falls under the National Register program, and NHLs are eligible for federal investment tax credits, technical assistance, and consideration in federal undertakings, similar to other properties on the National Register. With regard to federal undertakings, however, NHLs have a higher standard for protection than properties listed on the National Register. Whereas Section 106 of NHPA, applicable to properties on the National Register, requires only that agencies "take into account" the effects of an undertaking on historic properties, Section 110(f) of the law, applicable to NHLs, requires that agencies "to the maximum extent possible undertake such planning and actions as may be necessary to minimize harm to the landmark." National Trust for Historic Preservation Congress chartered the National Trust for Historic Preservation (or National Trust) in 1949. It is a private nonprofit corporation, responsible for encouraging the protection and preservation of historic American sites, buildings, and objects that are significant to the cultural heritage of the United States. The trust provides technical and educational services, promotes historic preservation activities, and administers several historic preservation grant programs. Congress authorized federal funding for the National Trust in the NHPA of 1966. Federal funding for the trust largely continued until FY1996, at which point the Interior Appropriations bill conference report stated that the managers agreed "to a 3-year period of transition for the National Trust for Historic Preservation to replace federal funds with private funding." From FY1998 through FY2001, there was no federal funding for the National Trust. In FY2002, Congress appropriated from the HPF $2.5 million to use as an endowment to maintain and preserve National Trust historic properties. In FY2003, Congress appropriated an additional $2.0 million from the HPF for the endowment, and added $0.5 million more in FY2004. In FY2005, Congress stopped funding the National Trust, and currently the organization's funding comes largely from private donations. Federal Historic Preservation Tax Incentives Program In 1976, Congress passed the Tax Reform Act, which provided tax incentives for owners of historic structures to consider rehabilitation and preservation over demolition. Some argued that the law prior to 1976 encouraged the demolition and redevelopment of historic properties over their preservation. Since then, tax law has continued to evolve into what is now the Federal Historic Preservation Tax Incentives program, which includes historic tax credits (HTCs) administered by the Internal Revenue Service (IRS) and NPS in partnership with SHPOs. The HTC program encourages private investment in historic preservation and rehabilitation initiatives by providing a 20% federal tax credit to property owners who undertake substantial rehabilitation of a certified historic structure, while maintaining its historic character. Eligible buildings include those listed on the National Register of Historic Places, or architecturally contributing to a National Register district, that are rehabilitated for income-producing purposes. The program previously included a separate 10% rehabilitation credit for the rehabilitation of nonhistoric, nonresidential buildings built before 1936; however, the 2017 tax revision repealed this credit. Since 1976, over 44,000 projects have been completed under the program, with more than $96 billion leveraged in private investment for the rehabilitation of historic properties. National Heritage Areas Program50 Since 1984, Congress has designated 55 national heritage areas (NHAs) to recognize and assist efforts to protect, commemorate, and promote natural, cultural, historic, and recreational resources that form distinctive landscapes. NHAs are partnerships among NPS, states, and local communities, in which NPS supports state and local conservation through federal recognition, seed money, and technical assistance. Congress has established heritage areas for lands that are regarded as distinctive because of their resources, their built environment, and the culture and history associated with the land and its residents. In a majority of cases, NHAs have had a fundamental economic activity as their foundation, such as agriculture, water transportation, or industrial development. No comprehensive statute establishes criteria for designating NHAs or provides standards for their funding and management. Rather, particulars for each area are provided in the area's enabling legislation. Congress designates a management entity, usually nonfederal, to coordinate the work of the partners. NHAs are not part of the National Park System, in which lands are primarily federally owned and managed. Historic Federal Property Disposal Programs52 Real property disposal is the process by which federal agencies identify and then transfer, donate, or sell real property they no longer need. The federal government has several programs that enable state, county, and local governments, as well as nonprofit organizations, to acquire at no cost properties deemed excess to the needs of a federal agency. Two programs in particular address the disposal of historic properties under federal ownership: the Historic Surplus Property Program and the National Historic Lighthouse Preservation Act Program. Historic Surplus Property Program The NPS Historic Surplus Property Program is administered in partnership with the General Services Administration (GSA) and was authorized under the Federal Property and Administrative Services Act of 1949, as amended. When federally owned historic buildings are no longer needed by their respective agencies, the GSA declares the buildings to be surplus. Applicants interested in obtaining these properties—which must be listed, or eligible for listing, in the National Register—submit an application to the GSA. Eligible applicants include state and public agencies, tribal entities, and nonprofit organizations. NPS then makes a formal recommendation to the GSA (or the Department of Defense, in the case of military properties) to effect the transfer of property. Once conveyed, a property must be managed and maintained in accordance with the terms of the transfer and the Secretary of the Interior's Standards for Rehabilitation. National Historic Lighthouse Preservation Act Program The NPS also administers a program to oversee the transfer of surplus historic lighthouses under federal ownership. Federal lighthouses and light stations were previously transferred to eligible entities through the Historic Surplus Property Program. In 2000, however, Congress passed the National Historic Lighthouse Preservation Act (NHLPA), an amendment to NHPA. The NHLPA provides a mechanism for the U.S. Coast Guard (USCG) to dispose of historic lighthouses that are listed, or determined eligible for listing, in the National Register. Similarly to other historic federal properties deemed to be excess, the NHLPA directs the USCG to issue a R eport of E xcess for historic light stations to the GSA, which then releases a notice of availability. At this point, interested parties looking to acquire the light station in question—at no cost—work with NPS to submit a formal application, which is then reviewed by an internal NPS review committee that makes a recommendation to the Secretary of the Interior and the GSA Administrator. If there are no interested parties—or if no applicant meets the requirements set forth by the review committee—the property is offered for sale by competitive bid or auction. National Historic Networks Congress occasionally has passed legislation authorizing NPS to establish national networks aimed at coordinating the preservation and education efforts of various places, museums, and interpretive programs associated with specific historical moments or movements in U.S. history. To date, Congress has authorized the establishment of three such networks: the National Underground Railroad Network to Freedom ( P.L. 105-203 ), the African American Civil Rights Network ( P.L. 115-104 ), and the Reconstruction Era National Historic Network ( P.L. 116-9 ). Legislation in the 116 th Congress ( H.R. 1179 and S. 2827 ) would establish a fourth network, the African-American Burial Grounds Network. These laws have provided that network sites can include federal, state, local, and privately owned properties, although inclusion in the network requires consent from property owners. Congress has authorized the Secretary of the Interior to produce and disseminate educational materials and provide technical assistance to network sites, and to develop an official symbol or logo for use across the network. Federal Historic Preservation Grant Programs The federal government currently supports historic preservation through a variety of grant programs. The largest source of funding for federal historic preservation programs is the HPF, which currently funds state, tribal, and local historic preservation, African American civil rights grant programs, grants to underrepresented communities, tribal heritage grants, the Save America's Treasures program, disaster recovery grants, historic revitalization grants, and grants to historically black colleges and universities (HBCUs). Several other historic preservation grant programs are funded through annual appropriations under other NPS and non-NPS accounts rather than through the HPF. These programs include grants for Japanese American confinement sites, Native American grave protection and repatriation, and preservation and acquisition grants for American battlefields. For a complete list of these programs and their guidelines, refer to the Appendix . National Historic Designations Table 1 , below, compares selected designations used by Congress and the executive branch for historic properties and sites. The table provides information on the entity that confers each designation (e.g., Congress, the President, the Interior or Agriculture Secretary); statutory authorities for the designation; the agency or agencies that administer each type of area (also noting designations for which the area typically is under nonfederal management); selected characteristics of the areas; and examples of each type of area. Designations for nonfederally owned and managed sites are listed according to the agency with administrative responsibility for the designation (e.g., responsibility for evaluating site qualifications and providing technical and/or financial assistance to designated sites). Federal Funding for Historic Preservation The federal government supports historic preservation through direct appropriations for federally protected sites and grants to nonfederal entities. Grant funding is typically provided to NPS-administered accounts within the annual Interior, Environment, and Related Agencies Appropriations bill. These accounts provide technical and financial assistance to state, local, and tribal governments, educational institutions, and nonprofit organizations with the goal of protecting cultural resources and promoting historic preservation activities across the United States. The majority of the funding is split between two NPS accounts: the HPF account, the primary source of funding for federal historic preservation programs, and the National Recreation and Preservation (NR&P) account, which provides funding for a variety of other congressionally authorized grant programs. Funding for historic preservation programs is not limited to these two accounts, however, nor does Congress exclusively fund grant programs as part of the Interior appropriations bill. Table 2 and Table 3 provide FY2016-FY2020 appropriations figures and the FY2021 budget request for programs funded as part of the HPF and NR&P accounts. HPF Appropriations: FY2016-FY2020 and FY2021 Request In 2016, Congress reauthorized deposits of $150 million annually into the HPF for FY2017 through FY2023. Congress has never appropriated the full $150 million for the HPF since its establishment; however, regular appropriations to NPS's HPF account increased each year from FY2016 to FY2020. The FY2021 budget justification for NPS requests $40.7 million for HPF—a roughly 66% reduction in funding from FY2020 enacted amounts. This request would provide funding only for the core grant-in-aid programs to SHPOs ($26.9 million) and THPOs ($5.7 million), as well as $8 million for grants to HBCUs. It would not provide funding for additional competitive or non-formula-based grant programs. National Recreation and Preservation Appropriations: FY2016-FY2020 and FY2021 Request In addition to grant funds through the HPF account, Congress provides funding to other NPS-administered historic preservation grant programs under the National Recreation and Preservation (NR&P) account. This account provides for a broad range of activities related to historic and cultural preservation, as well as programs for recreational activities, natural resource conservation, environmental compliance, operations of the Office of International Affairs, and national heritage areas. Administration of grants funded through the NR&P account and HPF grant administration are included within the NR&P account under the "Cultural Programs" line item and the sub-activity "Grants Administration." Congress appropriates direct funding for NPS-administered grant programs under the Cultural Programs line item. The Administration requested $33.9 million for NR&P in FY2021—a roughly 52% reduction from FY2020 enacted amounts. Selected Issues for the 116th Congress Historic preservation programs are of perennial interest to Congress and have been the subject of congressional oversight and legislation in the 116 th Congress. Some Members of Congress support proposals to eliminate a federal government role in both administering and financing historic preservation programs, leaving such programs to be sustained by other levels of government or by private support. Others feel that a federal role in supporting historic preservation should be maintained or expanded. Similarly, some advocates believe there may be an inherent or increased tension between preservationist goals and federally controlled or licensed infrastructure projects. The majority of federal grant programs for historic preservation receive funding through the annual appropriations process. Members of Congress as well as both current and past Administrations have expressed various opinions as to how federal funding for these programs should be allocated and at what levels. Both the FY2020 and the FY2021 budget requests from NPS would have significantly reduced funding for the HPF and would provide no funding for African American civil rights grant programs, grants to underrepresented communities, the Save America's Treasures program, or historic revitalization grants. In response to the FY2020 budget proposal, the House Subcommittee on National Parks, Forests, and Public Lands of the Committee on Natural Resources held oversight hearings in April 2019 on the spending priorities and mission of NPS. During these hearings, some Members expressed concern that the proposed reduction in grant funding would impact the ability of communities to protect and maintain culturally and historically important resources. Others—including witnesses from NPS—expressed the position that "core" NPS priorities such as infrastructure and the NPS maintenance backlog should take priority over historic preservation when considering the appropriation of federal funds. Other issues Congress may consider are specific to NHPA and current historic preservation laws and regulations. For instance, some have argued that the "stop, look, and listen" approach under Section 106 of NHPA does not provide adequate protection for historic resources, since the law only establishes a procedural requirement for federal agencies. According to a study commissioned by the National Trust for Historic Preservation in 2010, NPS reported to Congress that only 2% of all SHPO reviews for Section 106 compliance included findings of adverse effects to historic properties. For those undertakings that are deemed to have an adverse effect on a given historic property, the agency in question is only required to consider these effects—with no explicit legal mandate requiring them to address these potential impacts. In other words, although agencies are compelled to consult with the SHPO/THPO to develop solutions to mitigate effects, agency officials are not required to pursue the solutions, regardless of any adverse effects. As a result, some preservation advocates have charged that NHPA fails in its purported mission to protect cultural and historic sites. Others suggest that Section 106 compliance results in unnecessary and costly delays and have suggested that in some cases, opponents of specific federal projects may invoke Section 106 procedural steps in the hopes of delaying approval for a project—sometimes to the point of impacting a project's feasibility. Although federal regulations provide certain ways for agencies to tailor the Section 106 process to their needs, some stakeholders have asserted that these options are time-consuming to implement and not flexible enough for undertakings that involve new or emerging technologies. Multiple bills have been introduced to exempt or limit NHPA reviews for certain projects, such as rail and transit infrastructure projects and Federal Communications Commission construction projects for communications facilities following a major disaster. Many of the programs that directly or indirectly support historic preservation also have received attention in recent years. For example, in 2013, the Federal Railroad Administration published a study that concluded "there is no consistent approach on how to address the National Register eligibility of railroad corridors." Although federal regulations outline the criteria for inclusion of a property on the National Register, the report states that inconsistent standards still abound, due to the multitude of entities conducting National Register evaluations. Another program of congressional interest has been the National Heritage Areas program. Legislation has been introduced in recent Congresses to establish a National Heritage Areas System governing the designation, management, and funding of NHAs, to replace the stand-alone approach currently in place. Additionally, some Members—as well as past and current Administrations—have expressed interest in ensuring that NHAs eventually become financially self-sufficient and in limiting the federal funding for long-standing areas. In addition, Congress often considers bills to designate specific properties or areas as historically important, under various designations. For example, in the 116 th Congress, P.L. 116-9 included provisions that designated three new historical sites as units of the National Park System and six new national heritage areas, as well as stand-alone provisions that recognized the historical importance of sites across the United States. Although many of the programs described in this report provide for properties to receive historical designation administratively, Congress has at times conferred individual designations in law. Certain programs or designations require congressional action to establish new areas or to designate properties as historically significant. Appendix. Selected Federal Grant Programs for Historic Preservation Table A-1 is an overview of selected federal historic preservation grant programs. This overview focuses on programs with the primary mission of historic preservation and is not a complete representation of all federal grant programs that support historic preservation activities. Most of the programs listed here are subject to annual appropriations and therefore may not be currently funded, despite some programs having congressional authorization to administer grants. Programs authorized or funded in FY2020 for the first time may not be listed below. For example, as part of the FY2020 funding bill ( P.L. 116-94 ), Congress provided funding for a new civil rights grant program that would preserve and highlight the sites and stories associated with women, American Latino, Native American, Alaska Native, Native Hawaiian, and LGBTQ Americans. NPS has not yet published eligibility requirements or program guidelines. P.L. 116-94 also authorized two new grant programs as part of the American Battlefield Protection Program (ABPP): a battlefield interpretation modernization grant program and a battlefield restoration grant program. As these new programs have yet to receive appropriations from Congress, they are not listed below.

During the 20 th century, Congress passed several laws that established a framework for federal historic preservation activities. The most comprehensive of these statutes is the National Historic Preservation Act of 1966 (NHPA; P.L. 89-665). NHPA created a grant program for state historic preservation, established the federal National Register of Historic Places (NRHP) and the procedures by which historic properties are placed on the Register, funded the National Trust for Historic Preservation (NTHP), established the Advisory Council on Historic Preservation (ACHP), and designated a process for federal agencies to follow when their projects may affect a historic property (known as the Section 106 process). Congress also has amended and expanded NHPA multiple times since its passage, most recently in 2016. In addition, Congress often considers bills to designate specific properties or areas as historically important, under various designations. These designations include national monuments, national historical parks, national historic sites, national historic landmarks, and properties listed on the NRHP, to name a few. Such historic designations may bring few management changes to a site or may involve significant changes, depending on the individual designating laws and/or general authorities that may apply to a type of designation. Some historic designations are applied to federally owned lands (including lands already under federal administration and those that the designating law may authorize for federal acquisition), but many federal designations are conferred on lands that remain nonfederally owned and managed. Because of these various legislative and oversight activities, historic preservation is of perennial interest to Congress. For example, some Members of Congress support proposals to eliminate a federal government role in financing historic preservation programs, leaving such programs to be sustained by other levels of government or by private support. Others state that a federal role in supporting historic preservation should be maintained or expanded. In particular, lawmakers and administrations pay significant attention to funding levels for various historic preservation programs that are subject to the annual appropriations process. The Historic Preservation Fund (HPF) is the primary source of funding for federal preservation. Appropriations for the HPF totaled $118.7 million in FY2020 ( P.L. 116-94 ), a nearly 16% increase from the FY2019 appropriation (excluding emergency supplemental funding) and a roughly $86 million increase over the FY2020 Administration request. For FY2021, the Trump Administration requests a roughly 66% reduction in funding for the HPF compared with FY2020 levels. This request includes no fiscal support for many of the federal grant programs available to states, tribes, local governments, and nonprofit organizations for historic preservation.

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About the U.S. Department of Health and Human Services (HHS) The mission of HHS is to "enhance the health and well-being of Americans by providing for effective health and human services and by fostering sound, sustained advances in the sciences underlying medicine, public health, and social services." HHS is currently organized into 11 main agencies, called operating divisions (listed below), which are responsible for administering a wide variety of health and human services programs, and conducting related research. In addition, HHS has a number of staff divisions within the Office of the Secretary (OS). These staff divisions fulfill a broad array of management, research, oversight, and emergency preparedness functions in support of the entire department. HHS Operating Divisions Eight of the HHS operating divisions are part of the U.S. Public Health Service (PHS). PHS agencies have diverse missions in support of public health, including the provision of health care services and supports (e.g., IHS, HRSA, SAMHSA); the advancement of health care quality and medical research (e.g., AHRQ, NIH); the prevention and control of disease, injury, and environmental health hazards (e.g., CDC, ATSDR); and the regulation of food and drugs (e.g., FDA). The three remaining HHS operating divisions—ACF, ACL, and CMS—are not PHS agencies. ACF and ACL largely administer human services programs focused on the well-being of vulnerable children, families, older Americans, and individuals with disabilities. CMS—which accounts for the largest share of the HHS budget by far—is responsible for administering Medicare, Medicaid, and the State Children's Health Insurance Program (CHIP), in addition to certain programs related to private health insurance. (For a summary of each operating division's mission and links to agency resources related to the FY2021 budget request, see the Appendix .) Context for the FY2021 President's Budget Request The Budget and Accounting Act of 1921 (P.L. 67-13), as amended, requires the President to submit an annual consolidated federal budget to Congress at the beginning of each regular congressional session, not later than the first Monday in February. Many of the proposals in the President's budget would require changes to laws that govern mandatory spending levels or policies, which are typically established on a multiyear or permanent basis. Discretionary spending , however, which is roughly one-third of the budget, is decided and controlled each fiscal year through the annual appropriations process. While Congress is ultimately not required to adopt the President's proposals or recommendations, the submission of the President's budget typically initiates the congressional budget process and informs Congress of the President's recommended spending levels for agencies and programs. The FY2021 President's budget request was submitted to Congress on February 10, 2020. Less than two months before this, all 12 of the annual appropriations acts for FY2020 had been enacted into law on December 20, 2019. The FY2020 funding levels shown in FY2021 President's budget materials generally reflect enacted annual levels, with limited exceptions. The exceptions include cases in which full-year mandatory funds had not yet been provided for programs typically funded outside of the annual appropriations process (e.g., mandatory funding for the Temporary Assistance for Needy Families Block Grant or the Community Health Center Fund). In such cases, the FY2021 President's budget generally uses estimated FY2020 funding levels based on annualized amounts provided in the most recent short-term funding extensions. Because some FY2020 amounts have not been finalized, this report generally refers to FY2020 funding levels as estimates , whereas amounts for earlier years are called actual or final . In addition, amounts shown for FY2020 do not include supplemental appropriations or other spending effects resulting from coronavirus disease response measures that have been enacted since the FY2021 President's budget request was submitted. Overview of the FY2021 HHS Budget Request Under the President's budget request, HHS would spend an estimated $1.370 trillion in outlays in FY2021 (see Table 1 ). This is $48 billion (+4%) more than estimated HHS outlays in FY2020 and about $156 billion (+13%) more than actual HHS outlays in FY2019. Historical estimates by the Office of Management and Budget (OMB) indicate that HHS has accounted for at least 20% of all federal outlays in each year since FY1995. Most recently, OMB estimated that HHS accounted for 27% of all federal outlays in FY2019, and projects that it would account for 28% of outlays if all proposals in the President's budget request were enacted. Figure 2 displays proposed FY2021 HHS outlays by major program or spending category in the President's request. As this figure shows, mandatory spending typically accounts for the vast majority of the HHS budget. In fact, two mandatory spending programs—Medicare and Medicaid—are expected to account for 86% of all estimated HHS spending in FY2021. Medicare and Medicaid are entitlement programs, meaning the federal government is required to make mandatory payments to individuals, states, or other entities based on criteria established in authorizing law. This figure also shows that discretionary spending accounts for about 8% of estimated FY2021 HHS outlays in the President's request. Although discretionary spending represents a relatively small share of total HHS spending, the department nevertheless receives more discretionary funding than most federal departments. According to OMB data, HHS accounted for almost 8% of all discretionary budget authority across the government in FY2019. The Department of Defense was the only federal agency to account for a larger share of all discretionary budget authority in that year (50%). Budgetary Resources Versus Appropriations As previously mentioned, the HHS budget reflects funding from a broad set of budgetary resources that includes, but is not limited to, the amounts provided to HHS through the annual appropriations process. As a result, certain amounts shown in FY2021 HHS budget materials (including amounts for prior years) will not match amounts provided to HHS by annual appropriations acts and displayed in accompanying congressional documents. There are several reasons for this, discussed briefly below. Mandatory and Discretionary Spending Mandatory spending makes up a large portion of the HHS budget. Whereas all discretionary spending is controlled and provided through the annual appropriations process, all mandatory spending is controlled by the program's authorizing statute. In most cases, that authorizing statute also provides the funding for the program (e.g., State Children's Health Insurance Program). However, the budget authority for some mandatory programs (including Medicaid), while controlled by criteria in the authorizing statute, must still be provided through the annual appropriations process; such programs are commonly referred to as appropriated entitlements or appropriated mandatories . Certain budget documents may show only discretionary spending, while others may also show some or all types of mandatory spending. HHS in the Appropriations Process The HHS budget request accounts for the department as a whole, while the appropriations process divides HHS funding across three different appropriations bills. Most of the department's discretionary appropriations are provided through the Departments of Labor, Health and Human Services, and Education, and Related Agencies (LHHS) Appropriations Act. However, funding for certain HHS agencies and activities is provided in two other bills—the Departments of the Interior, Environment, and Related Agencies Appropriations Act (INT) and the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act (AG). Table 2 lists HHS agencies by appropriations bill. Each of these three appropriations acts provides discretionary HHS funding. In some cases, these acts also provide the necessary funding for appropriated mandatories at HHS. However, authorizing laws provide funding for other mandatory spending programs. Proposed Law and Current Law Estimates for Mandatory Programs HHS budget materials include two different estimates for mandatory spending programs when appropriate: proposed law and current law . The p roposed law estimates take into account changes in mandatory spending proposed in the FY2021 HHS budget request. Such proposals would generally need to be enacted into law to affect the budgetary resources ultimately available to the mandatory spending program. HHS materials may also show a current law or current services estimate for mandatory spending programs. These estimates assume that no changes will be made to existing policies, and instead estimate mandatory spending for programs based on criteria established in current authorizing law. The HHS budget estimates in this report reflect the proposed law estimates for mandatory spending programs, but readers should be aware that other HHS, OMB, or congressional estimates might reflect current law instead. User Fees and Other Types of Collections In some cases, agencies within HHS have the authority to expend user fees and other types of collections that effectively supplement their appropriations. In addition, agencies may receive transfers of budgetary resources from other sources, such as from the Public Health Service Evaluation Set-Aside (also referred to as the PHS Tap) or one of the mandatory funds established by the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended). Budgetary totals that account for these sorts of resources in the HHS estimates are often referred to as being at the program level . HHS agencies that have historically had notable differences between the amounts in the appropriations bills and their program level include, for instance, FDA (due to user fees) and AHRQ (due to transfers). Scorekeeping and Display Conventions The Administration may choose to follow different conventions than those of congressional scorekeepers for its estimates of HHS programs. For example, certain transfers of funding between HHS agencies (or from HHS to other federal agencies) that occurred in prior fiscal years, or are expected to occur in the current fiscal year, may be accounted for in the Administration's estimates but not necessarily in the congressional documents. HHS Budget by Operating Division Figure 3 provides a breakdown of the FY2021 HHS budget request by operating division. When taking into account mandatory and discretionary budget authority (i.e., total budget authority), CMS accounts for the largest share of the request: nearly $1.3 trillion. The majority of the CMS budget request would go toward mandatory spending programs, such as Medicare and Medicaid. Spending on Medicare and Medicaid is expected to increase from FY2020 levels under the President's request, both in terms of proposed law and current law estimates. The request also includes a number of legislative proposals that would reduce spending on these programs (relative to current law, but not the prior year) if enacted. When looking exclusively at discretionary budget authority (as illustrated in Figure 3 and detailed in Table 3 ), funding for CMS is comparatively smaller, accounting for $3.7 billion of the HHS discretionary request. Discretionary CMS funds primarily support program operations and federal administrative activities, though some funds also go toward efforts to reduce health care fraud and abuse. The largest share of the HHS discretionary request would go to the PHS agencies: roughly $64.8 billion in combined public health funding for FDA, HRSA, IHS, CDC, ATSDR, NIH, and SAMHSA (no funds would go to AHRQ under the request ). NIH would receive the largest amount of discretionary budget authority of any single HHS operating division: $37.7 billion. This represents a decrease of roughly $2.6 billion (-6%) from FY2020. All of the existing NIH institutes and centers would receive a decrease under the request. The majority of the proposed NIH budget would support biomedical research performed by hospitals, medical schools, universities, and other research institutions around the country. ACF would receive the second-largest discretionary funding level among the HHS operating divisions: $20.2 billion. This would represent a decrease of roughly $4.2 billion (-17%) from FY2020. The majority of the discretionary ACF request (more than 80%) would go to early childhood care and education programs, such as Head Start and the Child Care and Development Block Grant. As has been the case since FY2018, the budget proposes to eliminate several ACF programs, including the Low Income Home Energy Assistance Program (LIHEAP) and the Community Services Block Grant (CSBG). Table 4 puts the FY2021 request for each HHS operating division and the Office of the Secretary into context, displaying it along with estimates of funding provided over the four prior fiscal years (FY2017-FY2019). These totals are inclusive of both mandatory and discretionary funding. The amounts in this table are shown in terms of budget authority (BA) and outlays. BA is the authority provided by federal law to enter into contracts or other financial obligations that will result in immediate or future expenditures involving federal government funds. Outlays occur when funds are actually expended from the Treasury; they could be the result of either new budget authority enacted in the current fiscal year or unexpended budget authority that was enacted in previous fiscal years. As a consequence, the BA and outlays in this table represent two different ways of accounting for the funding that is provided to each HHS agency through the federal budget process. For example, Table 4 shows $0 in FY2021 BA for AHRQ because the President's budget proposes to eliminate this agency; however, the table shows an estimated $299 million in FY2021 AHRQ outlays, reflecting the expected expenditure of funds previously provided to the agency. Appendix. HHS Operating Divisions: Missions and FY2021 Budget Resources This appendix provides for each operating division a brief summary of its mission, the applicable appropriations bill, the FY2021 budget request level, and links to additional resources related to that request. Food and Drug Administration (FDA) The FDA mission is focused on regulating the safety, efficacy, and security of human foods, dietary supplements, cosmetics, and animal foods; and the safety and effectiveness of human drugs, biological products (e.g., vaccines), medical devices, radiation-emitting products, and animal drugs. It also regulates the manufacture, marketing, and sale of tobacco products. Relevant Appropriations Bill: Agriculture, Rural Development, Food and Drug Administration, and Related Agencies (AG) FY2021 Request: BA: $3.293 billion Outlays: $3.552 billion Additional Resources Related to the FY202 1 Request: Congressional Justification (all-purpose table on p. 19), https://www.fda.gov/media/135078/download BIB chapter (p. 20), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=24 Health Resources and Services Administration (HRSA) The HRSA mission is focused on "improving health care to people who are geographically isolated, economically or medically vulnerable." Among its many programs and activities, HRSA supports health care workforce training; the National Health Service Corps; and the federal health centers program, which provides grants to nonprofit entities that provide primary care services to people who experience financial, geographic, cultural, or other barriers to health care. Relevant Appropriations Bill: LHHS FY2021 Request: BA: $11.444 billion Outlays: $11.951 billion Additional Resources Related to the FY2021 Request: Congressional Justification (all-purpose table on p. 17), https://www.hrsa.gov/sites/default/files/hrsa/about/budget/budget-justification-fy2021.pdf BIB chapter (p. 28), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=32 Indian Health Service (IHS) The IHS mission is to provide "a comprehensive health service delivery system for American Indians and Alaska Natives" and "raise the physical, mental, social, and spiritual health of American Indians and Alaska Natives to the highest level." IHS provides health care for approximately 2.2 million eligible American Indians and Alaska Natives through a system of programs and facilities located on or near Indian reservations, and through contractors in certain urban areas. Relevant Appropriations Bill: Departments of the Interior, Environment, and Related Agencies (INT) FY2021 Request: BA: $6.391 billion Outlays: $6.479 billion Additional Resources Related to the FY202 1 Request: Congressional Justification (all-purpose table on p. 8), https://www.ihs.gov/sites/budgetformulation/themes/responsive2017/display_objects/documents/FY_2021_Final_CJ-IHS.pdf BIB chapter (p. 37), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=41 Centers for Disease Control and Prevention (CDC) and Agency for Toxic Substances and Disease Registry (ATSDR) The CDC mission is focused on "disease prevention and control, environmental health, and health promotion and health education." CDC is organized into a number of centers, institutes, and offices, some focused on specific public health challenges (e.g., injury prevention) and others focused on general public health capabilities (e.g., surveillance and laboratory services). In addition, the ATSDR is headed by the CDC director. For that reason, the ATSDR budget is often shown within CDC. Following the conventions of the FY2021 HHS BIB, ATSDR's budget request is included in the CDC totals shown in this report. ATSDR's work is focused on preventing or mitigating adverse effects resulting from exposure to hazardous substances in the environment. Relevant Appropriations Bills: LHHS (CDC) INT (ATSDR) FY202 1 Request (CDC and ATSDR combined): BA: $7.134 billion Outlays: $8.174 billion Additional Resources Related to the FY202 1 Request: CDC Congressional Justification (all-purpose table on p. 25), https://www.cdc.gov/budget/documents/fy2021/FY-2021-CDC-congressional-justification.pdf ATSDR Congressional Justification, https://www.cdc.gov/budget/documents/fy2021/FY-2021-ATSDR-congressional-justification.pdf BIB chapter (p. 43), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=47 National Institutes of Health (NIH) The NIH mission is focused on conducting and supporting research "in causes, diagnosis, prevention, and cure of human diseases" and "in directing programs for the collection, dissemination, and exchange of information in medicine and health." NIH is organized into 27 research institutes and centers, headed by the NIH Director. (The FY2021 President's budget assumes that AHRQ's functions will be consolidated within NIH, in the new National Institute for Research on Safety and Quality [NIRSQ]. This assumption is reflected in the figures below. ) Relevant Appropriations Bill: LHHS FY2021 Request: BA: $37.905 billion Outlays: $39.807 billion Additional Resources Related to the FY2021 Request: Congressional Justification (all-purpose table on p. 15), available at https://officeofbudget.od.nih.gov/pdfs/FY21/br/1-OverviewVolumeSingleFile-toPrint.pdf BIB chapter (p. 54), available at https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=58 Substance Abuse and Mental Health Services Administration (SAMHSA) The SAMHSA mission is focused on reducing the "impact of substance abuse and mental illness on America's communities." SAMHSA coordinates behavioral health surveillance to improve understanding of the impact of substance abuse and mental illness on children, individuals, and families, and the costs associated with treatment. Relevant Appropriations Bill: LHHS FY2021 Request: BA: $5.598 billion Outlays: $5.984 billion Additional Resources Related to the FY202 1 Request: Congressional Justification (all-purpose table on p. 6), https://www.samhsa.gov/sites/default/files/about_us/budget/fy-2021-samhsa-cj.pdf BIB chapter (p. 63), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=67 Agency for Healthcare Research and Quality (AHRQ) The AHRQ mission is focused on research to make health care "safer, higher quality, more accessible, equitable, and affordable." Specific AHRQ research efforts are aimed at reducing the costs of care, promoting patient safety, measuring the quality of health care, and improving health care services, organization, and financing. The FY2021 President's budget proposes eliminating AHRQ and consolidating certain key AHRQ functions within NIH, in the new National Institute for Research on Safety and Quality (NIRSQ). Relevant Appropriations Bill: LHHS FY202 1 Request: BA: $0 Outlays: $0.303 billion Additional Resources Related to the FY202 1 Request: Congressional Justification for the proposed National Institute for Research on Safety and Quality, https://www.ahrq.gov/sites/default/files/wysiwyg/cpi/about/mission/budget/2021/FY_2021_CJ_NIRSQ.pdf There is no FY2021 BIB chapter for AHRQ. Centers for Medicare & Medicaid Services (CMS) The CMS mission is focused on supporting "innovative approaches to improve quality, accessibility, and affordability" of Medicare, Medicaid, the State Children's Health Insurance Program (CHIP), and private insurance, and on supporting private insurance market reform programs. The President's budget estimates that in FY2021, "over 145 million Americans will rely on the programs CMS administers including Medicare, Medicaid, the Children's Health Insurance Program (CHIP), and the [Health Insurance] Exchanges." Relevant Appropriations Bill: LHHS FY2021 Request: BA: $1,297.294 billion Outlays: $1,232.275 billion Additional Resources R elated to the FY2021 Request: Congressional Justification (all-purpose table on p. 9), https://www.cms.gov/About-CMS/Agency-Information/PerformanceBudget/FY2021-CJ-Final.pdf BIB chapter (p. 69), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=73 Administration for Children and Families (ACF) The ACF mission is focused on promoting the "economic and social well-being of children, youth, families, and communities." ACF administers a wide array of human services programs, including Temporary Assistance for Needy Families (TANF), Head Start, child care, the Social Services Block Grant (SSBG), and various child welfare programs. Relevant Appropriations Bill: LHHS FY202 1 Request: BA: $54.976 billion Outlays: $57.489 billion Additional Resources Related to the FY2021 Request: Congressional Justification (all-purpose table on p. 6), https://www.acf.hhs.gov/sites/default/files/olab/fy_2021_congressional_justification.pdf BIB chapter (p. 141), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=145 Administration for Community Living (ACL) The ACL mission is focused on maximizing the "independence, well-being, and health of older adults, people with disabilities across the lifespan, and their families and caregivers." ACL administers a number of programs targeted at older Americans and the disabled, including Home and Community-Based Supportive Services and State Councils on Developmental Disabilities. Relevant Appropriations Bill: LHHS FY202 1 Request: BA: $2.097 billion Outlays: $2.153 billion Additional Resources Related to th e FY2021 Request: Congressional Justification (not yet available online); see excerpts, including a downloadable version of the all-purpose table, at https://acl.gov/about-acl/budget BIB chapter (p. 159), https://www.hhs.gov/sites/default/files/fy-2021-budget-in-brief.pdf#page=163

This report provides information about the FY2021 budget request for the U.S. Department of Health and Human Services (HHS). Historically, HHS has been one of the larger federal departments in terms of budgetary resources. Estimates by the Office of Management and Budget (OMB) indicate that HHS has accounted for at least 20% of all federal outlays in each year since FY1995. Most recently, HHS is estimated to have accounted for 27% of all federal outlays in FY2019. (FY2019 funding levels are generally considered final, whereas some FY2020 funding levels remain estimates.) The FY2021 President's budget request was submitted to Congress on February 10, 2020. Subsequently, on March 17, 2020, the President submitted a letter to Congress about FY2021 budget amendments (along with a supplemental appropriations request for FY2020) related to the response to the Coronavirus Disease 2019 (COVID-19) outbreak. According to the letter, these budget amendments would have budgetary effects for the FY2021 President's request for some HHS accounts at the Centers for Disease Control and Prevention (CDC) and the National Institutes of Health (NIH). The letter did not contain sufficient details to incorporate potential effects of these amendments into the FY2021 request numbers contained in this report. As a result, the report reflects the President's initial request as submitted on February 10. Under the FY2021 President's budget request, as submitted in February 2020, HHS would spend an estimated $1.37 trillion in outlays in FY2021. This would be $48 billion (+4%) more than estimated HHS outlays in FY2020 and $156 billion (+13%) more than actual HHS outlays in FY2019. Mandatory spending typically comprises the majority of the HHS budget. Two mandatory spending programs—Medicare and Medicaid—are expected to account for 86% of all estimated HHS outlays in FY2021, according to the President's budget request. Medicare and Medicaid are entitlement programs, meaning the federal government is required to make mandatory payments to individuals, states, or other entities based on criteria established in authorizing law. While mandatory spending is controlled (but not always provided) by authorizing laws, all discretionary spending is controlled and provided through the annual appropriations process. Discretionary spending accounts for about 8% of HHS outlays in the FY2021 President's budget request. Although discretionary spending represents a relatively small share of the HHS budget, the department nevertheless receives more discretionary money than most federal departments. According to OMB data, HHS accounted for nearly 8% of all discretionary budget authority across the government in FY2019.

GAO_GAO-20-90

Background AFSOC is the Air Force component of U.S. Special Operations Command and is responsible for providing Air Force capabilities and forces to support special operations activities. Special operations are operations requiring unique modes of employment, tactical techniques, equipment, and training often conducted in hostile, denied, or politically sensitive environments. Demand for AFSOC capabilities, including those provided by the ARC, is identified as part of the Department of Defense’s (DOD) Global Force Management process for assigning and allocating forces to meet global requirements. This process allows the Secretary of Defense to strategically manage forces—including the military services, conventional forces, and special operations forces—to support strategic guidance and meet combatant commander requirements. As part of this process, the Joint Staff validates requirements for forces. U.S. Special Operations Command, as the joint force provider, is responsible for identifying and recommending forces to support special operations requirements. U.S. Special Operations Command coordinates with its service component commands, including AFSOC, to determine which capabilities and specific units are best suited to meet validated requirements for special operations capabilities. After receiving these requirements, AFSOC considers its available options to provide the capabilities needed. This consideration includes reviewing active duty and reserve component units that provide specific sets of capabilities, such as intelligence, surveillance, and reconnaissance; personnel recovery; and radio and television broadcasting for psychological operations. If AFSOC, in conjunction with Headquarters Air Force, determines that the best solution to meet a requirement is to use capabilities from the ARC, it can rely on either volunteerism or involuntary recall to active duty—referred to as involuntary mobilization—to activate the needed forces. These two types of activation are described below. Volunteerism. The Secretary of the Air Force is authorized to activate ARC personnel on active duty with the consent of those individuals; however, the consent of the state governor is required for the voluntary activation of ANG personnel. According to Joint Publication 4-05, Joint Mobilization Planning (Feb. 21, 2014), volunteerism is important because it enables a service to fill required positions with reserve component personnel without its counting against the statutory limits related to involuntary mobilization. However, the guidance also states that volunteerism should be used judiciously, because excessive use of volunteers removes personnel from reserve component units, which could result in a reduction of the unit’s readiness in the event of unit mobilization. Another factor that mobilization planners must take into account is dwell time policy in relation to deployments. Furthermore, the Air Force has established specific goals for managing the operational tempo of its forces, and planners need to consider this factor as well. Involuntary Mobilization. Any unit or individual of a reserve component may be ordered to active duty under multiple mobilization statutory authorities under Title 10 of the U.S. Code that vary regarding the number of personnel who can be mobilized, the duration of the mobilization, and the approval authority. For example, section 12304 of Title 10, U.S. Code, provides authority to the President to involuntarily activate up to 200,000 members of the selected reserve for up to 365 days to augment active forces for an operational mission or in response to certain emergencies. AFSOC’s Mobilization Process Does Not Fully Support ARC Needs for Timely and Reliable Information Air Force Has Established Guidance and Processes for Mobilizing the ARC AFSOC is required to follow Air Force guidance for accessing ARC units and personnel. The Air Force guidance implements DOD Instruction 1235.12, Accessing the Reserve Components (RC), which establishes the overarching policies and procedures for accessing the reserve components for all military departments. When AFSOC officials determine that ARC capabilities are the appropriate option for a given special operation requirement, their access to the reserve component is governed by Air Force Instruction 10-301, Managing Operational Utilization Requirements of the Air Reserve Component Forces. This instruction outlines roles and responsibilities for managing requirements for reserve component capabilities accessed through both involuntary mobilizations and volunteerism. Among other things, it establishes that AFSOC use the reserve component in a cyclical or periodic manner that provides predictability to ARC individuals, to the individual’s employer, and to the combatant command receiving the capabilities. The process for accessing the reserve component through involuntary mobilization is further outlined in Air Force Instruction 10-402, Mobilization Planning. This guidance implements and expands on the specific timelines for particular milestones during the mobilization process established in DOD Instruction 1235.12, such as the identification of the types of capabilities required and of the unit responsible for providing them. These timelines vary, depending on whether the requirement for capabilities is known well ahead of mobilization—a rotational, or preplanned, requirement—or, conversely, is emergent. Rotational or preplanned requirements: AFSOC must provide the reserve component with a request for particular capabilities at least 330 days prior to the mobilization, to allow ANG or AFR officials to identify the specific individuals who are available to support the request. Air Force guidance communicates the time frames in which reserve component personnel are to receive their mobilization orders. Specifically, AFSOC is required to submit requests to mobilize the ARC to Air Force headquarters to provide the Secretary of the Air Force enough time to approve the request; and then to communicate with ANG and AFR in sufficient time to provide personnel with their mobilization orders at least 180 days prior the start date of rotational or preplanned requirements. Emergent requirements: AFSOC is required to submit requests so that personnel receive notification at least 120 days prior to the mobilization date. In comparison, there are no specific time frames in the guidance for accessing the reserve component through volunteerism. The guidance generally discusses volunteerism as an approach that allows for ARC personnel to quickly respond to requests for forces. AFSOC officials told us that they have observed an increase in requests from ARC units to use involuntary mobilizations rather than rely on the use of volunteerism, and that they anticipate this trend to continue, since involuntary mobilizations afford more predictability than do voluntary deployments. As such, involuntary mobilizations help personnel manage the frequency of time spent away from home and maximize their access to military medical and retirement benefits. Specifically: Managing time away from home: Air Force guidance limits the frequency of involuntary mobilizations for an individual to a standard of five periods of time spent at home for every one period spent involuntarily mobilized. For example, an individual involuntarily mobilized for 90 days would not be available to AFSOC for involuntary mobilization for another 450 days after the individual’s return. This provides ARC personnel with some assurance that they will not deploy again for a specific window of time, unless they volunteer to do so. We have previously reported on challenges faced by DOD in setting policies to establish thresholds and track the total time individual servicemembers may be away from home, including for exercises, training, and deployment. We found that, with the exception of the Navy and U.S. Special Operations Command, the services either were not enforcing or had not established specific and measurable thresholds in their policies. Additionally, we found that DOD lacked reliable data for tracking the total time individual servicemembers spent away from home. We recommended that DOD clarify its policy to include specific and measurable department-wide thresholds and take steps to emphasize the collection of complete and reliable data. DOD concurred with our recommendation. Medical and retirement benefits: Involuntary mobilization can also maximize the window during which personnel receive medical and retirement benefits. All ARC personnel are eligible for benefits up to 180 days prior to their involuntary mobilization or voluntary deployment. However, to receive these benefits the individual must also have been issued mobilization orders identifying the mobilization date or, for a volunteer, the deployment date. As previously discussed, Air Force guidance identifies notification time frames designed to provide ARC personnel involuntarily mobilized to support rotational or preplanned requirements with their orders at least 180 days prior to the mobilization start date. This time frame allows personnel to receive these benefits for the entire time they are potentially eligible. By contrast, personnel who are involuntarily mobilized for emergent requirements are supposed to receive their orders with at least 120 days’ notice, and, according to AFSOC officials, volunteers can receive as little as one week’s notice. As a result, personnel may prefer involuntary mobilization, as it generally results in their receiving military medical and retirement benefits for more time than they would have received them if they had volunteered to deploy. AFSOC Has Mobilization Processes but Faces Difficulties in Providing the ARC with Timely and Reliable Information about Requirements AFSOC has mobilization processes that follow Air Force guidance, but it faces difficulties in implementing these processes. Specifically, we found AFSOC faces challenges in (1) consistently providing ARC units and personnel with timely notifications regarding anticipated demand for their capabilities; (2) coordinating with ANG and AFR commands on potential requirements for ARC capabilities; and (3) sharing reliable information about mission requirements and resources with ARC units and personnel. AFSOC Has Not Always Provided Timely Notification to ARC Units and Personnel The notifications that AFSOC gives ARC units or personnel of anticipated demand for their capabilities generally do not meet the notification time frames associated with involuntary mobilizations for non-emergent requirements, thereby impeding ARC units’ ability to prepare for deployments. Officials at three of the four reserve component units we spoke with told us that AFSOC routinely provides units with limited notice of requirements for capabilities, even though they predominately support preplanned requirements that are known to AFSOC well in advance of their execution. Therefore, the officials stated, AFSOC should have sufficient time to identify and communicate the requirement for ARC capabilities to reserve component units to enable them to meet required time frames (for example, no less than 180 days in the case of non- emergent requirements). However, according to these officials, they routinely receive 90 or fewer days’ notice of when they are expected to provide capabilities for a given requirement. Due to this truncated time frame, the requirement must either be staffed using volunteers or receive approval from the Secretary of Defense to involuntarily mobilize reserve component personnel with limited notice. Receiving limited notification can create challenges for the ARC unit providing the capabilities for AFSOC requirements. For example, officials at one unit we spoke with stated that they requested that AFSOC provide at least 9 months’ notice prior to a mobilization to ensure that personnel received adequate training, because the unit provides a range of specialized capabilities. However, officials stated that what they generally received was 60 to 90 days’ notice, and that within this time frame the unit faced challenges in obtaining access to the equipment needed to train personnel for specific missions. Officials at another unit we spoke with stated that since 2015 they had received 60 or fewer days’ notice for their support of AFSOC requirements, one of which was an involuntary mobilization supporting a non-emergent requirement. An official explained that while AFSOC’s communication of requirements and planning of involuntary mobilizations has improved over time, the unit expects that orders for its next mobilization will be provided with fewer than 180 days’ notice. The official explained that in addition to limiting ARC personnel’s access to medical and retirement benefits, the abbreviated time frames make it difficult for them to coordinate their absences with their civilian employers. AFSOC officials acknowledged that they have been late to notify units in the past and identified this as an area in which they are working to improve. The officials explained that in some instances the late notification is a result of factors outside of AFSOC’s control, such as instances in which the Secretary of Defense’s process for approving requirements is delayed. AFSOC Has Not Always Coordinated Directly with ANG and AFR Commands We identified concerns regarding AFSOC’s practice of communicating directly with reserve component units, rather than formally coordinating with ANG and AFR commands, to develop potential requests for ARC unit capabilities. For example, AFR officials stated that geographic proximity to AFSOC frequently results in one unit’s receiving informal requests from AFSOC for its capabilities. That unit provides remotely piloted aircraft capabilities, which do not require personnel to deploy overseas. Officials explained that AFSOC will contact that unit directly to request capabilities to supplement the active duty personnel completing the same mission, but commonly AFSOC will provide only a few days’ notice prior to the requirement. According to these officials, personnel generally respond to these requests by volunteering with limited advance notice. AFSOC officials stated that communicating informally with the units to determine the availability of their personnel and capabilities enables AFSOC to expedite the identification of personnel potentially available to meet a requirement. However, headquarters officials for both ANG and AFR—who are responsible for identifying the specific personnel available to meet a requirement—stated that these indirect communications impede their ability to strategically manage and appropriately resource units. For example, headquarters AFR officials identified an instance in which changes to a unit’s anticipated contribution to a mission were arranged with the unit, but not with officials at their higher headquarters at the AFR. The requirement was originally for the AFR unit to supplement an active duty unit already providing the capability for AFSOC, but was expanded to require the AFR unit to have sole responsibility for providing part of the capability. The absence of direct communication and formal coordination between AFR headquarters and AFSOC during this expansion led to differing expectations regarding the number of AFR personnel needed to provide the capability required. AFR officials stated that as a result of limited transparency into future requirements for that unit, AFR headquarters did not request the appropriate level of funding for the unit, thereby limiting the resources available to support the requirement. AFSOC officials acknowledged that their use of informal communication with units instead of coordinating with ANG and AFR headquarters is not an ideal approach and could be improved. AFSOC Does Not Always Share Reliable Information about Mission Requirements and Resources We identified concerns regarding the frequency with which AFSOC has changed the information it has communicated to ARC units about anticipated requirements, thereby creating unpredictability and impeding those units’ ability to train for and ultimately provide the capabilities needed to execute those requirements. While requirements may change subject to combatant command needs, AFSOC’s availability to proactively coordinate with both the combatant command and the ARC has been limited. AFSOC officials stated that, due to their limited capacity to manage involuntary mobilizations, they are often dedicating time only to those mobilizations that require urgent attention, as opposed to refining the details of the requirement and coordinating with the units in advance of the mobilization. ARC officials stated that the unpredictability resulting from the changes that occur can introduce challenges to the units’ ability to execute requirements. For example, officials at one unit stated that the location of a previous requirement changed at least three times in the 60 days preceding its involuntary mobilization. Officials explained that changes to the location of the requirement meant that the capabilities required by AFSOC also changed, because the unit provides intelligence, surveillance, and reconnaissance capabilities that need to be supported by specific communications equipment. Depending on the location, this equipment may already be in place, or it may be that the unit must bring it with them. In a different instance, the same unit arrived at a location to provide its intelligence, surveillance, and reconnaissance capabilities and found that the location lacked the communications equipment the unit needed to effectively use its capabilities. Further, ARC officials explained that changes regarding what capabilities are needed can create training challenges unique to the reserve component. ARC unit officials explained that while reserve component personnel maintain a standard level of readiness at all times, deployments may require them to train to a specific skill set to meet a mission requirement. For example, special tactics squadrons supporting AFSOC requirements can support three different mission sets, each of which may require specialized training to prepare for a specific mission, according to unit officials. Given the nature of the reserve component, these personnel have to complete this training during the limited windows of time in which they are called in from their full-time civilian jobs. As a result, the ARC has limited flexibility in responding to changes in training requirements. AFSOC officials acknowledged that the ARC can face challenges in meeting training requirements and that the advanced planning associated with involuntary mobilizations can help ensure that units have enough time to meet training requirements. Other Air Force Entities Use Alternative Approaches to Planning, Coordinating, and Executing Involuntary Mobilizations, but AFSOC Lacks the Organizational Capacity Other Air Force entities that provide ARC capabilities to meet Air Force requirements through mobilization have established alternative approaches to initiating, planning, and coordinating their respective requirements for reserve component capabilities. Specifically, officials from Air Combat Command and Air Mobility Command, which are Air Force components similar to AFSOC regarding mobilization of ARC units, described entities established within their operations departments to coordinate with the ARC when implementing the involuntary mobilization process. These entities each consist of four to five individuals who are tasked on a full-time basis with ensuring that the reserve components are utilized in a predictable manner. The efforts of these entities include coordinating with the ARC to create plans that cover at least 2 years of anticipated rotational and preplanned requirements. While Air Combat Command and Air Mobility Command officials stated that they are responsible for coordinating a larger number of mobilizations than AFSOC coordinates, they noted that all three follow the same Air Force guidance with regard to the involuntary mobilization process. Officials from an ARC personnel recovery unit that supports Air Combat Command missions highlighted the benefits of the predictability that comes from Air Combat Command’s planning efforts. According to those officials, anticipated mobilizations are communicated to them in a schedule that covers a span of 5 years. More than a year before the unit is scheduled to involuntarily mobilize, Air Combat Command communicates the specifics of the requirement for the mission. The officials stated that, in their experience, these details rarely change once they have been communicated to the unit. By contrast, as previously discussed, we spoke with officials from an ARC special tactics squadron that provides AFSOC with capabilities similar to those of the personnel recovery unit described above, who stated that they regularly receive only 60-90 days’ notice prior to being deployed. They stated that they face difficulties in adequately training personnel to provide capabilities within these time frames. AFSOC officials stated that this issue is driven in part by the fact that units coordinate directly with requesting commands to fill their desired requirements. According to AFSOC officials, AFSOC does not have a headquarters entity dedicated to managing the planning, coordination, and execution of reserve component capabilities because, until recently, AFSOC did not use its reserve components to support ongoing missions to the extent that they do today. As a result, it was not considered necessary to have an organizational entity dedicated to managing involuntary mobilizations. Instead, AFSOC assigned the roles and responsibilities associated with initiating, planning, and coordinating ARC mobilizations within its overall process for managing AFSOC’s assignment and allocation of forces. AFSOC and ARC officials stated that under this process, a single individual at AFSOC is responsible for managing the involuntary mobilizations as a secondary duty. AFSOC officials stated that, given the scope of other assigned responsibilities, this individual focuses on managing involuntary mobilizations about half of one day in a work week. According to the officials, having a limited staff dedicated to initiating, planning, and coordinating involuntary mobilizations results in AFSOC’s responding to issues as they become urgent and impedes its ability to utilize the ARC in a predictable and stable manner. AFSOC officials also stated that the shift to using the ARC to support AFSOC’s steady state requirements, along with the increasing use of involuntary mobilizations to access ARC capabilities, have exposed the limitations of their capacity to manage involuntary mobilizations. These officials added that creating a more robust organizational capacity to manage the involuntary mobilization of the reserve component could counteract some of the challenges they have experienced in providing timely notification to ARC units, directly coordinating with ANG and AFR commands, and identifying and communicating reliable information about requirements to ARC units. AFSOC officials attribute the challenges faced in implementing AFSOC’s involuntary mobilization processes to the absence of adequate capacity to manage involuntary mobilizations. Specifically, they acknowledged that with additional capacity they would be better positioned to undertake the efforts needed to (1) provide more timely notification to ARC units, (2) coordinate with ANG and AFR commands, and (3) increase communication with the commands generating requirements. While officials acknowledged that some last-minute changes are unavoidable, they told us that having more personnel dedicated to AFSOC’s mobilization process could potentially lead to having more timely notifications or better indications of imminent changes. Further, some factors that can affect the involuntary mobilization process fall outside of AFSOC’s control, such as delays in the decision making process at the Secretary of Defense level and changes in combatant commander requirements. Although AFSOC cannot control all factors that affect involuntary mobilization of the ARC, increasing its capacity to manage involuntary mobilizations would improve its ability to anticipate and proactively address the challenges introduced by external factors. AFSOC officials stated that in recognition of this need, the command’s operations center has submitted multiple requests for additional resources to the headquarters in order to create a more robust organizational capacity to manage the involuntary mobilization of the reserve component. For example, the request submitted in January 2019 stated that AFSOC currently does not provide the support and guidance that ARC units need to properly execute the involuntary mobilization process. The request sought one additional full-time position dedicated to managing involuntary mobilizations and coordinating involuntary mobilizations with the ARC. Although AFSOC officials told us that the request was validated by AFSOC leadership, the validation of a request does not ensure that it will receive funding. After competing against other funding requests from other Air Force components, the Financial Management Board did not fund the position in fiscal years 2018 or 2019 because those other requests received higher priority. As an alternative to the full-time position requested by the operations center, AFSOC officials identified ongoing efforts to coordinate with the ANG that would result in the ANG’s allocating personnel to fill a temporary position at AFSOC. The individual in this position would be responsible for supporting the mobilization process. AFSOC officials stated that such an arrangement would help address the capacity challenges they currently face, but also noted that it would be a short-term solution, and highlighted that the individual filling the position would need to be familiar with AFSOC, ANG, and AFR processes to execute his or her duties. In addition, AFSOC officials could consider realigning existing capacity within the command to directly address the limited capacity to manage involuntary mobilizations. However, AFSOC officials emphasized that the command as a whole currently operates with limited capacity. In the absence of the Air Force developing additional AFSOC organizational capacity dedicated to the planning, coordination, and execution of involuntary mobilizations, AFSOC will continue to be impeded in its ability to manage involuntary mobilizations in accordance with Air Force guidance, including providing the notice required to access the ARC through involuntary mobilization in support of preplanned or rotational requirements. Additionally, at its current capacity AFSOC will likely face increasing challenges in providing timely notification to ARC units, coordinating with ANG and AFR commands, and enhancing communication with the commands generating requirements to help solidify mission specifics, as the number of involuntary mobilizations quadruple by 2021, as estimated by AFSOC officials. As a result, units may not be fully prepared to support requirements or able to effectively conduct their mission once in theater. Further, AFSOC will continue to be impeded in coordinating with ANG and AFR commands in a manner that enables the ARC to strategically manage and resource units in support of AFSOC’s requirements. The ARC Does Not Provide Complete Information to AFSOC on Units Available for Mobilization or on Voluntary Deployments The ARC Does Not Have Consolidated Information on Reserve Component Units Available to Support Special Operations Activities While the Air Force’s force-generation model provides the ARC with a 24- month picture of the units it anticipates will be used to meet potential Air Force-wide deployments, the ARC does not have a comparable model with information on which ARC units could be used to support AFSOC requirements for special operations activities. According to officials, the ARC does not have a force-generation model for two reasons. First, while the Air Force model works for Air Force-wide requirements, it does not apply to special operations-specific requirements because they are unique to the Air Force’s special operations component, AFSOC. According to AFSOC officials, their command deploys units and personnel differently from typical Air Force units in order to maximize the number of requirements they can support with a smaller force. Second, the ARC has historically supported special operations activities using volunteerism, which is much more flexible than involuntary mobilization and requires less upfront planning or notification. As a result, ARC officials did not feel the need to develop a force-generation model for special operations requirements. ANG and AFR officials told us that ARC units will sometimes keep a unit-level schedule of their potential deployments, but that information is not available in a consolidated or consistent format. AFSOC officials added that any force-generation model for special operations should consider the limited capacity of some special operations capabilities. Officials stated that some capabilities in the ARC are limited to one unit, which results in AFSOC deploying parts of units rather than the whole unit to cover more requirements. ANG and AFR officials agreed that a force-generation model regarding future deployments could help identify which ARC units would be susceptible to deploy during a given period of time, which would be beneficial for planning ARC deployments. Consolidated information on potential unit deployments would provide units with advanced notification, making it easier to accomplish deployment preparation activities and helping ARC personnel make arrangements for their potential deployments. For example, ANG officials told us that advanced notification to units can give the ARC more time to incorporate needed training into drill training. Furthermore, unit personnel would also have more time to make arrangements with civilian employers or in their personal lives, making their transition to active duty easier and making it more likely that they will view mobilizations favorably in the future. Additionally, these officials stated that, with such a model, ANG and AFR could more easily identify and communicate which ARC units would be available for mobilization to support special operations activities. AFSOC officials stated that, in turn, this could provide AFSOC with more certainty that it would have access to ARC forces when needed. According to ANG and AFR officials, AFSOC officials have expressed some concerns about whether their command will have access to ARC forces. Specifically, since a substantial part of the total Air Force capability resides in the ARC, AFSOC officials are not certain that the capacity of ARC units supporting special operations will be able to meet future requirements. The officials added that by identifying units or individuals susceptible for deployment in advance, AFSOC would have more confidence in the ARC’s ability to support the command’s requirements. According to Air Force guidance, a predictable force-generation model is used to ensure proper force readiness and rapid responses to emerging crises. Specifically, Air Force Instruction 10-401, Air Force Operations Planning and Execution, calls for the Air Force and its components, including the ANG and AFR, to manage the deployment of its forces in order to meet global requirements while maintaining the highest possible level of overall readiness. The instruction calls for the Air Force to accomplish this task by establishing a force-generation model that can be used to manage the rhythm of force deployments to meet global combatant command requirements. The intent of the force-generation model is to establish a predictable, standardized pattern to ensure that forces are properly organized, trained, equipped, and ready to sustain capabilities while rapidly responding to emerging crises. ANG officials told us that they have taken some initial steps to create a force-generation model and consolidate the various unit-level schedules of ARC forces supporting special operations activities. Specifically, the ANG advisor to AFSOC was developing a consolidated schedule of ARC units intended for use by AFSOC to identify ANG units that could mobilize to support AFSOC requirements. However, according to AFSOC officials, the ANG advisor was expected to retire soon, and we found that ANG headquarters officials were not aware of this effort, and there were no plans to institutionalize it. AFR officials were likewise not aware of any similar effort to consolidate schedules for their units’ different capabilities to support special operations activities. Without having a method for providing consolidated information on reserve component units that are available for deployment, the ARC will not have the information it needs to successfully plan its deployments, or easily identify and communicate to AFSOC which of its units are or will be available for mobilization. Furthermore, AFSOC officials may continue to have concerns that they will not have access to high demand ARC capabilities to deploy under a mobilization. The ARC Does Not Have Complete Information on Voluntary Deployments According to officials, although ANG and AFR units have a general understanding as to how many volunteers they have supporting special operations requirements at the unit level, the ANG and AFR lack a mechanism for tracking volunteer deployment rates across the ARC. Specifically, information on reserve components’ volunteer deployments is not available in a form that facilitates tracking in order to understand rates of volunteering or the contributions made by the ARC in supporting special operations activities, according to officials. The Air Force requires the ANG and AFR to track key data to ensure proper management of ARC utilization and mission execution. Specifically, Air Force Instruction 10-301, Managing Operational Utilization Requirements of the Air Reserve Component Forces, calls for the Air Force to identify full mission requirements for ARC utilization by collecting, tracking, and organizing relevant data and prioritizing requirements. It also states that these data are intended to aid in allocating funding, matching units to requirements, executing requirements, assessing each step of the process, and forecasting future requirements. Additionally, Standards for Internal Control in the Federal Government establishes that management should obtain relevant data from reliable internal and external sources in a timely manner to facilitate effective monitoring. ANG and AFR officials told us that voluntary deployments are more difficult to track than are involuntary mobilizations. Specifically, the statutory requirements for involuntarily mobilizing ARC units or personnel make tracking them simpler. For example, according to officials the Secretary of Defense is required to approve or be notified of involuntary mobilizations, and ANG and ARC units receive specific orders, all of which are tracked closely. Voluntary deployments, however, do not have the same approval requirements. Nevertheless, ANG and AFR officials told us that ARC units may have some information, as detailed below, on the numbers of volunteer deployments, although this information provides only a partial picture of volunteerism. Travel System Data: Officials from a reserve component unit we visited reported that some of the information on voluntary deployments could be compiled from travel systems used to send ARC units and personnel overseas. However, these officials added that matching travel records to the volunteer status of individuals could be time-consuming, because the travel systems are not designed to perform this function. Furthermore, unit officials told us that this travel information would be incomplete even if it were compiled, because it would not include units and individuals supporting operational requirements from their home stations—that is, not traveling outside their normal locations. For example, according to unit officials, personnel supporting remote piloted aircraft would not be included in the information collected from the travel systems because they do no travel outside their normal duty stations to carry out their missions. Without travel orders, the system would not show these types of deployments. Unit officials told us that there could be several cases like this one in which the information compiled from the travel system or other sources could be incomplete. Man-Day Estimates: An AFSOC official told us that the system used to track military personnel appropriation man-days could be another source used to track volunteerism among ANG and AFR units. According to this official, AFSOC uses a data system to transfer man- days to the volunteering ARC unit. This official stated that the system used to make these transfers may contain the information needed to track volunteerism, but acknowledged that no one at AFSOC was using the system for this purpose. Furthermore, ANG and AFR officials confirmed that the data system is not currently used for tracking rates of volunteerism among ARC units. According to AFR officials, tracking volunteerism would allow them to more easily document the ARC’s contributions to support special operations and evaluate whether ARC forces were being effectively utilized. Specifically, ANG and AFR officials expressed concerns that different rates of individual volunteerism within and across ARC units may result in a misleading picture of overall unit utilization. In some cases, incomplete data on volunteerism can result in overstating unit contributions. For example, the unit-level figures regarding deployments are actually averages of all the individuals in the unit. Officials expressed concerns that as a result of using averages, units may appear to be more highly utilized than they actually are, due to the high rates at which some individuals from the unit volunteer to deploy. According to ANG and AFR officials, some ARC personnel volunteer at high rates because they prefer the additional income or benefits from these deployments, while other personnel from the same units may prefer to deploy less often. ARC officials expressed concerns that this disparity may not be immediately visible to ARC and AFSOC leadership. AFSOC officials told us that they share some of these concerns. Other officials expressed concerns that without good information on volunteerism rates, the ANG and AFR could not effectively manage operational tempo goals. To measure operational tempo, DOD has established policies relating to how long military personnel are deployed versus at home (referred to as dwell time, or dwell). For example, ARC personnel who deploy for 7 months and are in dwell for 14 months would have a deployment-to-dwell ratio of 1:2. For ARC units, DOD also tracks the mobilization-to-dwell ratio, which is the ratio of how long ARC personnel are involuntarily mobilized versus not mobilized. DOD guidance establishes that the mobilization-to-dwell ratio for ARC units should be 1:5. According to ANG and AFR officials, ARC voluntary deployments are not factored into the dwell calculations for either ratio, making it more difficult to ensure that deployments do not fatigue ARC forces. Additionally, Special Operations Command policy specifies that ARC units supporting special operations should maintain the same deployment cycle as active duty units, which as a goal should be no less than a 1:2 deployment-to- dwell ratio. ANG, AFR, and AFSOC officials agreed that tracking volunteer deployment rates more comprehensively and consistently would provide greater perspective on how ARC units are utilized and help them more effectively manage their operational tempo goals. Officials stated that an additional consequence of having incomplete data on volunteerism is that the overall contributions of the ARC can be understated, because the full range of support that ARC units and personnel are providing is not being documented. For example, a report used by the Air Force to track force contributions from its components, including the ARC, shows that the AFR contributed forces to support special operations activities for about 6 months of an approximately 4- year period. However, according to AFR officials, the command’s contribution to support special operations activities was much higher than what is documented in the report. The officials stated that AFR also provided volunteer support to AFSOC over the entire period but that its contributions are not fully reflected in the report, because volunteers supporting an AFSOC-assigned mission are counted among the contributions made by other active duty forces, rather than by AFR. Without complete information on volunteer deployment rates among reserve component forces, the ANG and AFR may face difficulties in ensuring the effective utilization of their forces to support special operations activities, documenting force contributions from the ARC, and managing operational tempo and deployment-to-dwell goals. Further, the ARC will not have the information it needs to ensure effective management of its force utilization and mission execution. Specifically, it will not be able to determine whether units are being fully utilized, because of the distorted or incomplete volunteerism information. Conclusions With a substantial part of the total Air Force capability residing in the ARC, AFSOC relies on mobilized ARC forces to support its operations. Furthermore, AFSOC’s increasing use of ARC as an operational reserve has highlighted the importance of the ARC’s and AFSOC’s planning and information-sharing efforts. However, AFSOC’s implementation of its mobilization process impedes its ability to provide the ARC with timely notification of mobilizations, coordinate with ANG and AFR commands, and share reliable information about requirements with the ARC. Without resolving AFSOC’s organizational capacity challenge in managing AFSOC requirements for reserve capabilities, AFSOC’s implementation of this process is unlikely to improve. AFSOC’s use of the ARC is also affected by the unavailability of complete information regarding both the units available to mobilize and voluntary deployment rates. Specifically, while the ARC is able to identify the units anticipated to be available to support non-special operations requirements, it does not have a method for communicating consolidated information on the availability of units for special operations requirements. Without such a method, AFSOC and the ARC do not have easily accessible information about the current and future availability of ARC units to support special operations requirements. In addition, voluntary deployments are a key piece of the ARC’s support of AFSOC requirements. However, the ARC has not developed a mechanism for tracking the rate at which they occur. Without tracking volunteer deployment rates, the ARC is limited in its ability both to ensure that its forces are effectively utilized and to communicate the level of contribution made by ARC volunteers in support of special operations requirements. Recommendations for Executive Action We are making three recommendations to DOD: The Secretary of the Air Force, in coordination with ANG and AFR, should ensure that AFSOC has the organizational capacity to effectively initiate, coordinate, and execute ARC mobilizations, to include ensuring timely and reliable notification of requirements to those units. (Recommendation 1) The Secretary of the Air Force should ensure that the ANG and AFR develop a method for providing AFSOC with consolidated information regarding units available for immediate and future mobilizations to support special operations activities, such as the Air Force provides to its units with its force-generation model. (Recommendation 2) The Secretary of the Air Force should ensure that the ANG and AFR develop a mechanism for tracking volunteer deployments to better manage ARC force utilization. (Recommendation 3) Agency Comments In written comments on a draft of this report, DOD concurred with one recommendation and partially concurred with two recommendations. DOD’s comments are restated below and reprinted in appendix I. DOD also provided technical comments, which we incorporated where appropriate. DOD concurred with the first recommendation that the Secretary of the Air Force, in coordination with ANG and AFR, should ensure that AFSOC has the organizational capacity to effectively initiate, coordinate, and execute ARC mobilizations, to include ensuring timely and reliable notification of requirements to those units. In its response, DOD stated that the Air Force continues to balance manning requirements across the spectrum of operations. DOD also stated that fully manning AFSOC for this staff function would be helpful, whether additional manpower is programmed or AFSOC mitigates internally by reallocating manpower. We believe that fully manning AFSOC for this staff function, if fully implemented, would meet the intent of the recommendation. In its comments on this recommendation, DOD also stated that the ARC has a process in place to provide timely notification to ANG and AFR units once requirements are known. The department added that the ANG implemented the Agile ARC Mobilization Process on June 1, 2019, which streamlined policy and procedural chokepoints and improved notification timelines by an average of 60 days. We note that, while improvements in the notification timelines would be beneficial, it is too soon to understand the long-term effect of the implementation of this process. DOD partially concurred with the second recommendation that the Secretary of the Air Force should ensure that the ANG and AFR develop a method for providing AFSOC with consolidated information regarding units available for immediate and future mobilizations to support special operations activities, such as the Air Force provides to its units with its force-generation model. In its comments, DOD stated that the AFR currently provides AFSOC with information on units available, using Reserve Component Periods, and that the AFR will assess whether re- posturing in multiple Reserve Component Periods will provide a portion of capability with greater flexibility. We agree that this is a reasonable approach. However, as we noted in our report, consolidated information on reserve component units that are available for deployment could provide ARC units with advanced notification, making it easier to accomplish deployment preparation activities and help ARC personnel make arrangements for their potential deployments. Additionally, DOD stated that current information technology initiatives with the Air Force Integrated Personnel and Pay System will eventually provide the Air Force with functionality allowing a single, integrated system of software suites. According to the department, Air Force Integrated Personnel and Pay System will support a rapid and accurate information flow from the first identification of a requirement through the processing and delivering of orders, allowing the Air Force to start pay and benefits in an auditable manner. However, DOD did not identify a timeline for when that system would be available. We believe that improvements in the flow of information regarding ARC unit availability are necessary and would help to ensure that the ARC can successfully plan deployments, or easily identify and communicate to AFSOC which of its units are or will be available for mobilization. We believe that if this planned system is implemented as described, it would meet the intent of the recommendation. DOD partially concurred with the third recommendation that the Secretary of the Air Force should ensure that the ANG and AFR develop a mechanism for tracking volunteer deployments to better manage ARC force utilization. In its response, DOD stated that tracking volunteer deployments requires timely information from AFSOC to properly identify the requirements, establish expeditionary ARC units, and document the transaction when ARC members are activated. Further, it stated that in the short term, the AFR will work with AFSOC on further developing use of the Air Force Consolidated Planning Schedule to better define requirements. While coordination with AFSOC could help improve the tracking process, we believe that the ANG and AFR also need to develop a mechanism for tracking volunteer deployments to better manage ARC force utilization. Additionally, DOD noted that the planned information technology initiative, which it described in its response to our second recommendation, could also have benefits for tracking voluntary deployments. We believe that if the planned system is able to fully track voluntary deployments, it would meet the intent of the recommendation. We are sending copies of this report to the appropriate congressional committees; the Secretary of Defense; the Under Secretary for Personnel and Readiness; the Chief of the National Guard Bureau; and the Commanders of Special Operations Command, Air Force Special Operations Command, and Air Force Reserve Command. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-5431, or russellc@gao.gov. Contact points for our respective offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix II. Appendix I: Comments from the Department of Defense Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, individuals who made key contributions to this report include Jim Reynolds, Assistant Director; Adam Anguiano, Tracy Barnes, Adrianne Cline, Shylene Mata, Walter Vance, and Cheryl Weissman.

Over the past decade the Air Force has increasingly relied on the ARC to meet operational requirements. The ARC is composed of two entities—the Air National Guard (ANG) and the Air Force Reserve (AFR)—which together comprise a substantial part of the total Air Force capability. AFSOC relies on either volunteerism or involuntary mobilization to activate ARC units. House Report 115-676, accompanying a bill for the National Defense Authorization Act for Fiscal Year 2019, contains a provision for GAO to assess ANG and AFR involuntary mobilization plans to support special operations. GAO evaluated the extent to which (1) AFSOC's mobilization process provides the ARC with timely and reliable forecasts of planned utilization of units and personnel; and (2) the ARC identifies and communicates information to AFSOC on the units and individuals available for mobilization or on voluntary deployments. The Air Force Special Operation Command's (AFSOC) mobilization process does not fully support Air Reserve Component (ARC) needs for timely and reliable information. While AFSOC has established mobilization processes in line with Air Force guidance, the command faces difficulties, as follows: consistently providing ARC units and personnel with timely notifications regarding anticipated demand for their capabilities; coordinating with ARC commands on potential requirements for ARC capabilities; and sharing reliable information about mission requirements and resources with ARC units and personnel. According to AFSOC officials, these difficulties stem from AFSOC's limited organizational capacity to conduct the planning, coordination, and execution of involuntary mobilizations (that is, ARC units or personnel ordered to active duty). Other Air Force entities that provide ARC capabilities to meet Air Force-wide requirements have established the capacity within their operations departments to coordinate with the ARC when implementing the involuntary mobilization process. AFSOC officials stated that because AFSOC did not, until recently, regularly use involuntary mobilizations to access the ARC, it was not considered necessary to have an organizational entity dedicated to managing involuntary mobilizations. AFSOC officials stated that the command's operations center has submitted requests to its headquarters for additional resources toward creating such organizational capacity, but the requests were not funded in fiscal years 2018 or 2019, as other requests received higher priority. According to officials, AFSOC is currently exploring possible short-term solutions. In the absence of the organizational capacity to conduct the planning, coordination, and execution of involuntary mobilizations, AFSOC will continue to be impeded in providing the notice required to access the ARC in support of requirements. The ARC does not provide AFSOC with complete information regarding which of its units could be used to support AFSOC requirements for special operations activities. The Air Force uses a model that captures and organizes Air Force-wide requirements, but the model does not include special operations requirements, and AFSOC is expected to develop its own processes for its unique requirements. According to AFSOC and ARC officials, the ARC has not developed a method for capturing and organizing special operations requirements because it has historically supported special operations activities using volunteerism, which is more flexible and requires less up-front planning. Consolidated information on potential unit deployments would provide units with advanced notification, facilitating deployment preparation activities and helping personnel make arrangements with civilian employers or in their personal lives. Without a method to provide consolidated information on reserve component units available for deployment, the ARC will not have the information it needs to successfully plan its deployments, or to easily identify which of its units will be available for mobilization.

GAO_GAO-19-589

Background Overview of the FHLBanks The FHLBank System comprises 11 federally chartered banks. The FHLBanks represent 11 districts and are headquartered in Atlanta, Boston, Chicago, Cincinnati, Dallas, Des Moines, Indianapolis, New York City, Pittsburgh, San Francisco, and Topeka (see fig. 1). Each FHLBank is cooperatively owned by its members––such as commercial and community banks, thrifts, credit unions, and insurance companies. As previously noted, the FHLBank System also includes the Office of Finance, which is the fiscal agent for the 11 banks. As of December 31, 2018, the total amount of assets each FHLBank held varied widely, as did the number of member institutions in each district (see table 1). FHLBanks’ Capital Markets Activities FHLBanks primarily obtain funding to provide loans to their member institutions by issuing debt. The Office of Finance (also regulated by FHFA) issues the debt on behalf of the FHLBanks. FHLBanks’ debt products include discount notes (short-term debts) and bonds (short- to long-term debts). The debt transactions can vary in size and be conducted by one or more broker-dealers. Additionally, FHLBanks individually invest in permissible securities, including mortgage-backed securities, which generate additional income for the banks. Broker- dealers are compensated in fees for certain transactions they conduct. Generally, the fees a broker-dealer can earn for capital markets transactions depend on the type of the transactions or the broker-dealer’s role in transactions. The Office of Finance identifies and approves broker-dealers for the banks’ debt issuance transactions, including diverse broker-dealers that are minority-, women-, disabled-, and veteran-owned. As part of its approval process, the Office of Finance assesses the broker-dealers based on their track record in conducting certain debt transactions, and reviews documents including broker-dealers’ audited financial statements, documentation on capital sustainability, legal or regulatory issues, diversity certification, procedures, and any other issues that may affect their eligibility or performance. For investment transactions, the banks approve broker-dealers for their own investment needs according to their own qualification requirements. Similar to the Office of Finance’s requirements, the banks’ qualification requirements can include financial performance and capital requirements. FHFA’s Diversity-Related Requirements and Oversight of FHLBanks To implement requirements in HERA, in December 2010, FHFA issued the Minority and Women Inclusion rule to set forth minimum requirements for FHLBank diversity programs and reporting, as previously noted. Among other things, the 2010 rule required each bank to create its own OMWI or designate an office to perform duties related to the bank’s diversity efforts, and establish policies related to diversity and inclusion, including workforce and business activities (which can include suppliers and broker-dealers used for capital markets activities). The 2010 rule also requires FHLBanks to submit an annual report to FHFA that describes the gender and racial/ethnic composition of the bank’s workforce and of the suppliers and broker-dealers used in business activities and past and future diversity and inclusion efforts in these areas. The 2010 rule also requires the banks to report on businesses owned by individuals with disabilities that enter into contracts with the FHLBank and the number of individuals with a disability or disabilities for certain workforce data, including the number of individuals who separated from the bank and the number of employees promoted. In 2017, FHFA added the requirement for each FHLBank to develop a standalone strategic plan on diversity and inclusion or incorporate a diversity and inclusion plan into their general strategic plan. FHFA conducts annual examinations and off-site monitoring of FHLBanks. FHFA’s examination includes reviewing the banks’ diversity and inclusion efforts, financial reporting, and corporate governance by bank board directors. Our Previous Work on Diversity in the Financial Services Sector We previously reported on diversity in the financial services sector, including FHLBank board governance and board diversity. In 2017, we reported that representation of women and minorities at the management level in the financial services sector showed marginal or no increase during 2007–2015. In a 2015 report on FHLBank board governance, we found that FHFA and FHLBanks had taken steps to increase board diversity, including creating regulations that encouraged the banks to consider diversity in board candidate selection and developing processes to identify and nominate independent directors. In a 2019 report on FHLBank board diversity, we found that since 2015, FHLBanks increased the share of women and minority directors on FHLBank boards, but the banks continued to face challenges in increasing diversity among directors elected from member institutions. We recommended that FHFA, in consultation with FHLBanks, review the banks’ data collection processes for board demographic information and communicate effective practices to banks. FHFA agreed with our recommendation. The agency stated that it planned to engage with FHLBank leadership in 2019 to discuss board data collection issues and explore the feasibility and practicability for FHLBanks to adopt processes that could lead to more complete data on board director demographics. FHLBanks Increased Gender Diversity in Senior Management in 2011–2017 and Reported Taking Steps to Promote Workforce Diversity Across the 11 FHLBanks, the share of women in senior-management positions increased from 2011 to 2017, while the share of minorities remained about the same. In the FHLBank workforce overall, the share of female and minority employees was similar in 2011 and 2017. Individual FHLBanks reported a number of challenges in recruiting and retaining a diverse workforce, including limited hiring opportunities due to low employee turnover and a small workforce and competition for diverse talent from larger and better-known companies. Despite these challenges, banks have been taking steps to help maintain or increase a diverse workforce. Share of Women in Senior Management Increased and Minorities Remained about the Same across the FHLBank System, but Varied by Bank Female representation. The share of women in senior management across all 11 FHLBanks increased by about 7 percentage points from 2011 to 2017 based on the most recently available EEOC data. As shown in figure 2, the percentage of women across 11 banks was about 21 percent in 2011 (35 individuals) and 28 percent in 2017 (47 individuals). While female representation in senior management collectively increased for the 11 FHLBanks from 2011 to 2017, there was substantial variation among the individual banks. We discuss representation at individual banks in more detail later in this section. Six banks increased the share of women in senior management during this time period (ranging from about 10 to 20 percentage points); three banks decreased (from about 6 to 13 percentage points); and the share for two banks did not change. One FHLBank decreased its number of senior-management positions between 2011 and 2017 by reclassifying those positions, while another bank increased the number of senior-management positions through reclassification, according to staff from each bank respectively. Bank staff noted some banks have fewer senior-management positions because they interpret EEOC’s definition of senior management more narrowly, while others have more senior-management positions because they interpret the definition more broadly. These differences could have affected the comparability of the share of women and minorities in senior management among individual banks in the period we reviewed. Also, because of the relatively small number of senior managers at the FHLBanks, a small change in the number of such managers can result in a larger change in the associated percentage. Minority representation. The share of minority senior management across all 11 FHLBanks was approximately 14 percent (23 individuals) in both 2011 and 2017. Five banks increased the share of minority senior management (from about 1 to 23 percentage points); three banks decreased (from about 6 to 13 percentage points); and three banks did not change. Four banks did not have any minorities in senior management in 2017 (see fig. 3). The largest racial/ethnic group among senior management in 2017 was Asian (about 5 percent) followed by African-American and Hispanic (both at about 4 percent). See figure 4. Female and minority representation combined. The combined share of female and minority senior management across 11 banks increased 7 percentage points—from about 32 percent (54 employees) in 2011 to 39 percent (65 employees) in 2017. At individual FHLBanks, the percentage of female and minority senior management increased at seven banks by a range of about 3 to 29 percentage points, decreased at three FHLBanks by about 11 to 13 percentage points, and stayed the same at one bank. While combined female and minority representation increased overall, eight of the 11 banks did not have any female minorities in senior- management positions in 2017 (see fig. 5). Share of Women and Minorities in FHLBank Senior Management Was Similar to That of Financial Services Industry Using EEOC data, we also examined the composition of the senior- management workforce in the financial services industry to determine how FHLBank senior management compares with the broader financial services industry. The percentage of women, minorities, and women and minorities combined in senior management in FHLBanks overall was similar to the corresponding share of senior management in the financial services industry in 2017. Specifically, the respective percentages for the FHLBanks and the financial services industry in 2017 were approximately 28 percent and 30 percent for female senior management; 14 percent and 13 percent for minority senior management; and 39 percent and 38 percent for female and minority senior management. Shares of women and minorities in senior management for individual FHLBanks varied more in comparison with the financial services industry in their districts. Four banks had a higher share of women in senior management than the financial services industry in their respective bank districts (from about 1 to 14 percentage points higher); and seven banks had a lower share (from about 3 to 15 percentage points lower). Five FHLBanks had a higher share of minorities in senior management than the financial services industry in their respective districts (from about 2 to 27 percentage points higher); the other six had a similar or lower share (from about 1 to 8 percentage points lower). Four banks had a higher percentage of women and minorities combined in senior management than the financial service industry in their respective bank districts (from about 7 to 27 percentage points higher), two banks had a modestly lower share (no more than 3 percentage points), and the remaining five banks had a share that was lower by more than 8 percentage points. Share of Female and Minority Employees Overall Did Not Change Significantly in 2011–2017 We also reviewed the representation of women and minorities in the overall FHLBank workforce and for each FHLBank. Although the difference in the share of female and minority employees across 11 FHLBanks in 2011–2017 was not large, both women and minorities were better represented in first- and mid-level management and professional positions than in senior management. Female representation. Across the 11 FHLBanks, the overall share of female employees in 2017 (about 45 percent) was somewhat lower than the share in 2011 (about 47 percent), although the total number of female employees increased from 1,317 in 2011 to 1,355 in 2017 (see fig. 6). In 2017, the share of women in job categories below the senior- management level was higher than the share of women in senior management. Specifically, the share of women in first- and mid-level management positions was about 41 percent and in professional positions about 44 percent, both higher than the percentage of women in senior management (about 28 percent). Employees in these positions can be potential candidates for the banks’ management. Minority representation. The share of racial/ethnic minority employees in the overall FHLBank workforce in 2017 (about 33 percent) was slightly higher than the share in 2011 (about 31 percent), and the number of racial/ethnic minorities increased during this period from 864 employees in 2011 to 1,007 employees in 2017. During this time period, the share of minorities in first- and mid-level management positions increased by approximately 6 percentage points (from about 21 percent in 2011 to 27 percent in 2017); the share of professionals increased by about 3 percentage points (from about 34 percent in 2011 to 37 percent in 2017), and the share of minorities in other job categories, such as administrative, decreased by about 3 percentage points (from about 41 percent in 2011 to 38 percent in 2017). Similar to the share of female employees, the share of minority employees in first- and mid-level management (about 27 percent) and professional positions (about 37 percent) was higher than that for senior management (about 14 percent) in 2017. Among these employees in 2017, Asians accounted for the largest share (about 16 percent), followed by African-Americans (about 11 percent) and Hispanics (about 5 percent), as shown in figure 7. Female and minority representation. When looking at the combined representation of women and minorities in the overall FHLBank workforce, the share of women and minorities was similar in 2011 and 2017 at about 61 percent (1,704 employees in 2011 and 1,847 employees in 2017). The number of female and minority employees increased by 143 (about 8 percent) during this period. Similarly, the number of total employees increased by about 200 (about 8 percent) from 2011 to 2017. At the individual bank level, the share of female and minority employees increased at six banks (from about 1 to 6 percentage points) and decreased at the remaining five banks (from about 2 to 4 percentage points) from 2011 to 2017. In 2017, the percentage of female and minority employees across the 11 banks ranged from about 48 to 77 percent of the workforce at the individual banks (see fig. 8). Share of Women Was Lower among FHLBank Employees Than in the Financial Services Industry and General Population but Share of Minorities Was Similar Women generally were less represented among FHLBank employees than in the financial services industry (overall and by FHLBank district) and in college-educated populations in selected metropolitan areas. Minorities were similarly represented across the categories. First, we compared the representation of women and minorities among FHLBank employees (overall and by bank) with such representation in the financial services industry (overall and by FHLBank district) in 2017 to help determine how similar the FHLBank workforce was to that of other financial institutions. The workforce in the financial service industry can represent a pool of potential employees for the FHLBanks. The share of female employees in FHLBanks overall was about 14 percentage points lower than the corresponding share in the financial services industry (about 45 percent in FHLBanks and 59 percent in the financial services industry) in 2017. Each of the FHLBanks had a lower share of female employees than the financial services industry in the bank’s district (by about 2 to 27 percentage points). The share of racial/ethnic minority employees was about 33 percent across the FHLBanks and the financial services industry in 2017. Six FHLBanks had a similar or higher share of minority employees than the financial services industry in their respective districts (by about 1 to 21 percentage points); the other five had a lower share (by less than 1 percentage point to about 11 percentage points). The combined percentage of female and minority employees across the FHLBanks was about 10 percentage points lower than the corresponding percentage in the financial services industry in 2017 (about 61 percent and 71 percent, respectively). All FHLBanks except one had a lower share in this combined category than the financial services industry in their districts. Second, we compared the share of women and minorities among each FHLBank’s employees in 2017 with the population with at least a bachelor’s degree in the metropolitan statistical areas associated with each bank’s headquarters city in 2018 (see table 2). This population can provide potential employees for the banks’ workforce. The percentage of female employees in seven banks was lower than the estimated share of females with at least a bachelor’s degree in their respective metropolitan areas (smaller than the lower end of the range of the estimated percentage for each area). For the remaining four banks, the share of female employees was similar to that of the estimated share for their respective metropolitan areas (within the range of the estimated percentage for each area). The percentage of minority employees in nine banks was similar to the estimated share of minorities in the population in the respective metropolitan areas around each bank’s headquarters. In two banks, the share of minority employees exceeded the corresponding estimated percentage for this population (larger than the upper end of the range of the estimated percentage for each area). To provide additional context on the demographic composition of the population served by the FHLBanks, we compared the share of female and minority employees at each FHLBank in 2017 with the share of the female and minority population in each bank district (all of which are multistate areas). All FHLBanks except two had a lower share of female employees than the female share of the population in their respective bank districts (by at least 5 percentage points). The percentage of minority employees at one bank was higher than the share of the minority population in its bank district (by about 11 percentage points); the individual percentages at five banks were similar (no more than 3 percentage points difference); and the individual percentages at the remaining five banks were lower by at least 4 percentage points. FHLBanks Reported Some Challenges and Have Been Taking Steps to Help Maintain and Increase a Diverse Workforce FHLBanks Reported Ongoing Challenges to Recruiting and Retaining a Diverse Workforce FHLBanks reported continuing challenges to recruiting and retaining a diverse workforce, including the following: Low turnover rates and small workforce. Staff of four banks said that low turnover rates have limited opportunities for hiring or promoting diverse candidates. For example, the percentage of employees leaving individual banks in 2017 ranged from about 5 to 12 percent. In comparison, the average estimated separation rate for the financial services industry as a whole was about 25 percent in 2017. Additionally, staff of four banks noted that the size of their workforce is relatively small, which also limits opportunities for hiring and promotion. The number of employees in individual FHLBanks ranged from 202 to 462 in 2017 (see table 3). Population in geographic location not diverse. Staff of four banks stated that their geographic location makes it challenging to recruit diverse talent because the population in the area is relatively undiverse. Two banks indicated it can be difficult to attract potential candidates to work in their geographic location. Despite these stated challenges, as we previously noted, the 2017 share of minorities in each bank was similar to or exceeded the 2018 share of minorities with at least a bachelor’s degree in their respective metropolitan areas. Competition for women and minority candidates. Staff of five banks said that competition for diverse talent is high because banks compete with other companies in their districts that are larger or have better brand recognition, such as large investment banks and technology companies. For example, staff of four banks noted that the FHLBanks are not well known compared with these larger organizations. Staff from one bank noted that the compensation the bank offered was lower than that of larger firms—including for internships—which can make it difficult to attract diverse candidates. Staff of two banks also noted that relatively low unemployment rates in their areas mean that diverse candidates have other employment options, making it more challenging to attract such candidates. Difficulty aligning bank needs and requirements with skillsets of diverse candidates. Staff of six banks said that there may be few women or minority candidates who meet specific skill or job requirements. For example, staff of five of these banks noted that it can be challenging to find diverse candidates in certain technical fields, such as information technology. Staff of three banks also noted that diversity in the financial services industry overall is limited, which contributes to a limited pool of diverse candidates. FHLBanks Described Practices They Use to Help Maintain and Increase Workforce Diversity We found that FHLBanks implemented and continue to implement a variety of practices to maintain and increase diversity in their workforces, based on our review of the FHLBanks’ annual Office of Minority and Women Inclusion (OMWI) reports, FHFA examination documents, FHLBank diversity and inclusion strategic plans, and interviews with FHLBank staff from all 11 banks. These practices align with leading practices we previously identified on diversity management. The leading practices can help the banks address some of the challenges described previously and recruit and retain a diverse workforce, which also can contribute to a more diverse pipeline for management positions. Bank leadership commitment to diversity and inclusion. All 11 FHLBanks have implemented practices intended to demonstrate leadership’s commitment to diversity and inclusion, which included the following examples. All 11 FHLBanks include workforce diversity objectives in their diversity and inclusion strategic plans and generally established goals that were quantitative, qualitative, or both related to their workforce diversity programs, based on our review of the banks’ annual reports. Examples of such goals included increasing employee awareness of diversity and inclusion and percentage targets for workforce diversity composition and recruitment. The FHLBanks also incorporate diversity and inclusion into their incentive compensation goals or performance competencies. An example of such goals relates to participation in diversity and inclusion training and other events. All 11 FHLBanks track data on the diversity composition of their workforce; external and internal applicants for open positions, new hires, promotions, and separated employees; and progress in meeting diversity and inclusion goals and objectives. The OMWI officers at all 11 banks report directly to the bank’s chief executive officer/president or the equivalent of the chief operating officer. The board of each bank also receives periodic updates on the bank’s diversity and inclusion efforts. Staff of eight banks said that senior leaders, such as the chief executive officer, express their commitment to diversity and inclusion through participation in internal diversity and inclusion events, in written materials, and by sponsoring employee groups that represent diverse employees. Targeted recruitment. All 11 banks reported several targeted diversity recruitment efforts to increase recognition and build a potential pipeline of diverse employees. For example, all banks conducted outreach to colleges that have diverse student populations, according to banks’ annual reports and staff, and FHFA examination documents. All banks also conducted outreach to local and national professional and other organizations that represent diverse communities. Seven banks indicated that they engage with their communities, such as by participating in community events and volunteer activities, and partnering with community organizations. They noted that these efforts can help enhance their bank’s brand recognition and in turn can help recruit and retain diverse employees. To build a pipeline of diverse employees, all 11 banks offered a college internship program and six banks offered a high school internship or work study program for which they try to recruit diverse candidates. The banks also engaged in efforts to build the potential pipeline of diverse employees in the long term, such as by participating in programs or activities to increase skillsets among young women and minorities in technical or financial services fields. Employee involvement/feedback. All 11 banks described efforts to create a more inclusive environment for employees, according to banks’ annual reports and bank staff. For example, nine banks have an employee resource group or other organization representing employees, and can engage in diversity and inclusion activities, such as professional development and cultural events, according to the banks’ annual reports. Nine banks reported that they conducted employee surveys or meetings to obtain feedback from employees on diversity and inclusion efforts, according to the banks’ annual reports and staff. Staff from one bank told us that when conducting interviews with employees leaving their organization, they include a question specifically on diversity and inclusion to identify potential employee retention practices. Training on diversity and inclusion topics. Ten banks offered training courses on diversity and inclusion topics for all employees, according to the banks’ annual reports and FHFA examination documents. Ten banks hosted events or informal training related to diversity and inclusion, including events sponsored by employee groups, according to bank documents and staff. Development of succession plans that address diversity and inclusion. All 11 banks engaged in succession planning, but FHFA’s 2018 diversity and inclusion examination found that the banks addressed diversity and inclusion in their succession planning to varying degrees. FHFA staff explained that banks should evaluate potential successors on their demonstrated ability to manage diversity and inclusion using performance competencies. Examples of such competencies include assessing candidates on their ability to include diverse groups when making team decisions and supporting the bank’s diversity and inclusion efforts. FHLBanks’ Use of Diverse Suppliers and Broker-Dealers Varied among Banks in 2018, and FHLBanks Implemented Key Diversity Practices FHLBanks Used a New Format for More Consistent Reporting in 2018 and Varied in Their Use of Diverse Suppliers and Broker-Dealers FHFA worked with FHLBanks and developed instructions and templates for more consistent reporting of 2018 data on the banks’ use of diverse suppliers and broker-dealers, including those that are minority- and women-owned. FHLBanks’ use of minority- and women-owned suppliers and broker-dealers in 2018 varied among the banks. Banks also told us there are challenges that may slow or limit their use of diverse suppliers and broker-dealers. They generally implemented key practices to help ensure they consider diverse suppliers and broker-dealers in searches for business partners. Data reporting. Before 2018, FHFA had not issued a standardized data reporting template for FHLBank data on use of diverse suppliers and broker-dealers; therefore, data were not comparable across banks or years. As part of the requirements of FHFA’s 2010 Minority and Women Inclusion regulation, in 2012 the banks and the Office of Finance began reporting data on their business activities with diverse businesses (minority-, women-, and disabled-owned) in the preceding year. However, the data prior to 2018 were not comparable across years and banks because the banks did not use consistent methods or definitions in their data reporting. To develop a common understanding and make the data more consistent, FHFA and the banks began working together in 2017 to develop a data dictionary and data templates. FHLBanks used the new templates to report their 2018 data. Minority- and women-owned suppliers. In 2018, FHLBanks varied in their use of minority- and women-owned suppliers (see fig. 9). The 11 banks entered into more than 2,900 supplier contracts overall in 2018 (ranging from 60 to 477 per bank). Of the total number of contracts, about 10 percent (279 contracts) were with minority-owned suppliers and about 12 percent (340 contracts) were with women-owned suppliers. Among the individual banks, the share of contracts entered into with minority- owned suppliers in 2018 ranged from about 1 percent to 38 percent and from about 4 percent to 25 percent for contracts with women-owned suppliers. In 2018, FHLBanks’ total supplier expenditure was about $453 million, of which about 8 percent and 13 percent, respectively, went to minority- and women-owned suppliers. Among the individual banks, the percentage of the total annual 2018 expenditure that went to minority-owned businesses varied from about 3 percent to 15 percent, and to women-owned businesses from about 2 percent to 31 percent (see fig. 10). According to FHFA staff, annual expenditure paid to suppliers can vary from year to year. More specifically, an increase in a bank’s annual supplier expenditure in any one year is usually related to long-term, large investments made during that year, such as construction costs or investment in technology products and services. FHFA staff noted that these one-time increases in expenditures can provide opportunities to increase the use of diverse suppliers. FHFA staff said bank data showed that for example, in 2018, three FHLBanks each had large one time investments in construction or building maintenance. Diverse broker-dealers in debt transactions. FHLBanks conduct capital markets transactions with broker-dealers that meet certain qualifications (such as capital sustainability and financial performance), including those that have been approved as diverse broker-dealers. As previously mentioned, these transactions include debt issuance and investments. The Office of Finance acts as an agent to the banks and primarily functions to issue and service all debt transactions. In addition, it identifies and approves broker-dealers for the banks’ debt issuance transactions, including dealers that are minority-, women-, disabled-, and veteran-owned. As of December 31, 2018, the Office of Finance had 64 approved broker- dealers, 16 of which were diverse broker-dealers, including seven minority-owned and five women-owned firms. In 2019, the Office of Finance added two additional diverse broker-dealers, one minority-owned and one disabled veteran-owned, bringing the total to 18. This represents an increase in the number of approved diverse broker-dealers from 10 in 2014 (see table 4). A total of 69 broker-dealers conducted at least one debt transaction with the Office of Finance in 2018. Ten percent of these broker-dealers were minority-owned and 7 percent were women-owned. In 2018, FHLBanks issued about $8 trillion in debt transactions. Of this total volume, approximately 3 percent of transactions were conducted with minority-owned broker-dealers and less than 1 percent with women- owned broker-dealers. Similarly, minority-owned broker-dealers received approximately 5 percent of the fees paid to broker-dealers overall on these transactions, and women-owned broker-dealers received approximately 0.5 percent. While the Office of Finance reports debt volume data and other data, such as number of transactions conducted by diverse broker-dealers, to FHFA, staff noted that they also use two other performance goals to measure their capital markets diversity efforts. These two goals are the utilization of diverse broker-dealers in debt issuance programs and the number of outreach engagements with diverse broker-dealers (such as marketing and investor meetings). According to Office of Finance staff, as of June 2019, diverse broker- dealers had the opportunity to participate in all FHLBank debt issuance programs. However, as discussed later, some practices that the Office of Finance implements to control risk may limit diverse broker-dealers from taking a more substantial role in certain types of transactions. Diverse broker-dealers in investment transactions. FHLBanks make investments based on their investment needs and identify and approve broker-dealers for their investment needs according to their own qualification requirements. As shown in figure 11, the number of minority- owned broker-dealers approved by the FHLBanks ranged from five to 12, and the number of approved women-owned broker-dealers ranged from one to seven as of December 2018. Of the total number of broker-dealers that conducted at least one investment transaction with FHLBanks in 2018, the share of minority- or women-owned broker-dealers varied among banks (see fig. 12). Of the 10 banks that made investment transactions in 2018, shares for individual banks ranged from 0 percent to about 22 percent for minority-owned broker-dealers and from 0 percent to 10 percent for women-owned broker-dealers. In 2018, FHLBanks conducted about $12 trillion in investment transactions, less than 1 percent of which was conducted with minority- owned broker-dealers or with women-owned broker-dealers. Of the total number of transactions conducted by the banks, minority-owned dealers and women-owned dealers each accounted for less than 1 percent. FHLBanks Described Challenges That May Slow or Limit Their Use of Diverse Suppliers and Broker-Dealers FHLBank staff reported some challenges that may slow or limit their use of diverse suppliers and broker-dealers, such as those owned by minorities, women, and individuals with a disability. For example, staff from seven banks said that the bank’s needs for goods and services are small or can fluctuate from year to year. Staff from two banks added that this can make it difficult to consistently increase or maintain the use of diverse suppliers. For example, staff from one bank described a building construction project that increased the use of diverse suppliers during the year in which the construction took place, but had no effect in the subsequent year because construction had been completed. In addition, staff from five banks said some bank procurement needs are fulfilled by continuing contracts with existing vendors. For example, staff from two banks said that some bank needs, such as existing information system support, are offered by continuing suppliers that may not be diverse suppliers. Additionally, staff from five banks said that there are not always diverse suppliers that can meet the bank’s needs. For instance, staff from one bank said it can be difficult to find diverse suppliers to fill some contracting needs that require specific skills or expertise, such as the vendors used to review technical risk-assessment models. FHLBank staff also reported challenges that may slow or limit their use of diverse broker-dealers. For example, staff from six banks and the Office of Finance said that diverse broker-dealers often do not have the level of capital required by the banks to make the capital markets transactions the banks need. Staff from five banks said this is because diverse broker- dealers generally are smaller firms. In addition, staff from seven banks said that diverse broker-dealers may be limited in the services and products they can offer the banks. For example, staff from one bank told us that some diverse broker-dealers have fewer financial resources, which limits them to basic transactions as opposed to more complex transactions. Staff from six banks also said that their capital markets transactions are dependent on membership needs or market conditions for funding, which can lead to year-by-year fluctuations in transaction levels. Staff from four banks said that the fluctuations affect the bank’s need for broker-dealers overall, and make it challenging for the bank to maintain or increase use of diverse broker-dealers. Office of Finance staff also noted this challenge, adding that many factors, such as underwriting capacity and experience, may affect a broker-dealer’s ability and desire to participate in the FHLBanks’ debt issuance programs. Staff further said that individual broker-dealers are responsible for identifying investors to be able to participate in debt transactions; the Office of Finance cannot control whether a broker-dealer can identify an investor. FHLBanks Generally Implemented Key Practices That Can Help Ensure They Consider Qualified Diverse Businesses We previously identified key practices for increasing opportunities for minority- and women-owned asset managers. We found these practices can be applied to diverse suppliers and broker-dealers and used by organizations, such as FHLBanks, to help ensure they consider qualified diverse suppliers and broker-dealers in their selection process. Diverse suppliers and broker-dealers include businesses owned by minorities, women, and individuals with a disability. The key practices are Demonstrate top leadership commitment: Demonstrate commitment to increasing opportunities for diverse businesses. Conduct outreach: Conduct outreach to inform diverse businesses about opportunities and the selection processes. Communicate priorities and expectations: Explicitly communicate priorities and expectations about inclusive practices to staff and ensure those expectations are met. Remove potential barriers: Review policies and practices to remove barriers that limit the participation of diverse businesses. FHLBanks Implemented Key Practices for Supplier Diversity We found that FHLBanks generally implemented the four key practices in their supplier management programs, based on our review of the FHLBanks’ 2017 and 2018 annual OMWI reports and interviews with OMWI staff from all 11 banks, and with bank staff with responsibility for vendor management. Demonstrate top leadership commitment. The FHLBanks demonstrated top leadership commitment to supplier diversity through strategic plans, goals, and reporting. All 11 FHLBanks include supplier diversity as a component of their diversity and inclusion strategic plans. In addition, the banks generally established quantitative or qualitative goals related to their supplier diversity programs; for example, the percentage of total expenditure with diverse suppliers. FHFA told us that they have been working with the banks to assess these goals and ensure they are outcome-based. Furthermore, the 11 banks track their progress in meeting diversity and inclusion objectives and goals. Each FHLBank’s OMWI director reports to the bank’s chief executive officer/president or the equivalent of the chief operating officer. The FHLBank boards also receive periodic updates on the bank’s diversity and inclusion efforts. Conduct outreach. FHLBanks use a variety of methods to reach potential diverse suppliers. All 11 banks work with local or national industry organizations, such as the National Minority Supplier Development Council and Women’s Business Enterprise National Council, to identify potential suppliers. Nine banks described attending events hosted by these organizations, such as matchmaking sessions or business fairs, and at least two banks reported using their databases to search for diverse suppliers. Staff from seven banks said that they proactively meet with potential vendors to educate them on bank needs and processes. Staff from one bank said they have invited a number of diverse vendors to the bank to meet bank managers and discuss their goods and services. This has resulted in contract proposals from five different diverse vendors. Staff from five banks also described using advertising and social media to reach a broad base of potential diverse suppliers; for example, one bank described placing advertisements in publications that target diverse businesses. Communicate priorities and expectations. FHLBanks communicated priorities and expectations on supplier diversity to bank staff through policies and training. All 11 banks have a written policy that outlines the requirements for bank staff to include a diverse supplier in their search whenever the need for a new contract is identified. In addition, all 11 banks conducted staff training on supplier diversity or on their vendor management policy. Remove potential barriers. According to our interviews with external stakeholders knowledgeable about working with diverse suppliers, diverse businesses may face barriers as they seek to obtain contracts. FHLBanks took steps that could ameliorate these barriers. Supplier contracts are often made through existing relationships and networks. Diverse suppliers may not have access to these networks and therefore miss opportunities to apply for contracts. As previously mentioned, FHLBanks conducted targeted recruitment of diverse suppliers. By actively seeking to build relationships with these suppliers, the FHLBanks have been working to address this barrier. The procurement process itself can be complicated and difficult to understand. Smaller diverse businesses may have limited staff and skill to navigate the process. Staff from seven banks have addressed this barrier by conducting one-on-one meetings with potential vendors to walk them through the bank’s procurement processes. Third- Party Certification of Supplier Diversity Status According to the Federal Housing Finance Agency’s (FHFA) 2010 Minority and Women Inclusion regulation, a firm qualifies as a minority- or women-owned business when it is more than 50 percent owned and controlled by one or more minority individuals or women and more than 50 percent of net profit or loss accrues to a member of those groups. Businesses can submit documentation to approved third-party certifiers to obtain a certification of their diversity status. Certifiers then review the documentation and sometimes conduct site visits to confirm the diversity status of the business. The process to certify as a diverse business with a third party can be confusing or costly, according to two external stakeholders we interviewed. The preambles to the 2010 Minority and Women Inclusion rule and its 2017 amendments state that while FHFA prefers reliance on certifications from qualified, independent third parties, FHFA also allows for reliance on self-certifications by the businesses. The FHLBanks each confirmed that they allow businesses to self- certify their diversity status. A small diverse supplier may not be able to fulfill a large contract requiring multiple services. An external stakeholder we interviewed told us that this barrier can be overcome when diverse suppliers join forces to fulfill multipart contracts. For example, a supplier that provides pens can join with a supplier that provides paper to fulfill a single office supplies contract. To do this, suppliers need advance notice of bank needs to create a business plan. Three banks told us that before meeting with potential suppliers, they work with various business departments in the bank to identify upcoming purchasing needs and share those with the suppliers. All 11 banks have a representative on the systemwide OMWI Council Procurement Sub-Working Group, which meets monthly. The subgroup spent the majority of 2017 addressing the challenge of FHFA data reporting. An OMWI Council representative told us that the members use the subgroup as forum to discuss key issues. In addition, the representative said the subgroup plans to focus on improving its outreach efforts in 2019. Two banks reported that they hold internal meetings to discuss trends and potential barriers and make updates to their supplier diversity program. FHLBanks Implemented Key Practices for Broker- Dealer Diversity We found that the FHLBanks and the Office of Finance generally implemented the four key practices for their capital markets programs, based on our review of the FHLBanks’ 2017 and 2018 annual OMWI reports and interviews with OMWI staff from all 11 banks, the Office of Finance, and with bank staff with responsibility for capital market activities. Demonstrate top leadership commitment. Similar to the banks’ supplier management programs, FHLBanks demonstrated top leadership commitment to capital markets diversity through strategic plans, goals, and reporting. All 11 FHLBanks and the Office of Finance include capital markets diversity as a component of their diversity and inclusion strategic plans. They also generally established quantitative or qualitative goals related to their capital markets diversity programs, such as the percentage of transactions conducted with diverse broker-dealers. The 11 banks and the Office of Finance track their progress in meeting diversity and inclusion objectives and goals. In addition, the OMWI director reports to the chief executive officer/president or the equivalent of the chief operating officer. The FHLBank and the Office of Finance boards also receive periodic updates on the bank’s and the Office of Finance’s diversity and inclusion efforts, respectively. Conduct outreach. FHLBanks and the Office of Finance interacted with diverse broker-dealers through regular communication and face-to-face meetings. Staff from all 11 banks and the Office of Finance reported some form of regular communication with diverse broker-dealers to keep the broker-dealers informed on bank capital markets activities and needs. In addition, all 11 banks and the Office of Finance reported attending events to interact with diverse broker-dealers. For example, on behalf of the OMWI Council Capital Markets Subgroup, the FHLBank of New York hosts an annual Diverse Dealer Reception at which the banks and the Office of Finance can interact with current approved diverse broker- dealers and those in the pipeline for potential approval. At the 2017 reception, diverse broker-dealers were provided with contact information for all capital market staff in the FHLBank System and a brochure listing examples of ways diverse broker-dealers could engage with the system. Staff from all 11 banks and the Office of Finance also told us they hold one-on-one meetings with diverse broker-dealers to explain bank processes and needs. In addition, Office of Finance staff told us they help diverse broker-dealers build relationships with investors by accompanying them to one-on-one meetings with investors to introduce FHLBank securities products. Communicate priorities and expectations. FHLBanks communicate priorities and expectations on capital markets diversity to bank staff through policies and by sharing practices systemwide. Ten of the banks and the Office of Finance have a written policy or procedure related to the use of diverse broker-dealers, which outlines the importance of engagement with diverse broker-dealers or how bank staff should interact with them. The OMWI Council Capital Markets Subgroup also developed a list of aspirational practices for the 11 banks. These practices include many activities related to the four key practices we identified, such as engaging in regular communication and periodically examining capital market operations to identify potential obstacles to increasing business with diverse broker-dealers. Staff from one bank told us that having the practices codified in a document helps ensure consistent expectations across the system. Remove potential barriers. FHLBanks and the Office of Finance made changes to their capital markets practices and certain features of their debt products to increase access for diverse broker-dealers. For example, the Office of Finance, with input from the OMWI Council Capital Markets Subgroup, reduced the capital requirements on some types of debt transactions to bring in more diverse broker-dealers. The Office of Finance also told us that in the case of a new type of debt product created in November 2018, they allow multiple broker-dealers to participate in various roles, including diverse broker-dealers. However, FHFA staff told us that although the FHLBanks and the Office of Finance made changes to debt and investment products offered to diverse dealers, the banks and the Office of Finance have not always used a systematic process to review and evaluate debt and investment policies and procedures for potential changes that may expand participation by diverse broker-dealers. In 2017 and 2018, FHFA asked the banks and the Office of Finance, respectively, to develop such a process to facilitate opportunities for diverse broker-dealers. FHFA determined that 10 banks had addressed this request. FHFA staff noted that they will review the remaining entities’ progress in addressing this request in 2019 examinations. In addition, each bank and the Office of Finance has a representative on the systemwide OMWI Council Capital Markets Subgroup. According to staff from four banks, the subgroup’s monthly meetings provide them with an opportunity to discuss barriers and practices. In 2018, the subgroup administered a survey to the approved diverse broker-dealers to solicit suggestions and feedback on their interactions with the banks. Bank staff told us the survey did not result in any program changes, but provided information on how they could communicate more effectively. However, diverse broker-dealers still may face barriers in some areas, according to three diverse broker-dealers and two industry stakeholders, with whom we spoke. The Office of Finance has been taking steps to address these barriers where possible. Some practices that the Office of Finance implements to control risk can limit diverse broker-dealers from taking a more substantial role in transactions associated with certain debt products. For example, according to Office of Finance staff, only the top eight broker-dealers (ranked by the Office of Finance based on performance) can lead transactions for certain longer-term and larger-size debt products. Two diverse broker-dealers told us this requirement limits their ability to participate in these transactions. For example, one broker-dealer told us that because diverse broker-dealers generally are newer firms with less capacity relative to the top eight broker-dealers, it would be unlikely that they would ever be one of the top eight. Office of Finance staff told us these products accounted for less than 1 percent of the FHLBank’s total debt issuance in 2018 based on net proceeds received. According to the Office of Finance, they rely on these top eight broker-dealers because they can better cover any risk posed by the transactions. The Office of Finance allows diverse broker-dealers to serve as co-managers on these larger transactions, but diverse broker-dealers told us that acting as a co-manager did not noticeably increase the share of transactions they could execute or their own fee revenue. Staff from the Office of Finance said the office does not implement quotas as a way to maintain or increase the use of diverse broker- dealers, but rather focuses on providing diverse broker-dealers with opportunities and on implementing outreach opportunities. According to these staff, the percentage of transactions conducted and fees received by diverse broker-dealers as a whole has increased over time. The Office of Finance told us they recently met with diverse broker- dealers about another risk-management practice that may limit the participation of diverse broker-dealers. According to Office of Finance staff, this practice requires broker-dealers to have at least $100 million in capital to conduct certain complex debt transactions. According to external stakeholders, a higher capital requirement may limit the participation of diverse broker-dealers, who generally have less capital, in these transactions. Staff from the Office of Finance said that they have been evaluating whether it is appropriate to modify the requirement. Their evaluation is part of the office’s continual process to evaluate debt issuance programs. Three diverse broker-dealers and one industry stakeholder we interviewed said that increased transparency by FHLBanks and the Office of Finance in information provided to broker-dealers could help diverse broker-dealers identify opportunities and better understand the banks’ needs. For example, one diverse broker-dealer and one industry stakeholder said that access to information on the fees paid to broker-dealers on different types of capital markets transactions could help them take advantage of areas of greater opportunity. This information is reported by the Office of Finance and FHLBanks to FHFA, but generally is not released publicly. The preamble of FHFA’s Minority and Women Inclusion rule notes that FHFA treats this information as confidential because it can affect the agency’s oversight of the banks. However, FHFA does not prohibit FHLBanks and the Office of Finance from publishing their diversity information if they so choose. Office of Finance staff told us that they do not publish data on fees or broker-dealer transactions for certain debt product because they consider this proprietary and competitive information. They said publishing the data could increase the leverage of broker- dealers and also could lead to an adverse impact on investor participation and support. FHFA Oversight of FHLBanks’ Diversity and Inclusion Efforts Includes Conducting Examinations and Reviewing Bank Data FHFA’s oversight of FHLBanks includes annual examinations, development of instructions and templates to improve data quality, incorporation of bank data in oversight, and communication of agency expectations for diversity and inclusion efforts to the banks through various mechanisms. Began examining FHLBanks’ diversity and inclusion efforts in 2017. In 2017, FHFA started reviewing FHLBanks’ diversity and inclusion efforts in its annual examinations of the banks. FHFA developed a separate examination module (to add to its examination manual) in 2016 for reviewing the banks’ diversity and inclusion efforts and the banks’ oversight of these efforts. The areas that FHFA reviews include strategic planning and associated goals for diversity and inclusion, board oversight, organizational structure of diversity and inclusion programs, workforce, suppliers (which encompasses broker-dealers in the capital markets program), reporting structure and processes, and internal audit and compliance. In the 2017 and 2018 examinations, FHFA found the banks generally took steps to promote and maintain diversity and inclusion in their workforce and use of diverse suppliers and broker-dealers. FHFA also identified some areas for improvement. Specifically, in the 2017 examinations, FHFA recommended that all 11 banks improve their reporting and program goals on workforce diversity and use of diverse suppliers and broker-dealers. For example, FHFA specifically found that six banks needed to improve performance measurement of their supplier diversity goals. In the 2018 examinations, FHFA recommended that seven banks enhance their succession planning to ensure that potential successors are assessed on how well they manage and implement diversity and inclusion. As previously discussed, FHFA also asked FHLBanks and the Office of Finance to develop a more systematic process to review and determine potential changes to their debt and investment policies that could expand participation by diverse broker-dealers. Based on our review of FHFA’s examination documentation, FHFA followed its processes to document, communicate, and resolve examination findings related to diversity and inclusion in its 2017 and 2018 examinations. For example, FHFA examiners prepared memorandums to document the assessment and findings of each individual bank’s diversity and inclusion efforts and communicated findings to bank management and boards. Consistent with the examination manual, FHFA followed up on 2017 examination findings and banks’ remediation actions during the 2018 examinations. As of March 2019, FHFA determined that 10 banks satisfactorily remediated findings from the 2017 examination related to goals and reporting issues, among other things. For the remaining bank, management has not completed all remediation steps to address FHFA’s examination findings, according to FHFA staff. FHFA staff added that they will review the bank’s actions again in the 2019 examination and assess the banks’ progress in addressing the 2018 examination findings. According to FHFA staff, they plan to make some changes to the diversity and inclusion examination module. For example, in the module FHFA plans to more explicitly separate the information on the review of diversity efforts related to use of diverse broker-dealers from use of diverse suppliers (they are currently under one examination component). Developed instructions and templates to improve data quality. To enhance the quality of the data and information submitted by FHLBanks on their workforce diversity and use of diverse suppliers and broker- dealers, FHFA worked with FHLBanks and developed instructions and templates to help FHLBanks submit more consistent data on a quarterly basis. During 2018, FHFA requested that banks submit quarterly diversity data on their workforce and the use of diverse suppliers and broker- dealers. FHFA also developed a data reporting manual that includes a data dictionary, and templates for the quarterly and annual data and for the annual report to help FHLBanks more consistently report diversity data for their workforces and use of diverse suppliers and broker-dealers. FHFA staff told us that they reviewed the banks’ 2018 data to identify any discrepancies, and they worked with the banks to clarify data definitions and correct the discrepancies. For example, some banks had used an incorrect definition to account for their diverse supplier expenditures. Because 2018 was the first year in which the banks used the new templates, FHFA staff said they had expected some discrepancies in the data as the banks became familiar with the data definitions. Staff said FHFA plans to continue to work with the banks to help them achieve a common understanding of the data definitions. Incorporated bank data in oversight. According to FHFA staff, in 2018 they began to use the banks’ quarterly data for ongoing monitoring of the banks’ diversity and inclusion efforts in workforce, procurement, and capital markets. For example, the FHFA OMWI office assesses each bank’s diversity performance in these three areas using the quarterly data, and has been considering developing benchmarks. FHFA staff said the quarterly data provide more detailed information on the banks’ use of diverse businesses; for example, the types of goods or services for which the banks contract with diverse businesses. FHFA staff noted that the additional data not only inform FHFA’s oversight but also can help the banks’ internal reporting on diversity and inclusion efforts. Additionally, FHFA plans to review the banks’ data reporting systems as part of its annual examinations to help ensure banks have the appropriate controls for data reporting. FHFA staff said that the agency expects the banks to establish the appropriate data system to ensure the quality of data reported to FHFA and for internal reporting. Communicated with FHLBanks, including on data templates and expectations. FHFA provided clarification on the roles and duties of the banks’ OMWI officers and the scope of diversity regulations. FHFA collected the banks’ feedback and responded to questions on the new quarterly data reporting and the new data instructions and templates. Subsequently, FHFA modified the data templates in 2019 to allow the banks to more efficiently report their diversity data on a quarterly and annual basis. For example, FHFA consolidated data fields common to quarterly and annual reporting, among other things. Additionally, FHFA provided responses to the banks on their questions on the data and annual report templates when the templates were first introduced in 2018 and revised in 2019. FHFA staff said the annual report template helped clarify FHFA’s expectation on annual report content. In addition, FHFA staff noted that since 2015, FHFA’s OMWI director has met with the bank presidents and board of directors of most of the FHLBanks, and began in 2018 to have at least one visit for each bank every other year. The FHFA OMWI director also generally attends the semi-annual conferences of the banks’ OMWI officers, during which she has the opportunity to meet with the banks’ presidents individually. During these meetings, the OMWI director or staff discussed diversity issues such as strategic planning, results of the banks’ annual reports, and examinations. Agency Comments We provided a draft of this report to FHFA, each of the 11 FHLBanks, and the Office of Finance for review and comment. FHFA, six FHLBanks, and the Office of Finance provided technical comments, which we incorporated as appropriate. The other five FHLBanks did not have any comments. 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 to the appropriate congressional committees, the Director of FHFA, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8678 or ortiza@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 I. Appendix I: GAO Contact and Staff Acknowledgments GAO Contact Anna Maria Ortiz, (202) 512-8678, ortiza@gao.gov. Staff Acknowledgments In additional to the individual named above, Kay Kuhlman (Assistant Director), Anna Chung (Analyst in Charge), Meghana Acharya, Laurie Chin, Kaitlan Doying, Jill Lacey, Moon Parks, Barbara Roesmann, Jessica Sandler, and Jena Sinkfield made key contributions to this report.

The FHLBank System consists of 11 regionally based banks that are cooperatively owned by member institutions (such as community banks and credit unions) and of the Office of Finance. The banks, which are regulated by FHFA, provide liquidity for their member institutions to use in support of housing finance and community lending. GAO was asked to review FHLBanks' implementation of diversity and inclusion matters in workforce and business activities (including the use of suppliers and broker-dealers). This report examines (1) trends in gender, race, and ethnicity in FHLBank workforces, and challenges faced and practices used to maintain and increase a diverse workforce; (2) use of minority- and women-owned suppliers and broker-dealers in 2018, and challenges faced and practices used to increase and maintain their use; and (3) FHFA oversight of FHLBank diversity and inclusion efforts. GAO analyzed FHLBank and Equal Employment Opportunity Commission data on the banks' workforce, suppliers, and broker-dealers. GAO also reviewed FHFA and FHLBank policies and regulations and previous GAO work on these issues. GAO interviewed FHFA and FHLBank staff and a nongeneralizable sample of external stakeholders knowledgeable about supplier and broker-dealer diversity. From 2011 to 2017, the share of women in senior management in Federal Home Loan Banks (FHLBank) increased from about 21 percent (35 individuals) to 28 percent (47 individuals). The share of minority senior management remained the same at about 14 percent (23 individuals). The overall share of women employees slightly decreased and minority employees slightly increased during this period, but gender and minority representation varied by individual bank. FHLBanks identified challenges to maintaining and increasing workforce diversity, such as limited hiring opportunities due to low turnover. FHLBanks have been taking steps to promote workforce diversity, such as outreach to organizations that represent women or minorities and incorporation of diversity and inclusion in incentive compensation goals or performance competencies. In 2018, use of minority- and women-owned suppliers (for goods and services) and broker-dealers varied among individual FHLBanks. Overall, minority- and women-owned suppliers accounted for 8 percent and 13 percent of procurement expenditures, respectively. Minority- and women-owned broker-dealers accounted for about 3 percent and less than 1 percent of the debt issuance amount, respectively. FHLBanks and the Office of Finance (which issues debts on behalf of the banks) have been taking steps to increase diversity in these business activities, such as conducting outreach to diverse entities. However, external stakeholders said such suppliers and broker-dealers may continue to face some barriers—for example, capital requirements that limit participation by diverse broker-dealers, which generally have fewer resources. In 2017, the Federal Housing Finance Agency (FHFA) started reviewing the diversity and inclusion efforts of FHLBanks in its annual bank examinations. In the 2017 and 2018 examinations, FHFA found the banks generally took steps to promote diversity and inclusion but also identified areas for improvement, such as improving goals for workforce and supplier diversity. In 2018, FHFA issued a manual and templates for reporting of quarterly and annual diversity data to help ensure consistent reporting of the data. FHFA also began using the quarterly data for ongoing monitoring of the banks' diversity and inclusion efforts.

GAO_GAO-19-439

Background DOD’s acquisition of weapon system programs has been on our High Risk List since 1990 because DOD programs consistently fall short of cost, schedule, and performance expectations. Congress and DOD have long explored ways to curtail these cost, schedule, and performance problems, and both took related actions about a decade ago, with Congress passing the Weapon Systems Acquisition Reform Act of 2009 and DOD implementing its “Better Buying Power” initiatives. The Weapon Systems Acquisition Reform Act of 2009 aimed to improve the organization and procedures of DOD for the acquisition of major weapon systems, for example by revising the certifications that programs were expected to complete before approval for system development start. The new certifications included the need to conduct trade-offs among cost, schedule, and performance objectives and for independent verification of technology maturity. In 2010, DOD started its own acquisition reform initiatives through “Better Buying Power.” These reforms required DOD programs to conduct analyses of program affordability and set cost targets, among other things, which placed cost constraints on programs and encouraged programs to find cost improvements during program execution. These and other reforms championed sound management practices, such as realistic cost estimating, increased use of prototyping, and systems engineering. In 2016, we found that DOD was beginning to decrease the amount of cost growth in its major defense acquisition program portfolio. Despite DOD’s improvements in cost control, however, members of Congress remained concerned that the DOD acquisition process was overly bureaucratic and too slow to deliver capability to the warfighter. Congress enacted numerous additional acquisition-related provisions in the National Defense Authorization Acts for Fiscal Year 2016 and subsequent years that addressed the processes with which DOD and the military departments acquire goods and services and encourage innovation. These provisions addressed a wide range of acquisition issues, such as the: creation of new processes for oversight of major defense acquisition programs; development of streamlined alternative acquisition paths; and changes to DOD’s other transaction authority, which allows DOD to enter into agreements that generally do not follow a standard format or include terms and conditions required in traditional mechanisms, such as contracts or grants. Congress also required that DOD establish a panel in the National Defense Authorization Act for Fiscal Year 2016, referred to as the “Section 809 Panel,” to identify ways to streamline and improve the defense acquisition system. The panel issued its final report in January 2019, which, together with its earlier reports, included a wide range of recommendations aimed at changing the overall structure and operations of defense acquisition. DOD Acquisition Programs and Authorities DOD acquisition policy defines an acquisition program as a directed, funded effort that provides a new, improved, or continuing materiel, weapon, or information system, or a service capability in response to an approved need. DOD Directive 5000.01, The Defense Acquisition System, provides management principles and mandatory policies and procedures for managing all acquisition programs. Oversight levels and procedures for DOD’s acquisition programs are outlined in DOD Instruction 5000.02, Operation of the Defense Acquisition System. Traditionally, defense acquisition programs are classified into acquisition categories based on the value and type of acquisition. DOD’s most costly programs have historically been referred to as major defense acquisition or Acquisition Category I programs. Programs with lower costs are categorized as Acquisition Category II or III programs. The acquisition category of a program can affect oversight levels and procedures, such as what program information and documents are required and who is designated as the milestone decision authority. Among other responsibilities, the milestone decision authority approves entry of an acquisition program into the next phase of the acquisition process and is accountable for cost, schedule, and performance reporting. Overview of DOD Weapon System Decision-Making Processes DOD’s acquisition process includes three major milestones at which program offices provide information to or receive a waiver from the milestone decision authority. The milestone decision authority then makes a decision on whether the program is ready to transition to the next acquisition phase. The milestones normally represent transition points in programs at which there is a marked increase in the funding required for the program. Milestone A is the decision for an acquisition program to enter into the technology maturation and risk reduction phase. Milestone B is the decision to enter the engineering and manufacturing development phase. Milestone C is the decision to enter the production and deployment phase. Programs may start at different milestones depending on the circumstances of the particular program, such as whether the technologies the program plans to use are mature. Some major defense acquisition programs, such as the Marine Corps’ Amphibious Combat Vehicle program and the Navy’s Next Generation Jammer-Mid Band program, entered the acquisition system at milestone A. Other programs, such as the Air Force’s Combat Rescue Helicopter program and the Army’s Armored Multi-Purpose Vehicle program, entered directly at milestone B without having a milestone A because technologies were considered mature by the Office of the Secretary of Defense and an independent review team, respectively. Figure 1 illustrates the key milestones associated with the defense acquisition system. DOD’s acquisition policy encourages tailoring the acquisition process, including tailoring of documentation or information requirements. In previous work, we identified opportunities for DOD to tailor the documentation and oversight needed for major defense acquisition programs. In 2015, we found that 24 acquisition programs we surveyed spent, on average, over 2 years completing up to 49 information requirements for their most recent milestone decision. We found that DOD’s review process was a key factor that influenced the time needed to complete the information requirements. In total, the requirements averaged 5,600 staff days to document, yet acquisition officials considered only about half of the requirements as high value. We recommended that DOD eliminate reviews and information requirements that do not add value or are no longer needed. DOD agreed with both recommendations and took some actions through its Better Buying Power initiatives to streamline documentation and staff reviews. Among the information requirements that acquisition officials considered most valuable were those that support a sound business case. A solid, executable business case provides credible evidence that (1) the warfighter’s needs are valid and that they can best be met with the chosen concept, and (2) the chosen concept can be developed and produced within existing resources—such as technologies, design knowledge, funding, and time. Establishing a sound business case for individual programs depends on disciplined requirements and funding processes, and calls for a realistic assessment of risks and costs; doing otherwise undermines the intent of the business case and increases the risk of cost and schedule overruns and performance shortfalls. The program’s business case typically includes documentation of the capabilities required of the weapon system, the strategy for acquiring the weapon system, sound cost estimates based on independent assessments, and a realistic assessment of technical and schedule risks. DOD Weapon System Acquisition Program Oversight Roles and Responsibilities Several entities at the enterprise level (meaning the Office of the Secretary of Defense, Joint Chiefs of Staff, and Joint Staff) and the military department level play a role in the oversight and budgeting for DOD weapon system acquisition programs. In general, at the enterprise level, the acquisition and budgeting processes are managed by subordinate offices within the Office of the Secretary of Defense. More specifically: The Under Secretary of Defense for Research and Engineering is responsible for establishing policies on and supervising all aspects of defense research and engineering, technology development, technology transition, prototyping, experimentation, and developmental testing activities and programs, including the allocation of resources for defense research and engineering. This organization has a significant role in activities prior to milestone B, but also interacts with major defense acquisition programs throughout their life cycles with regard to technical risks. For major defense acquisition programs, the Under Secretary conducts assessments in areas such as technology maturity, interoperability, and cyber security. The Under Secretary of Defense for Acquisition and Sustainment is responsible for establishing policies on and supervising all matters relating to acquisition (including (1) system design, development, and production; and (2) procurement of goods and services) and sustainment (including logistics, maintenance, and materiel readiness). This organization has certain oversight responsibilities for major defense acquisition programs throughout the acquisition process, such as collecting and distributing performance data. The Under Secretary is the Defense Acquisition Executive and serves as the milestone decision authority for certain major defense acquisition programs. The Director, Cost Assessment and Program Evaluation and the Under Secretary of Defense (Comptroller) manage the annual budget preparation process for acquisition programs. These organizations have cost assessment and budgetary responsibilities, respectively, for major defense acquisition programs leading up to each milestone and once these programs have been fielded. At the military department level, the service acquisition executive, also known as the component acquisition executive, is a civilian official within a military department who is responsible for all acquisition functions within the department and can serve as the milestone decision authority. The following officials serve as the service acquisition executive for the military departments: the Assistant Secretary of the Air Force (Acquisition, Technology, and Logistics) for the Air Force; the Assistant Secretary of the Army (Acquisition, Logistics and Technology) for the Army; and the Assistant Secretary of the Navy (Research, Development and Acquisition) for the Navy and the Marine Corps. Selected Acquisition Oversight Reforms We focused our review on five selected reforms from the National Defense Authorization Acts for Fiscal Years 2016 and 2017. Three of the reforms affect the processes related to DOD’s oversight of major defense acquisition programs, the fourth restructured acquisition oversight functions in the Office of the Secretary of Defense, and the fifth provides alternative acquisition pathways for programs that are not considered major defense acquisition programs and have an objective of being completed within 5 years. Table 1 identifies the source of the five reforms that we reviewed and provides a brief summary of each reform. For additional detail on the statute, amendments, and related DOD guidance we reviewed, see appendix II. DOD Has Made Progress in Implementing Acquisition Oversight Reforms and Efforts to Reorganize Are Ongoing We found that DOD has made progress implementing reforms that have affected the oversight of major defense acquisition programs. Decision- making authority for these programs has been realigned between the Office of the Secretary of Defense and the military departments. In addition, new processes are in place to improve DOD’s consideration of program cost, fielding, and performance goals and assessment of technical risk although questions remain about how they will be implemented. The Office of the Secretary of Defense has also restructured in an effort to increase innovation in the earlier stages of the acquisition process and reduce cost, schedule, and performance risks in later stages. While the restructure has begun to take shape, additional steps remain to be completed, including developing charters and fully staffing new offices. These steps are important to determining how acquisition oversight roles within the Office of the Secretary of Defense— which had been executed by a single office for decades—will be divided and how new offices will be structured to effectively carry out their work. DOD Has Implemented Reforms That Affect the Oversight of Major Defense Acquisition Programs Milestone decision authority for most major defense acquisition programs now resides with the military departments, a reform generally required for programs starting after October 1, 2016 by section 825 of the National Defense Authorization Act for Fiscal Year 2016. According to data from DOD’s Defense Acquisition Visibility Environment system, as of March 2019, milestone decision authority was at the military department level for 80 of 89 major defense acquisition programs. The 80 programs include all six programs that started at milestone B or an equivalent milestone since this reform became effective on October 1, 2016, and 74 other programs that started before the reform became effective. The nine programs retained by the Office of the Secretary of Defense all began prior to the reform becoming effective and include programs that are high risk, joint, or have had significant cost or schedule growth, such as the F-35 Joint Strike Fighter program and the Army’s Integrated Air and Missile Defense program. See appendix III for more information about milestone decision authority, including a list of the major defense acquisition programs as of March 2019 and the milestone decision authority for each. Prior to this reform going into effect, the Under Secretary of Defense for Acquisition, Technology and Logistics within the Office of the Secretary of Defense typically was the milestone decision authority for major defense acquisition programs until they entered the production and deployment phase—that is, for the milestone A, B, and C decisions. The Under Secretary then typically delegated milestone decision authority to the military departments after the milestone C decision. Under the new reform, the Secretary of Defense may designate an alternate milestone decision authority under certain circumstances. For example, the Secretary may determine that the program meets one of several characteristics outlined in statute, such as addressing a joint requirement or the program being critical to a major interagency requirement. There are now substantially more major defense acquisition programs with decision authority at the military department level. This change resulted from both the statutory reform for newly started programs and changes to milestone decision authority for existing programs resulting from a separate review conducted by the Office of the Secretary of Defense after the reform became effective, wherein the military department was designated the milestone decision authority for approximately 20 programs. See figure 2 for trends in the level of milestone decision authority from 2012 to 2019. major defense acquisition program will provide an options matrix to stakeholders including the Under Secretaries of Defense for Research and Engineering and Acquisition and Sustainment, Cost Assessment and Program Evaluation, and the Joint Staff, which must include at least three options that represent differing assumptions about possible solutions, technical risks, cost, schedule, and affordability. gathering and distributing data and lessons learned, and conducting or approving independent cost estimates. These stakeholders must be granted the access necessary to complete independent analysis in their area of responsibility. This analysis will consider aggregated risk regarding technical feasibility, cost, schedule, and affordability, and will be submitted to the milestone decision authority. A goal establishment meeting will be held within 30 days of the program’s analysis of alternatives outbrief and will be co-chaired by the milestone decision authority and Vice Chief of the pertinent military service(s) and supported by the stakeholders identified above. As of March 2019, no programs have held a milestone A since the reform became effective, and no programs have had goals established under the new process. establish a process to develop program cost, fielding, and performance goals for major defense acquisition programs that reach milestone A after October 1, 2017. The statute described the goals as follows: (1) the cost goal is for both procurement unit cost and sustainment cost, (2) the fielding goal is the date for initial operational capability, and (3) the performance goal is for technology maturation, prototyping, and a modular open system approach. DOD issued a policy for the process in November 2018, stating that stakeholders will complete independent analyses in their areas of responsibility to consider the aggregated risk regarding technical feasibility, cost, schedule, and affordability, which will be submitted to the milestone decision authority (typically at the military department level). The policy stated that it applies to all major defense acquisition programs that enter the acquisition process after October 1, 2017, without regard to what milestone initiates the program. The policy also stated that the Office of the Secretary of Defense will have the opportunity to consult with the milestone decision authority on revised goals if the program exceeds its initial cost or fielding goals prior to the next milestone or production decision. DOD acquisition policy already required programs to document objectives for system cost, schedule, and performance in an acquisition program baseline at milestone B and affordability cost goals were to be set at milestone A. Under the new process, fielding and performance goals are established earlier and all three goals (cost, fielding, and performance) are required to be established before funds are obligated for technology development, systems development, or production, rather than being set at specific program milestones. The new process also adds a meeting to review and discuss the goals before they are approved by the milestone decision authority. Officials from the Office of the Under Secretary of Defense for Acquisition and Sustainment told us that this new process is intended to consolidate existing information to inform earlier decisions on which investments the department wants to make. As of March 2019, no major defense acquisition programs have held a milestone A since the statutory requirement became effective, and no major defense acquisition programs have had goals established under the new process. According to officials from the Office of the Under Secretary of Defense for Acquisition and Sustainment, no new programs have been required to have goals established since DOD’s policy for the process was issued in November 2018. These officials told us they rely on the milestone decision authority to notify them when goals need to be established and that the first programs expected to have goals established under the new policy are the Army’s Gator Landmine Replacement Program and the Air Force’s Mk21A Reentry Vehicle. Both programs are slated to go through the process in mid-2019. Independent technical risk assessments. The Under Secretary of Defense for Research and Engineering is now responsible for conducting or approving independent technical risk assessments for major defense acquisition programs prior to milestones A and B and before production decisions. According to DOD’s December 2018 independent technical risk assessment policy, the assessments will consider the full spectrum of technology, engineering, and integration risk, including critical technologies and manufacturing processes, and the potential impacts to cost, schedule, and performance. The reform required the assessments for major defense acquisition programs reaching milestone A after October 1, 2017; no major defense acquisition programs have held a milestone A since that date. DOD policy issued in December 2018 implementing the statute states that the assessments will be conducted for all major defense acquisition programs at each upcoming milestone throughout the acquisition process, effective December 3, 2018. As a result, the assessments will be conducted regardless of whether the program reached milestone A after October 1, 2017. As of March 2019, the Office of the Under Secretary of Defense for Research and Engineering had conducted eight independent technical risk assessments on major defense acquisition programs. One additional assessment on the Infrared Search and Track Block II program was delegated to the Navy to conduct, although the Office of the Under Secretary of Defense for Research and Engineering still approved the assessment. While DOD acquisition guidance previously provided for similar types of assessments, they were not always required to be conducted or approved at the Office of the Secretary of Defense level for all major defense acquisition programs. DOD acquisition guidance previously provided for the Office of the Secretary of Defense to request broad program assessments related to systems engineering, including risk areas, at all milestones for major defense acquisition programs with milestone decision authority at the Office of the Secretary of Defense level. Additionally, all major defense acquisition programs were required to have a separate assessment of critical technology elements prior to entering the system development phase or the production and deployment phase if the system enters the acquisition life cycle after system development. DOD’s December 2018 policy requires that independent technical risk assessments be conducted or approved at the Office of the Secretary of Defense level by the Office of the Under Secretary of Defense for Research and Engineering unless this responsibility is delegated, regardless of the level of the milestone decision authority. Office of the Secretary of Defense Reorganization Is Ongoing and Many Key Leadership Positions Are Not Filled The Office of the Secretary of Defense officially reorganized its acquisition organization on January 31, 2018, in response to Section 901 of the Fiscal Year 2017 National Defense Authorization Act. Under the reorganization, responsibilities of the former Under Secretary of Defense for Acquisition, Technology and Logistics were divided between two new offices—the Under Secretary of Defense for Research and Engineering and the Under Secretary of Defense for Acquisition and Sustainment (see fig. 3 and app. IV for organizational charts). According to the conference report accompanying the legislation, the priorities framing the conference discussions on reorganization included elevating the mission of advancing technology and innovation within DOD, and fostering distinct technology and acquisition cultures. The report further states that the conferees expect that the Under Secretary of Defense for Research and Engineering would take risks, test, and experiment, and have the latitude to fail, as appropriate. Additionally, the report states that the conferees expect the Under Secretary of Defense for Acquisition and Sustainment to focus on timely, cost-effective delivery and sustainment of products and services, and seek to minimize any risks to that objective. It is too early to say whether the goals of the reorganization have been realized. In July 2018, the Deputy Secretary of Defense issued a memorandum outlining the overall organizational structures, roles, and responsibilities of the two new Under Secretary offices. Responsibilities of many prior subordinate offices were realigned to one of the two new Under Secretary offices as part of the reorganization. For example, systems engineering falls under the Under Secretary of Defense for Research and Engineering and contracting policy and oversight falls under the Under Secretary of Defense for Acquisition and Sustainment. New offices or positions were also created during the reorganization. For example, the Office of the Under Secretary of Defense for Research and Engineering created eight assistant director positions to serve as resident experts in strategic technology areas, such as cyber, quantum science, and hypersonics. Similarly, the Office of the Under Secretary of Defense for Acquisition and Sustainment created an Assistant Secretary of Defense for Sustainment. Previously, sustainment activities were spread across several organizations headed by two Assistant Secretaries of Defense. While foundational steps to stand up the two new Under Secretary offices have been taken, as of March 2019, reorganization actions were ongoing in two major areas: completing chartering directives that define the scope of responsibilities for the two new offices and hiring additional people for the new offices, including for several senior leadership positions. Chartering directives: Officials from the Office of the Chief Management Officer originally expected charters for the two offices to be completed by January 2019, but progress has been delayed. According to DOD policy, chartering directives are required to define the scope of functional responsibilities and identify all delegated authorities for the chartered organizations. According to a July 2018 memorandum issued by the Deputy Secretary of Defense, the Chief Management Officer is to oversee the development of the charters. Officials from the Office of the Chief Management Officer stated that they are doing so with significant input from the Under Secretaries of Defense for Research and Engineering and Acquisition and Sustainment. These officials told us that the development of the charters has taken longer than expected because redistributing the responsibilities of a single office into two new offices was complicated due to the number of shared or partially overlapping interests. Officials from the Offices of the Under Secretaries of Defense for Research and Engineering and Acquisition and Sustainment now estimate the charters will be completed in July 2019 after department- wide coordination, though they said that time frame may be optimistic given the challenges to date. These officials also told us they expect that they will need to make additional changes to other existing acquisition policies and guidance to incorporate the new content of the chartering directives once complete. Hiring additional employees: In order to stand up the two newly- created organizations, on February 1, 2018, 516 civilian and military positions from the former Office of the Under Secretary of Defense for Acquisition, Technology and Logistics were divided between the two new Under Secretary offices. Finalizing staffing for both offices has been a gradual process that will not be completed until at least fiscal year 2020 because of the need to: (1) reduce positions to meet statutorily-directed cost-savings objectives; (2) realign positions between the two offices; and (3) hire additional staff. Table 2 provides additional detail on past and expected changes to authorized positions. Both Under Secretaries are still working to staff their offices, with approximately 30 percent of current positions vacant in the Office of the Under Secretary of Defense for Research and Engineering, and 8 percent of current positions vacant in the Office of the Under Secretary of Defense for Acquisition and Sustainment. See figure 4 for the current status of staffing within both offices. Both Under Secretaries have experienced challenges while staffing their offices. For example: The Office of the Under Secretary of Defense for Acquisition and Sustainment has experienced challenges stemming from needing to meet required personnel reductions while also hiring staff to align with the revised priorities from the reorganization. As part of the restructuring, the office will absorb all of the 57 remaining civilian and military position reductions that were originally assigned to the former Office of the Under Secretary of Defense for Acquisition, Technology and Logistics. These reductions will occur during both fiscal years 2019 and 2020. At the same time, officials said they are still working to hire staff with skills in needed areas such as data analytics. Officials said they are leveraging existing authorities such as voluntary early retirement authority and voluntary separation incentive payments to meet their targeted number of authorized positions by the end of fiscal year 2020. Officials from the Office of the Under Secretary of Defense for Research and Engineering said their challenges have primarily been negotiating the appropriate number of positions for the organization and staffing the organization in a timely manner. For example, 13 positions are not currently available to be filled because they will not be transferred from the Office of the Under Secretary of Defense for Acquisition and Sustainment until fiscal year 2020. The officials also stated that there have been delays related to developing new position descriptions, revalidating existing position descriptions, and finding individuals with the right skill sets for positions. Both offices have been delayed in filling key leadership positions. According to officials from these offices, vacant positions include the Deputy Director of Mission Engineering and Integration, the Director of Systems Engineering, and the Principal Director of Defense Pricing and Contracting. Senior officials from both offices told us that they have been unable to fill some vacant senior executive positions since the most recent Secretary of Defense resigned on December 31, 2018. The inability to fill these positions is due to the Office of Personnel Management’s general policy to suspend processing for senior executive service career appointments when an agency head leaves, until a successor is appointed at the agency. As of March 2019, a new Secretary of Defense had yet to be confirmed. Senior level officials also told us that some decisions about structure and staffing may be held up until after these executive positions are filled, but that in the interim, they are moving forward with daily operations and in some instances have other employees acting in those roles. Military Departments Are Using Middle-Tier Acquisition Pathways, but DOD Has Yet to Determine How Certain Aspects of Program Oversight Will Work Military Departments Are Using Middle-Tier Acquisition Pathways to Execute Programs of Varying Costs and Complexity As of March 2019, the military departments had begun using middle-tier acquisition pathways for over 35 rapid prototyping and rapid fielding programs under interim guidance issued by the Under Secretary of Defense for Acquisition and Sustainment and the military departments. However, DOD has yet to determine certain aspects of program oversight, including what information military departments should consider in selecting programs and what metrics and data the Office of the Secretary of Defense and military department leaders should use to assess performance. The Departments of the Air Force, Army, and Navy have begun to execute over 35 unclassified and classified acquisition programs using new acquisition pathways distinct from the traditional DOD acquisition process. Section 804 of the National Defense Authorization Act for Fiscal Year 2016 required DOD to issue guidance establishing two new streamlined acquisition pathways for DOD—rapid prototyping and rapid fielding—under the broader term “middle tier of acquisitions.” According to the Joint Explanatory Statement accompanying the National Defense Authorization Act, the guidance was to create an expedited and streamlined “middle tier” of acquisition programs intended to be completed within 5 years. The Joint Explanatory Statement noted that middle-tier programs would be distinctive from rapid acquisitions that are generally completed within 6 months to 2 years and traditional acquisitions that last much longer than 5 years. Statute lays out more specific intended time frames and expectations for programs using these two pathways: The rapid prototyping pathway is to provide for the use of innovative technologies to rapidly develop fieldable prototypes to demonstrate new capabilities and meet emerging needs. The objective of a rapid prototyping program is to field a prototype that can be demonstrated in an operational environment and provide for a residual operational capability within 5 years of the development of an approved requirement. The rapid fielding pathway is to provide for the use of proven technologies to field production quantities of new or upgraded systems with minimal development required. The objective of a rapid fielding program is to begin production within 6 months and complete fielding within 5 years of the development of an approved requirement. Middle-tier acquisition pathways are distinct from the traditional acquisition system for major defense acquisition programs. These pathways allow for programs to be exempted from the acquisition and requirements processes defined by DOD Directive 5000.01 and the Manual for the Operation of the Joint Capabilities Integration and Development System. The statute does not identify a dollar limit for programs using middle-tier acquisition pathways. Middle-tier programs are typically approved for initiation by the service acquisition executive, although Air Force policy also allows for smaller programs to be initiated by the program executive officer. Table 3 shows the number of unclassified programs initiated by the military departments as of March 2019. The middle-tier programs initiated to date represent a range of products, dollar amounts, and complexity. For example, one of the smaller dollar value programs is an approximately $30 million Navy effort to develop a prototype rocket motor that would support extended ranges for an existing missile. One of the larger dollar value programs is a multibillion dollar Army effort to develop the next generation combat vehicle. The military departments generally require funding these programs through the traditional budget process, using DOD’s existing planning, programming, budgeting, and execution process. Based on estimated program costs reported by the military departments, we found that approximately half of the programs initiated to date would be categorized as major defense acquisition programs if they were not being pursued under a middle-tier pathway. In some cases, such as the Army’s Lower Tier Air and Missile Defense Sensor program, an existing program planned as a major defense acquisition program shifted to a middle-tier acquisition pathway. Appendix V includes a list of middle-tier acquisition programs started by the military departments as of March 2019. DOD Has Issued Interim Guidance, but Has Yet to Determine Certain Aspects of Middle-Tier Program Oversight Although DOD and the military departments have issued interim guidance for using middle-tier acquisition pathways, we found that DOD has not provided department-wide guidance on how certain aspects of program oversight will be conducted. DOD has yet to determine what types of business case information should be submitted to decision makers to help ensure well-informed decisions about program initiation and how program performance will be measured consistently. DOD and the Military Departments Have Each Issued Interim Guidance Section 804 of the National Defense Authorization Act for Fiscal Year 2016 required the Under Secretary of Defense for Acquisition, Technology and Logistics to establish guidance for middle-tier acquisitions. In response, the Under Secretary of Defense for Acquisition and Sustainment issued interim guidance in April 2018 that provided the military departments and other DOD components with the authority to implement middle-tier acquisition programs on an interim basis through September 30, 2019. The guidance laid out the broad purposes and requirements of middle-tier acquisition authorities, and encouraged the military departments and other DOD components using middle-tier acquisition pathways to develop specific implementation processes and procedures to implement the interim authority. Between April 2018 and September 2018, the military departments each issued their own implementing guidance, which provided additional details on how middle- tier programs would be selected and overseen within their department during the period of the interim authority. Subsequently, the Under Secretary of Defense for Acquisition and Sustainment issued two additional interim guidance memorandums: the first in October 2018, which described how the Office of the Secretary of Defense and the Joint Staff would conduct oversight of the military departments’ use of middle-tier acquisition pathways, and the second in March 2019, which addressed sustainment planning considerations for programs using the rapid fielding pathway. The Director, Cost Assessment and Program Evaluation, also issued guidance in April 2019 that included a life-cycle cost estimating policy for programs using the rapid fielding pathway. DOD Guidance Does Not Consistently Identify Business Case Elements to Be Developed and Considered for Program Selection Statute requires that the guidance from the Office of the Secretary of Defense include a “merit-based process” for considering potential middle- tier programs, although the interim guidance does not describe what the process should include or what information should be considered by decision makers to assess merit other than meeting the needs communicated by the Joint Chiefs of Staff and the combatant commanders. Guidance from each of the military departments provides additional detail on the program selection process, to include describing generally the type of information decision makers should consider when selecting programs. Neither the Office of the Secretary of Defense’s guidance nor the military departments’ guidance fully identifies key elements of a business case to be provided as part of the program initiation process. Our past work has shown that in order to make sound decisions about initiating acquisition programs, it is important that decision makers have the information they need to assess the business case, including that (1) the warfighter need exists and that it can best be met with the chosen concept and (2) the concept can be developed and produced within existing resources. Information needed to establish a business case for a traditional acquisition program typically includes a requirements document (which provides information on the capabilities required of the weapon system); the strategy for acquiring the weapon system; sound cost estimates based on independent assessments; and a realistic assessment of risks, including those risks related to technology and schedule. For a middle-tier acquisition program, business case information would help decision makers make well-informed decisions, to include assessing whether the program is likely to meet objectives established in statute to complete a prototype with a residual operational capability (in the case of a rapid prototyping program) or complete fielding (in the case of a rapid fielding program) within 5 years of an approved requirement. Programs using a middle-tier pathway are intended to be completed within 5 years, and guidance may provide for expedited and streamlined procedures. As a result, the appropriate documents to provide business case information for a middle-tier acquisition program may not need to be as detailed as those for a major defense acquisition program. These documents may also vary to some extent depending on whether a program is a rapid prototyping or a rapid fielding program. However, having this type of information available in some form at program initiation can help decision makers to assess the soundness of a program’s business case at the time a decision is made to start a new program. Oversight at this time is critical because, as we have previously reported, program initiation presents the greatest point of leverage in the program life cycle for decision makers. Table 4 provides additional detail about certain types of business case documentation that are to be considered at program initiation for middle-tier acquisition programs according to the Office of the Secretary of Defense and the military departments’ guidance. Section 804 of the National Defense Authorization Act for Fiscal Year 2016 directed the Under Secretary of Defense for Acquisition, Technology and Logistics to establish guidance for middle-tier acquisitions within 180 days of enactment of the statute (which would have been May 2016), but guidance was not issued until April 2018. According to officials who were involved in efforts to develop the guidance, the Office of the Secretary of Defense circulated multiple iterations of draft guidance, but was unable to reach agreement with the military departments because of concerns that the guidance was too burdensome. These officials told us that as a result, the Under Secretary of Defense for Acquisition and Sustainment decided instead to issue broad interim guidance and allow each of the military departments and other DOD components to develop processes and procedures to implement the interim authority. As stated in the Under Secretary of Defense for Acquisition and Sustainment’s April 2018 interim guidance, the Under Secretary of Defense for Acquisition and Sustainment would develop final guidance for the department in 2019 based on lessons learned from the military departments and other DOD components. According to officials from the Office of the Under Secretary of Defense for Acquisition and Sustainment, the Under Secretary began the process in February 2019 to develop this final guidance. The process was in its initial stages as of March 2019 and officials involved told us they hope to complete the final guidance by September 2019. The business case information programs provided to decision makers at initiation varied widely for nine middle-tier acquisition programs we reviewed. We found that certain types of business case information, such as an assessment of schedule risk that would indicate whether a program could realistically be expected to be completed within time frame objectives in statute, were often not completed at the time of program initiation. For example: Six programs had approved requirements at program initiation. Three of these programs had requirements validated through DOD’s traditional requirements process prior to the decision to start under a middle-tier pathway. Two of these programs, both of which were Air Force programs, had previously planned to start as major defense acquisition programs. The third program, an Army program, had requirements based on those approved for an existing major defense acquisition program. The other three of these programs, all of which were Navy programs, had high-level requirements that described, for example, what environments the system should be tested in or what quantity should be fielded. These requirements were approved by the Navy’s Accelerated Acquisition Board of Directors, which includes the Chief of Naval Operations and the Assistant Secretary of the Navy for Research, Development and Acquisition, among other officials. Three programs were still in the process of developing requirements at the time of program initiation. Only one of the nine programs had an approved acquisition strategy at the time of program initiation. Officials from the other programs told us they planned to develop an acquisition strategy or were in the process of developing or updating one. While all nine of the programs had developed at least a draft cost estimate at program initiation, only one of the nine programs had an assessment of its program cost estimate completed by the military department cost agency at the time of program initiation. Officials from three other programs said that an assessment by the military department cost agency was in progress or planned. Officials from the other five programs told us they had developed a draft cost estimate at program initiation that in some cases was still expected to change and that they did not plan for an assessment by the military department cost agency. The programs varied in the extent to which they assessed risk at program initiation. Four programs had risk assessments that addressed schedule and technology risks, which are types of risks we have identified in our previous work as important to understanding a program’s business case. Two other programs had risk assessments that included either schedule or technology risks but not both. Officials from the other three programs stated that they were still in the process of assessing risks and had yet to assess risks related to meeting statutory schedule objectives at the time of program initiation. Without the Office of the Under Secretary of Defense for Acquisition and Sustainment identifying in its final guidance the minimum program information needed to help decision makers evaluate the program’s business case, DOD cannot ensure that the military departments are consistently considering these types of information. As a result, DOD is not well positioned to ensure that approved middle-tier acquisition programs represent sound investments and are likely to meet the objective of delivering prototypes or capability to the warfighter within 5 years. DOD Has Yet to Identify Metrics to Monitor Program Performance in a Consistent Manner The Office of the Secretary of Defense and the military departments generally collect program data but we found that neither the Office of the Secretary of Defense nor the military departments has identified metrics that would allow them to use that data to measure and report on program performance in a consistent manner. Developing such metrics would allow senior leaders in the Office of the Secretary of Defense and the military departments to monitor and assess performance across the portfolio of middle-tier programs during program execution, including whether programs are on track to meet statutory objectives for rapid prototyping and rapid fielding. Table 5 provides additional detail on the extent to which guidance addresses the collection of program data and identification of metrics to measure program performance. The Office of the Secretary of Defense began collecting middle-tier program data from the military departments in November 2018 as part of an effort to ensure that middle-tier authority was being used appropriately within the department. However, the office has yet to determine what metrics it will use to measure program performance consistently across the portfolio. Officials within the Office of the Secretary of Defense who are involved with collecting the data told us that they are still refining what data should be collected, determining how to standardize definitions to improve the consistency of data, and considering how to use the data collected to monitor program execution. For example, they are still trying to determine the appropriate triggers that would allow them to know that a middle-tier program may be experiencing cost or schedule challenges. Similarly, guidance from two of the three military departments requires the collection of program data, but the military departments also have not identified metrics to consistently measure performance across programs. The Navy’s guidance does not require the collection of program data or identify metrics to measure program performance. Interim guidance from the Air Force and the Army requires the collection of program data and also requires programs to develop metrics to measure performance, but these metrics are not required to be consistent across programs. Decisions about specific metrics to be reported are left to the discretion of the decision authority for each program, who is typically the service acquisition executive or a program executive officer. As a result, these metrics may not allow consistent measurement of performance across programs because, for example, programs may have a different starting point for reporting data, or may change the metrics that are being assessed at different points within the life of a program. According to federal internal control standards, the ability of agency management to compare actual performance to planned or expected results throughout the organization and analyze significant differences is important to help ensure that the agency is meeting objectives and addressing risks appropriately. These standards also state that agency management should define objectives in quantitative or qualitative terms to permit reasonably consistent measurement of performance toward those objectives. For middle-tier acquisition programs, statute includes objectives related to fielding time frames for both rapid prototyping and rapid fielding programs. Additionally, for rapid prototyping, part of the objective is that the prototype fielded can be demonstrated in an operational environment and provide for residual operational capability. Middle-tier acquisition programs are to be provided streamlined processes, including for program oversight. Decisions about how to measure program performance therefore should be considered in light of how to facilitate oversight without losing the benefits of the flexibilities offered by middle-tier pathways. However, without the Office of the Under Secretary of Defense for Acquisition and Sustainment identifying in its final guidance a minimum set of metrics that can be used to measure performance of programs across the military departments, DOD risks not knowing how the department’s portfolio of middle-tier programs is progressing, including whether programs are on track to meet statutory objectives for rapid prototyping and rapid fielding. As a result, senior leaders in the Office of the Secretary of Defense and the military departments may lack insight needed to identify and address emerging challenges in a timely manner. This is particularly important given that the portfolio includes complex, costly programs that address important capability gaps for the department. DOD Faces Challenges in Addressing Disagreements about Oversight Roles and Responsibilities, Improving Portfolio Management, and Assessing Effectiveness of Reforms While DOD has made progress implementing individual reforms, it continues to face challenges that affect the implementation of the reforms we reviewed. First, we found that senior DOD leadership has not fully addressed disagreements about the division of acquisition oversight roles and responsibilities between the Office of the Secretary of Defense and the military departments. As a result, there have been continuing differences of opinion about how to implement specific reforms. Second, DOD has yet to address persistent portfolio management challenges that affect its ability to effectively manage its portfolio of weapon system investments. Lastly, DOD has yet to develop processes to assess the effectiveness of recent reforms. Without developing such processes, DOD officials will not be well positioned to assess whether reforms are having the intended effects, such as improving innovation and delivering capability to the warfighter more quickly, or if additional changes are necessary to achieve such outcomes. Top DOD Leadership Has Not Fully Addressed Continuing Disagreements over the Division of Roles and Responsibilities for Acquisition Oversight Top DOD leadership has not fully addressed disagreements that remain about the division of acquisition oversight responsibilities between the Office of the Secretary of Defense and the military departments. Our past work has shown that in times of significant organizational transformation, top leadership must set the direction, pace, and tone for the transformation. Personal involvement of these leaders in driving change, including the Secretary and Deputy Secretary, helps provide stability. Internal control standards for federal agencies also emphasize the importance of management communicating information down and across organizational levels in order to enable personnel to perform key roles in achieving objectives and addressing risks. The Deputy Secretary of Defense has weighed in on the division of acquisition oversight responsibilities within the Office of the Secretary of Defense and has addressed specific roles and responsibilities for certain reforms. However, despite continuing disagreements about the division of oversight roles and responsibilities between the Office of the Secretary of Defense and the military departments, DOD’s top leadership has not provided a detailed framework addressing the appropriate roles of each party for acquisition oversight. Officials from the Office of the Secretary of Defense and the military departments we met with expressed different opinions on the appropriate oversight role of the Office of the Secretary of Defense. For example, the Under Secretaries of Defense for Research and Engineering and Acquisition and Sustainment both stated that in cases where the milestone decision authority is at the military department level, the military departments do not see the value in having the Office of the Secretary of Defense involved. This is consistent with concerns that officials from all three military departments have raised in speaking with us. Specifically, officials from all three departments raised concerns that the Office of the Secretary of Defense is overreaching on its oversight responsibilities in some cases, and creating new oversight processes that contradict the intent of recent reforms to speed up the acquisition process. Implementation of several of the reforms we reviewed has resulted in disagreements between the Office of the Secretary of Defense and the military departments that have yet to be resolved. For example: Cost, fielding, and performance goals. Despite the issuance of policy by the Deputy Secretary of Defense in November 2018 on the establishment of cost, fielding, and performance goals, military department officials have continued to express concerns that the process is too burdensome and involves too many stakeholders from the Office of the Secretary of Defense. These officials stated that Office of the Secretary of Defense involvement in programs with decision authority at the military departments, such as participation in meetings with the milestone decision authority to provide advice on cost, fielding, and performance goals, would slow down programs that other reforms were intended to accelerate. They added that they had expressed these concerns to the Office of the Secretary of Defense during the drafting of the policy, but they did not feel that their input was appropriately considered in the final policy. Officials from the Office of the Under Secretary of Defense for Acquisition and Sustainment stated that the analysis and meetings that involve the Office of the Secretary of Defense are ways for stakeholders to advise the milestone decision authority on program decisions based on information from existing oversight mechanisms, such as independent cost estimates and analyses of alternatives. Previously this type of oversight was conducted via multiple meetings leading up to program milestones. The policy states that the policy procedures will be revisited in 6 months and lessons learned incorporated where needed. Independent technical risk assessments. Debates about who should conduct independent technical risk assessments were elevated to the Deputy Secretary of Defense. Subsequently, the Deputy Secretary issued guidance in December 2018 to reiterate that the Under Secretary of Defense for Research and Engineering would conduct or approve these assessments for all major defense acquisition programs, although that responsibility may be delegated. However, despite the issuance of new guidance, there continue to be ongoing debates about when assessments will be delegated to the military departments. The December 2018 guidance does not include criteria for when responsibility for the assessments may be delegated. Officials from the Office of the Under Secretary of Defense for Research and Engineering said that decisions about whether to delegate assessments should be based primarily on the risk level of the program, but officials from military departments stated that these assessments should be conducted within the military department. Officials from the Office of the Under Secretary of Defense for Research and Engineering told us that they had convened a joint working group with the military departments in February 2019 to address this and other implementation issues related to independent technical risk assessments. In the meantime, nearly all assessments continue to be conducted by the Office of the Under Secretary of Defense for Research and Engineering. Middle-tier acquisition. Office of the Secretary of Defense and military department officials also disagree on the extent to which the Office of the Secretary of Defense should weigh in on the appropriateness of a program using a middle-tier pathway. DOD’s October 2018 interim governance guidance provided that the Office of the Secretary of Defense may determine that specific programs were not appropriate for a middle-tier pathway. However, officials from the Air Force and the Army expressed concerns to us about whether that determination was appropriate to be made by the Office of the Secretary of Defense since, from their perspective, programs should be selected at the military department level. Office of the Secretary of Defense officials also told us that there are differences of opinion between them and the military departments on the appropriate amount of information that programs should report to the Office of the Secretary of Defense, including whether the same information should be provided by all middle-tier programs, regardless of expected program cost. As stated earlier, DOD is in the process of finalizing guidance for middle-tier acquisition programs, which could address these issues. Documents that could outline roles and responsibilities of the various parties for acquisition oversight are still being developed. For example, as discussed earlier, officials from the Offices of the Under Secretaries of Defense for Research and Engineering and Acquisition and Sustainment told us that chartering directives for these offices, which are expected to be completed in July 2019, may address to some extent how the offices should work together and with the military departments and other external organizations. In addition, officials from the Office of the Under Secretary of Defense for Acquisition and Sustainment told us that while reforms are currently being implemented under multiple different polices and guidance documents, DOD Instruction 5000.02 will be substantially revised, including to reflect the latest reforms. When completed, the instruction is expected to provide further detail on how oversight activities will be carried out by various acquisition entities. Officials stated that they hoped to complete a version of the revision of DOD Instruction 5000.02 by the end of 2019, but they acknowledged that this estimate was optimistic and that it might take longer than expected to come to agreement on this policy. Without a comprehensive framework from top leadership in the near term that addresses acquisition oversight roles and responsibilities in detail, DOD’s ability to continue with reform implementation, including its ability to finalize policies that could clarify roles and responsibilities, may be slowed by ongoing disagreements. In the longer term, without resolving these issues, DOD cannot ensure that it is achieving the balance between oversight and accountability and efficient program management that senior leadership expects as an outcome of acquisition reform. With too little oversight, acquisition programs may not be properly scrutinized before they are started, which could lead to poor program cost and schedule outcomes. Alternatively, if new oversight processes are too burdensome, DOD may not achieve the expected benefits of streamlining its acquisition processes. DOD Has Yet to Address Persistent Weapon System Portfolio Management Challenges As part of this review, we also assessed DOD’s efforts to implement our previous portfolio management recommendations and identified opportunities and challenges related to portfolio management that DOD may face as it continues to implement acquisition reforms. Our past work has shown that when investments are not managed as a portfolio at the enterprise level (meaning at the level of the Office of the Secretary of Defense, Joint Chiefs of Staff, and Joint Staff), the military departments plan to acquire more weapons than DOD can afford, sometimes develop potentially duplicative solutions to common needs, and do not always choose an optimal mix of investments to ensure the department can maintain its technological edge in the future. Realigning roles and responsibilities for decisions related to weapon system programs between the Office of the Secretary of Defense and the military departments could lead to further questions about who is ultimately responsible and accountable for portfolio management decisions if leadership roles are not clearly defined. Officials we met with from the Office of the Secretary of Defense told us that questions remain about the division of responsibilities between the Office of the Secretary of Defense and the military departments for making these types of portfolio management decisions. They told us that concerns we had previously identified about the division of decision-making authority for portfolio management had yet to be addressed during the implementation of recent acquisition reforms, and that in some cases, the reforms had led to additional questions. For example, the Under Secretary of Defense for Research and Engineering told us that while the statute that created his position as part of the restructuring of the former Office of the Under Secretary of Defense for Acquisition, Technology and Logistics assigns him responsibility for allocating resources for defense research and engineering, because he does not have control over the research and engineering budget, in actuality the military departments decide how to prioritize their investments. We found in August 2015 that DOD has had difficulty implementing portfolio management at the enterprise level in part due to diffuse decision-making responsibilities that make it difficult to determine who is empowered to make enterprise-level weapon system investment decisions. At that time, we recommended that DOD revise its portfolio management directive in accordance with portfolio management best practices. We also recommended that the Secretary of Defense designate the Deputy Secretary of Defense or some appropriate delegate responsible for the directive’s implementation, among other recommendations. DOD partially concurred with the recommendations, but the planned actions DOD identified at the time of our report did not fully address the issues we identified. For example, DOD stated that it did not plan to revise its portfolio management directive as we recommended, but instead planned to rescind it and direct stakeholders to participate in portfolio management through the requirements, acquisition, and budget processes. In response, we expressed concern that this approach could reinforce the stove-piped governance structure that we found to be an impediment to integrated portfolio management. As of March 2019, DOD had yet to implement our recommendations. An official from the Office of the Under Secretary of Defense for Acquisition and Sustainment told us that DOD is revising its portfolio management directive, but that there was not yet an estimated completion date. We are not making new recommendations on portfolio management in this report, but we continue to believe that DOD should implement our prior recommendations in order to improve its portfolio management capabilities. See appendix VI for additional details on our assessment of DOD’s progress in this area. DOD Has Yet to Develop Processes to Assess the Effectiveness of Acquisition Reforms DOD is beginning to monitor the implementation of certain reforms, but has yet to establish processes to assess the overall effectiveness of its reform efforts. Collectively, the reforms offer the potential for DOD to significantly reduce the time needed to approve and field acquisition programs by allowing the military departments additional opportunities to tailor documents needed for approval and limiting oversight by the Office of the Secretary of Defense. Ultimately, DOD anticipates that this opportunity will improve the speed at which new capabilities are delivered to the warfighter. Our prior work has identified steps that agencies, such as DOD, can take to help ensure successful implementation of reform efforts, including establishing clear outcome-oriented goals and performance measures putting in place processes to collect the needed data and evidence to effectively measure the reforms’ outcome-oriented goals. The Office of the Secretary of Defense has taken some initial steps to collect data that may help to measure the outcomes of a few reforms, but has yet to determine goals or processes for assessing the overall effectiveness of the reforms. For example, as previously discussed, the Office of the Under Secretary of Defense for Acquisition and Sustainment began initial efforts to collect middle-tier acquisition program data, such as cost and schedule data, from the military departments in November 2018. Officials from that office told us that once they address reliability concerns with the data they are receiving, such as ensuring that programs report schedule data in a consistent fashion, they anticipate that they will be able to use the data to better understand the military departments’ use of middle-tier acquisition pathways. However, according to officials we spoke with from the offices of the Under Secretaries of Defense for Research and Engineering and Acquisition and Sustainment, DOD has not determined how it will assess whether the reforms are collectively resulting in an acquisition process that is more efficient or how it will measure their effect on cost and schedule outcomes. These officials told us that it is important to have data to assess the effect of recent acquisition policy and organizational changes, but they have not determined specifically who will do the assessment, how it will be done, and what data will be needed. They told us that as a part of the reorganization of the Office of the Under Secretary of Defense for Acquisition, Technology and Logistics, they are still in the process of assessing data gaps and needs within the newly-formed organizations and that this type of analysis needs to be completed before they determine how they will assess recent reforms. We recognize that assessing the cumulative effect of recent acquisition reforms on the acquisition process and on the cost and schedule performance of the major defense acquisition program portfolio could take several years because a critical mass of programs will need to go through the new acquisition processes. In the interim, however, determining how an assessment of reforms will be conducted is an important first step in determining whether the reforms are having their intended effect. If DOD officials wait too long to plan for how the department will assess the effect of recent acquisition reforms, including identifying who will be responsible for the assessment and what data will be needed, they may miss the opportunity to collect data from the beginning of implementation needed to measure progress. As a result, they may not be informed about early indications of improvements or problems in the cost, schedule, and performance of programs. Conclusions Recent acquisition reforms have given DOD significant opportunity to focus on delivering innovative capability to the warfighter more quickly and reduce bureaucratic processes that had built up over time. While DOD has made progress in implementing these reforms, continued attention from top leadership would help ensure that the progress the department has made is not unnecessarily slowed or halted. Middle-tier acquisition will require careful consideration as the department proceeds with the development of final guidance. Middle-tier programs are generally exempt from traditional acquisition and requirements processes, but they may still be large, expensive programs critical to the department’s ability to meet its mission. Identifying the types of business case elements decision makers should consider when initiating programs would improve the department’s ability to ensure that the programs the military departments select are sound investments and likely to succeed using a middle-tier acquisition pathway. Identifying metrics to track performance consistently across the portfolio of middle-tier programs will provide necessary information to senior leaders once programs have been started to assess the performance of middle-tier acquisition programs, including whether they are well positioned to meet statutory objectives. The department also faces challenges that affect the implementation of the reforms we reviewed. These sweeping changes have resulted in some disagreements about oversight roles and responsibilities between the Office of the Secretary of Defense and the military departments that have not been fully resolved. Clear communication from top leadership of a framework for oversight roles and responsibilities that is detailed enough to address areas of continued disagreement would help the department to move forward with effective implementation of the reforms. Developing an approach to assess the effects of recent acquisition reforms is also critical so that DOD can monitor whether reforms are collectively having the effect of speeding up the acquisition process without unintended negative consequences on cost and performance of acquisition programs. We also continue to believe that DOD should address our past recommendations to clarify and strengthen roles and responsibilities at the enterprise level for making portfolio management decisions to make sure that its investments are strategy-driven, affordable, and balance near- and long-term needs. In fact, these recommendations may take on more importance for DOD in light of the implementation of acquisition reforms that will further diffuse responsibility for initiating and overseeing acquisition programs. Recommendations for Executive Action We are making the following four recommendations to DOD: The Secretary of Defense should direct the Under Secretary of Defense for Acquisition and Sustainment to identify in final guidance the types of business case elements potential middle-tier acquisition programs should develop and decision makers should consider at program initiation to assess the soundness of programs’ business cases, including whether programs are well positioned to meet statutory objectives. (Recommendation 1) The Secretary of Defense should direct the Under Secretary of Defense for Acquisition and Sustainment to determine and identify in final guidance for middle-tier acquisition programs the metrics that will be used to assess the performance of middle-tier acquisition programs across the military departments, including whether programs are meeting statutory objectives. (Recommendation 2) The Secretary of Defense should ensure that a comprehensive framework that clarifies the roles and responsibilities of the Office of the Secretary of Defense and the military departments for acquisition oversight is communicated by senior leadership. This framework should be detailed enough to address areas of continued disagreement among key stakeholders and serve to inform the department’s revisions of other acquisition policies such as DOD Instruction 5000.02. (Recommendation 3) The Secretary of Defense should develop a plan for how the department will assess the effect of recent acquisition reforms, including identifying who will be responsible for the assessment and what data will be needed. (Recommendation 4) Agency Comments and Our Evaluation We provided a draft of this product to DOD for comment. In its comments, reproduced in appendix VII, DOD concurred with our four recommendations. DOD also provided technical comments with regard to improving the clarity of the discussion of certain reforms and providing additional context about military departments’ oversight practices for middle-tier acquisition programs, among other issues. We incorporated DOD’s technical comments as appropriate. In its written comments, DOD described planned actions to address our recommendations. Specifically, in response to our first recommendation, to identify the types of business case elements that should be considered by decision-makers for middle-tier programs at program initiation, DOD stated that it expects to identify these business case elements in its final guidance on middle-tier programs, which it expects to complete in September 2019. In response to our second recommendation, to identify metrics that will be used to assess the performance of middle-tier programs, DOD stated that it plans to determine performance metrics in coordination with its release of its final guidance on middle-tier programs. DOD expects to release this guidance in late 2019. In response to our third recommendation, for senior leadership to clarify acquisition oversight roles and responsibilities, DOD stated that these roles and responsibilities will be finalized through the issuance of chartering directives and updated acquisition policy; issuance is expected by the end of 2019. Finally, in response to our fourth recommendation, to plan for assessing the effects of acquisition reforms, DOD stated that it has included a division in the Office of the Assistant Secretary of Defense for Acquisition to analyze and assess this and other high-level oversight and policy issues. DOD’s planned actions to address our first, second, and fourth recommendation, if implemented effectively, should address the intent of our recommendations. With regard to our third recommendation, however, we do not believe that the steps outlined in DOD’s written comments are likely to fully address the disagreements about acquisition oversight roles and responsibilities that we identified in the report. We acknowledge in the report that DOD plans to issue chartering directives and re-issue DOD Instruction 5000.02 as part of its efforts to outline the roles and responsibilities of various parties for acquisition oversight, as DOD reiterated in its written comments. However, without a comprehensive framework to inform the revisions of acquisition policies, such as DOD Instruction 5000.02, DOD’s ability to finalize these policies may be hindered by the disagreements between the Office of the Secretary of Defense and the military departments that we identified in our report. These disagreements are persistent and focused on fundamental acquisition oversight issues. Simply issuing chartering directives and finalizing policy as planned may not be enough to ensure that areas of disagreement are resolved and that officials within the Office of the Secretary of Defense and the military departments have a shared understanding of an acquisition oversight framework for the entire Department that will serve as the basis for any policy. Furthermore, without senior leadership within DOD communicating this framework to the Office of the Secretary of Defense and the military departments in sufficient detail to address areas of disagreement among key stakeholders, disagreement will likely persist and the intended impacts of reforms could be stymied. We are sending copies of this report to the appropriate congressional committees and the Acting Secretary of Defense. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or oakleys@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 VIII. Appendix I: Objectives, Scope, and Methodology This report addresses (1) the progress the Department of Defense (DOD) has made to implement selected oversight reforms for major defense acquisition programs; (2) how DOD has used middle-tier acquisition pathways and the extent to which DOD has developed guidance on middle-tier program oversight; and (3) challenges DOD faces related to reform implementation. The conference report for the National Defense Authorization Act for Fiscal Year 2018 and the Senate Armed Services Committee report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2018 also contained provisions for GAO to review project, program, and portfolio management standards within DOD. Appendix VI of this report includes our assessment of DOD’s efforts to implement our previous portfolio management recommendations and identifies opportunities and challenges related to portfolio management that DOD may face as it continues to implement acquisition reforms. We focused our review on five selected reforms from the National Defense Authorization Acts for Fiscal Years 2016 and 2017 that we determined substantially affected DOD’s oversight of acquisition programs. Our selections were informed by our analysis of the National Defense Authorization Acts for Fiscal Years 2016 and 2017 and our past work on factors affecting the oversight of major defense acquisition programs. We also interviewed officials from the Office of the Secretary of Defense and the military departments to obtain their perspectives on the most significant reforms to acquisition oversight and considered those perspectives when we made our selections. For the purposes of our report, when we refer to a reform, we are referring to a specific change to DOD’s acquisition oversight processes or roles and responsibilities. Two of the reforms we reviewed align with sections of the National Defense Authorization Act for Fiscal Year 2016, and the other three align with one or more sections from the National Defense Authorization Act for Fiscal Year 2017. Table 6 identifies the specific sections or subsections that we reviewed for each reform. We also reviewed related amendments to these sections from National Defense Authorization Acts for subsequent years to determine whether the National Defense Authorization Act sections we reviewed, or sections of the U.S. Code that were added by sections we reviewed, had been modified since being signed into law. When we identified amendments, we assessed DOD’s progress in implementing the statute as amended. Appendix II provides additional details about the original legislative requirements and amendments, if any, to each of the reforms we selected. To identify the progress DOD has made to implement selected oversight reforms for major defense acquisition programs, we analyzed three selected reforms that affect processes related to DOD’s oversight of major defense acquisition programs: designating military departments to be the milestone decision performing independent technical risk assessments; and establishing cost, fielding, and performance goals. We also analyzed one reform that restructured acquisition oversight functions in the Office of the Secretary of Defense. We analyzed the associated National Defense Authorization Act sections and reviewed related acquisition policies and guidance from the Office of the Secretary of Defense and the military departments (see app. II for a list of key guidance we reviewed for each reform). For each reform, we analyzed DOD and military department policies and guidance to determine steps DOD and the military departments had taken to implement the reforms. We also compared new or updated policies and guidance, when available, with prior policies and guidance to determine how oversight roles, responsibilities, and processes had changed for DOD’s major defense acquisition programs. To obtain additional insight into how designation of milestone decision authority had changed as a result of recent reforms, we requested and analyzed data provided by DOD about the milestone decision authority levels for the major defense acquisition program portfolio. To assess the reliability of these data, we discussed the data and sources used to compile them with DOD officials, reviewed the data for errors, reviewed related documentation on programs with milestone decision authority at the military department level, and compared the data when possible to other sources, such as publicly available lists of major defense acquisition programs. On the basis of these steps, we determined that the data we used were sufficiently reliable to identify changes in the level of milestone decision authority over time for major defense acquisition programs. To assess changes resulting from the reorganization of Office of the Under Secretary of Defense for Acquisition, Technology and Logistics, we also reviewed updated organizational charts and staffing and vacancy data for the successor offices (the Office of the Under Secretary of Defense for Research and Engineering and the Office of the Under Secretary of Defense for Acquisition and Sustainment) and compared these to past organizational charts and staffing data for the Office of the Under Secretary of Defense for Acquisition, Technology and Logistics. To determine the current percentage of positions vacant in each office, we compared actual data for filled positions as of March 2019 to the total number of vacant positions as of the same point in time. The vacancy numbers do not include vacant positions that are slotted for future reduction or transfer. To assess the reliability of these data, we requested and reviewed written responses from DOD officials on the reliability of the data and sources used to compile it, reviewed the data for logical inconsistencies, and compared the data when possible to other sources, such as related data provided for other time frames. On the basis of these steps, we determined that the data we used were sufficiently reliable to identify the current staffing status for the two new Under Secretary offices. To determine how DOD has used middle-tier acquisition pathways, we reviewed the relevant statute and guidance, and obtained information from the military departments about the number and types of programs using middle-tier acquisition pathways as of March 2019. We analyzed the guidance from the Office of the Under Secretary of Defense for Acquisition and Sustainment and the military departments to determine how they were implementing the statute with regard to selection of programs and program oversight. We also compared the guidance with our past work on elements of business cases that should be completed at program initiation to determine what elements were addressed by DOD guidance. At each of the military departments, we judgmentally selected three middle-tier programs to review in additional detail. We selected programs to obtain a range of program costs (including programs that were above the equivalent threshold cost for designation as a major defense acquisition program if the program were not using a middle-tier acquisition pathway, as well as those below that threshold) and types of programs being executed under middle-tier acquisition pathways (such as space, artillery, software, missile, and ground vehicle programs). Programs we selected include: Air Force: Hypersonic Conventional Strike Weapon; Next Generation Overhead Persistent Infrared Space; Protected Tactical Enterprise Service; Army: Extended Range Cannon Artillery; Optionally Manned Fighting Vehicle; Rapid Opioid Countermeasures System; and Navy: STANDARD Missile-2 Block IIIC; STANDARD Missile-6 Block IB Phase IA Rocket Motor; STANDARD Missile-6 Block IB Phase IB All Up Round. For these programs, we collected and analyzed additional information such as acquisition decision memorandums, acquisition strategies, program cost and schedule estimates, and risk assessments. We also interviewed or received detailed written responses from program officials that addressed issues such as how decisions were made to execute programs under middle-tier acquisition pathways and how oversight for programs was being conducted. Further, we reviewed interim guidance from the Office of the Under Secretary of Defense for Acquisition and Sustainment and the military departments to determine how DOD planned to measure middle-tier program performance. We compared DOD and the military departments’ guidance on developing metrics and collecting data to assess middle-tier program performance to relevant internal controls related to consistent measurement of program performance. To assess the challenges DOD faces with regard to reform implementation, we reviewed policy and guidance issued by top DOD leadership that outlined roles and responsibilities for the Office of the Secretary of Defense and the military departments with regard to acquisition oversight and compared them to leading practices for leadership involvement in agency transformations that we had identified in prior work. We also collected and analyzed information about DOD’s actions taken to implement prior recommendations we have made to improve portfolio management at DOD and analyzed the acquisition oversight reforms we included in this review to identify opportunities and challenges related to portfolio management that DOD may face as it continues to implement acquisition reforms. Lastly, we reviewed DOD’s plans and ongoing efforts to develop performance measures and collect data to assess the effects of acquisition reforms and compared these efforts with success factors for reform implementation identified in our past work. For all objectives, we also conducted interviews with officials from the Office of the Secretary of Defense, the Joint Staff, and the military departments to obtain additional insight into implementation status, implementation challenges, and future plans, including: Office of the Secretary of Defense: The Office of the Under Secretary of Defense for Research and Engineering, the Office of the Under Secretary of Defense for Acquisition and Sustainment, the Office of the Under Secretary of Defense (Comptroller), the Office of the Chief Management Officer, the Office of the Director of Operational Test and Evaluation, the Office of the Director of Cost Assessment and Program Evaluation, and the Office of the General Counsel. Joint Staff: Force Structure, Resource and Assessment Directorate, J-8. Military departments: For each of the three military departments (Air Force, Army, and Navy) we interviewed acquisition officials from the Service Acquisition Executive’s office, requirements officials supporting the Chief of Staff of the respective armed force, and officials from the military department cost agencies. At the Air Force we also interviewed officials from the Office of the General Counsel. We conducted this performance audit from March 2018 to June 2019 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. Appendix II: Summary of Original Legislation and Amendments to Acquisition Reforms Reviewed by GAO Appendix III: Milestone Decision Authority for Major Defense Acquisition Programs as of March 2019 Appendix III: Milestone Decision Authority for Major Defense Acquisition Programs as of March 2019 Programs with milestone decision authority at the Air Force level (26) Advanced Extremely High Frequency Satellite AIM-120 Advanced Medium Range Air-to-Air Missile Air Force Intercontinental Ballistic Missile Fuze Modernization Airborne Warning and Control System Block 40/45 Upgrade B61 Mod 12 Life Extension Program Tailkit Assembly F-15 Eagle Passive Active Warning Survivability System Family of Advanced Beyond Line-of-Sight Terminals Global Positioning System III Follow-On Production Military Global Positioning System User Equipment Increment 1 MQ- 9 Reaper Unmanned Aircraft System Small Diameter Bomb Increment II Space Based Infrared System High Space Fence Ground-Based Radar System Increment 1 Wideband Global SATCOM Programs with milestone decision authority at the Army level (18) AH-64E Apache New Build Airborne & Maritime/Fixed Station Joint Tactical Radio System AN/TPQ-53 Counterfire Target Acquisition Radar Common Infrared Countermeasure Programs with milestone decision authority at the Army level (18) Guided Multiple Launch Rocket System/Guided Multiple Launch Rocket System Alternative Warhead Handheld, Manpack, and Small Form Fit Radios M88A2 Heavy Equipment Recovery Combat Utility Lift Evacuation System MQ-1C Gray Eagle Unmanned Aircraft System Patriot Advanced Capability-3 Missile Segment Enhancement RQ-7B Shadow Tactical Unmanned Aircraft System Warfighter Information Network-Tactical Increment 2 Programs with milestone decision authority at the Navy level (36) Advanced Arresting Gear AGM-88E Advanced Anti-Radiation Guided Missile Air and Missile Defense Radar Amphibious Combat Vehicle Phase 1 Increment 1 CVN 78 Gerald R. Ford Class Nuclear Aircraft Carrier DDG 1000 Zumwalt Class Destroyer DDG 51 Arleigh Burke Class Guided Missile Destroyer H-1 Upgrades (4BW/4BN) Joint Precision Approach and Landing System LHA 6 America Class Amphibious Assault Ship Littoral Combat Ship Mission Modules LPD 17 San Antonio Class Amphibious Transport Dock MQ-4C Triton Unmanned Aircraft System Programs with milestone decision authority at the Navy level (36) MQ-8 Fire Scout Unmanned Aircraft System Offensive Anti-Surface Warfare Increment 1 (Long Range Anti-Ship Missile) Appendix IV: Organizational Charts from Before and After the Reorganization of the Office of the Secretary of Defense Appendix V: Programs Using Middle-Tier Acquisition Pathways as of March 2019 Appendix VI: Department of Defense (DOD) Efforts to Implement Portfolio Management Best Practices The conference report for the National Defense Authorization Act for Fiscal Year 2018 and the Senate Armed Services Committee report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2018 included provisions for GAO to review project, program, and portfolio management standards within DOD. This appendix includes our assessment of DOD’s efforts to implement our previous portfolio management recommendations and identifies opportunities and challenges related to portfolio management that DOD may face as it continues to implement acquisition reforms. Portfolio management is used by leading commercial companies to help ensure their investments are optimized to meet customer needs within available resources. Portfolio management focuses on products collectively at an enterprise level and involves evaluating, selecting, prioritizing, and allocating limited resources to projects that best accomplish strategic or organizational goals. It is also a vehicle to make a wide variety of decisions, including capability and funding trade-offs, to achieve the optimal capability mix for a given level of investment. For DOD, effective portfolio management can help to ensure that weapon system investments are strategy-driven and affordable and balance near- and long-term needs. Take a hypothetical example in which DOD starts with 10 programs and $50 billion to invest. Without portfolio management, program managers may seek to get the most that they can out of each of the 10 programs, without assessing their aggregate contributions to defense. Using portfolio management, DOD executives would look at different combinations of and approaches to the 10 programs to determine what, collectively, would provide the best capabilities for $50 billion. This would enable executives to decide, for example, whether it is better to concentrate more investment in seven programs rather than fund all 10 as best as possible. In another example, if a program began to have cost or performance problems, portfolio management would consider whether the other programs in the portfolio could address the requirements of the problematic program rather than just putting more money into it. Portfolio management activities at DOD are carried out at both the enterprise level and the military department level and responsibilities are divided among the requirements community, the acquisition community, and the budget community. At the enterprise level, the primary offices responsible for portfolio management are the Joint Staff (representing the requirements community), the Under Secretary of Defense for Research and Engineering and the Under Secretary of Defense for Acquisition and Sustainment (representing the acquisition community), and the Director of Cost Assessment and Program Evaluation (representing the budget community). Portfolio Management Best Practices In 2007, we identified several best practices for portfolio management, which we revalidated in 2015. These leading practices encourage organizations to assess product investments collectively from an enterprise level, rather than as independent and unrelated initiatives; continually make go/no-go decisions through a gated review process to rebalance portfolios based on investments that add the most value; use an integrated approach to prioritize needs and allocate resources in accordance with strategic goals; rank and select investments using a disciplined process to assess the costs, benefits, and risks of alternative products; empower leadership to make investment decisions and hold leadership accountable for investment outcomes; and provide sustained leadership for portfolio management. Portfolio management best practices and the Project Management Institute’s portfolio management standards also state that organizations should conduct regular reviews to adjust to strategic changes or changes in the mix of products within a portfolio, among other reasons. From a DOD perspective, portfolio reviews can help increase return on taxpayers’ investments in weapon systems in a number of ways, such as: helping to ensure investments align with national security and military strategies; prioritizing the most important investments; selecting the optimum mix of investments; identifying and eliminating unwarranted duplication; monitoring programs’ health to determine whether changes to the portfolio are warranted; and determining whether investments are affordable. Previous GAO Findings and Recommendations on Portfolio Management at DOD We have previously reported that DOD was not effectively using portfolio management to optimize its weapon system investments. In 2015, we identified several factors that inhibited DOD’s ability to do so, including fragmented governance, a lack of sustained leadership, and a perceived lack of decision-making authority at the enterprise level. We also found that DOD’s portfolio management policy was dated, not fully consistent with best practices, and was not being implemented by the Department, in part due to changes in leadership priorities. Further, DOD’s enterprise- level requirements, acquisition, and budgeting communities—meaning those at the Office of the Secretary of Defense, Joint Chiefs of Staff, and Joint Staff level—were not consistently conducting portfolio reviews or collaborating to integrate key information. As a result, we reported that DOD may have been missing opportunities to better leverage its resources and identify investment priorities that best reflect DOD-wide needs. We recommended that DOD update its portfolio management policy; designate a senior official responsible for its implementation; conduct annual portfolio reviews that integrate key information from the requirements, acquisition, and budget processes; and invest in analytical tools to support its portfolio management efforts. DOD partially concurred with the recommendations, but the planned actions DOD identified at the time of our report did not fully address the issues we identified. As of March 2019, DOD had yet to implement our recommendations from 2015 (see table 16 for details of implementation status). Recent Acquisition Reforms Offer Opportunities to Improve Portfolio Management at DOD but Could Also Exacerbate Existing Challenges It is too soon to assess the effect of the acquisition reforms we reviewed on DOD’s portfolio management efforts because a critical mass of programs has not yet gone through the new acquisition processes. Depending on how the department implements these reforms, some aspects of these reforms could help to address previously-identified deficiencies in portfolio management in the department. For example: Officials in the Office of the Under Secretary of Defense for Acquisition and Sustainment told us that now that milestone decision authority for major defense acquisition programs has largely shifted from the Office of the Secretary of Defense to the military departments, they expect that they will have more time to focus on portfolio-level issues such as identifying how systems need to work together to fill capability gaps since they are less involved in the details of individual programs. We previously reported that DOD’s processes were too focused on optimizing individual investments rather than considering investments across the department. The process developed by DOD to establish cost, fielding, and performance goals brings together officials from DOD’s acquisition, requirements, and budget communities, the three key entities with responsibility for portfolio management, to provide advice on the establishment of program goals. We previously reported that DOD’s enterprise-level processes, organizations, and decision makers oversee weapon system investments generally as stove-pipes and not as an integrated whole. While the process assesses programs on an individual basis rather than collectively from an enterprise level as called for by portfolio management best practices, it may still provide additional shared insight across the acquisition, requirements, and budget communities to help assess portfolios in a more integrated fashion at an enterprise level. However, other aspects of certain reforms have the potential to exacerbate challenges we have previously identified with DOD’s portfolio management approach if not actively managed. For example: Realigning roles and responsibilities for decisions related to weapon systems programs could lead to further questions about who is ultimately responsible and accountable for portfolio management decisions if leadership roles are not clearly defined. We previously reported that DOD’s governance structure for portfolio management was fragmented in part as a result of widely-dispersed decision making responsibilities for weapon system investments. We found that this dispersion of responsibility made it difficult to determine who was empowered to make enterprise-level weapon system investment decisions and who can be considered portfolio managers. According to portfolio management best practices, leadership should be clearly defined and held accountable for outcomes. Programs under middle-tier acquisition pathways have fewer requirements to report program information to offices within the Office of the Secretary of Defense and the Joint Staff than major defense acquisition programs. For example, middle-tier acquisition programs are generally exempted from the Joint Capabilities Integration and Development System for requirements development. Therefore Joint Staff officials may have less information about program requirements than for a major defense acquisition program. Office of the Secretary of Defense officials told us they are working with the military departments and other stakeholders to determine what information is needed for oversight and portfolio management for middle-tier acquisition programs. Office of the Secretary of Defense and Joint Staff officials told us that guidance issued by the Under Secretary of Defense for Acquisition and Sustainment in October 2018 that gives the Office of the Secretary of Defense and Joint Staff formal roles in a governance process may help to ensure sufficient insight. DOD’s ability to develop a common set of portfolios to facilitate integrated portfolio analysis may be more difficult. We previously reported that the requirements, acquisition, and budget communities at DOD were using different portfolio constructs, meaning that they defined their portfolios differently and did not use a standard approach to group investments into portfolios. We identified the use of different approaches as a barrier to taking an integrated approach to prioritize needs and allocate resources in accordance with strategic goals, as called for by portfolio management best practices. For example, the requirements community uses eight joint capability areas for examining warfighter needs, acquisition portfolios vary by military department, and budget data are organized into 11 major force programs. In our prior work, many officials at DOD said that using a wide variety of portfolio constructs is necessary and sometimes beneficial given the different roles and perspectives of the organizations involved. However, as notionally illustrated in figure 8, the different communities need to go through an extensive mapping exercise when they want to analyze their portfolios from another perspective—for example, examining funding associated with joint capability areas. With the reorganization of the Office of the Under Secretary of Defense for Acquisition, Technology and Logistics, officials from the Offices of the Under Secretaries of Defense for Research and Engineering and Acquisition and Sustainment told us that portfolio management activities that used to be conducted by the Office of the Under Secretary of Defense for Acquisition, Technology and Logistics are now split between their offices. Officials from the Office of the Under Secretary of Defense for Research and Engineering told us that they were still in the process of determining what portfolio construct they would use to group investments for portfolio management purposes. If that office decides to use a different portfolio construct than other entities, that decision will increase the already complex process of mapping together portfolios in order to perform an integrated portfolio analysis. Officials from both offices told us that they were working on a pilot effort to conduct portfolio management by focusing on DOD’s missions rather than programs, which could help to standardize the portfolio constructs if the approach is accepted on a wider scale. Appendix VII: Comments from the Department of Defense Appendix VIII: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Cheryl Andrew (Assistant Director), Marie Ahearn, Peter W. Anderson, David Dornisch, Anne McDonough, Melissa Pope, Scott Purdy, Juli Steinhouse, Sara Sullivan, Anne Louise Taylor, Alyssa Weir, and David Wishard made key contributions to this report.

Amid concerns about the ability of DOD's acquisition process to keep pace with evolving threats, Congress included numerous reforms in recent National Defense Authorization Acts that could help to streamline acquisition oversight and field capabilities faster. GAO was asked to examine DOD's efforts to implement these reforms. This report addresses (1) the progress DOD has made implementing selected oversight reforms related to major defense acquisition programs; (2) how DOD has used middle-tier acquisition pathways; and (3) challenges DOD faces related to reform implementation. GAO reviewed five reforms: milestone decision authority designation; cost, fielding, and performance goals; independent technical risk assessments; restructuring of acquisition oversight offices; and middle-tier acquisition. GAO analyzed applicable statutes and implementing guidance, collected information from DOD about the number and types of middle-tier acquisition programs, reviewed relevant documentation, and interviewed DOD officials. The Department of Defense (DOD) has made progress in implementing reforms to restructure the oversight of major defense acquisition programs. As a result of one of these reforms, decision-making authority for many programs shifted from the Office of the Secretary of Defense to the military departments (see figure). Questions remain about how some reforms GAO reviewed will be carried out. For example, no programs have been required to have cost and fielding goals set under DOD's new process yet, and DOD has formed a working group to determine when to delegate risk assessments to the military departments. DOD also began using new pathways referred to as middle-tier acquisition to rapidly prototype and field new weapon systems. Middle-tier programs are expected to field capabilities within 2 to 5 years. As of March 2019, military departments were using this authority for 35 unclassified programs (see table). Source: GAO analysis of Department of Defense data. | GAO-19-439 DOD has yet to fully determine how it will oversee middle-tier acquisition programs, including what information should be required to ensure informed decisions about program selection and how to measure program performance. Without consistent oversight, DOD is not well positioned to ensure that these programs—some of which are multibillion dollar acquisitions—are likely to meet expectations for delivering prototypes or capability to the warfighter quickly. DOD also continues to face implementation challenges, including one related to disagreements about oversight roles and responsibilities between the Office of the Secretary of Defense and the military departments. Senior DOD leadership has not fully addressed these disagreements. As a result, DOD is at risk of not achieving an effective balance between oversight and accountability and efficient program management.

CRS_R45741

Introduction Virtually all societies attempt to remember and memorialize individuals, groups, and events as part of the preservation of shared rhetoric and history. In the United States, there are hundreds, and possibly thousands, of memorials to various individuals, groups, and events. These commemorative works may "engage the population in maintaining memory on a daily basis" in a way that "no documents or records can." Decisions about which people, groups, or events to memorialize are made by many different entities, including Congress, federal agencies, state and local governments, and private citizens, among others. For example, for memorials on federal land in the District of Columbia, the Commemorative Works Act (CWA) requires that Congress provide authorization for a new memorial. In other areas, various laws, regulations, and policies may provide for different groups and governments to decide what should be commemorated and how. Once a decision to commemorate is made, decisionmakers face issues related to the location and cost of a memorial. The choice of a memorial's location is significant. Memorials are arguably most meaningful when they are located in a place with a relationship to the individual, group, or event being commemorated. In 2002, for example, a representative from the National Park Service (NPS) testified before Congress about the importance of place: No memorial designed for placement in Washington, D.C. could capture the emotion and awe of visitors to the USS Arizona Memorial, lying where it was sunk in Pearl Harbor. The Oklahoma City National Memorial would not have nearly the power it has if it had been constructed anywhere else but at the site of the Murrah Building. The memorial landscapes of Gettysburg or Antietam National Battlefields still haunt visitors who contemplate what occurred there nearly 150 years ago. Indeed, people from all over the world continue to be drawn to these hallowed grounds to reflect on the historical events that took place at the sites or, perhaps, to pay their respects to those who lost their lives there. This report considers the extent of federal involvement in memorials located outside the District of Columbia (Washington, DC). A distinction is drawn between memorials located within and outside of Washington, DC, because of the exclusive role the CWA gives Congress to authorize new memorials on federal land in the District of Columbia, and the role of federal agencies—primarily NPS and the General Services Administration (GSA)—in maintaining District-based memorials once dedicated. Other CRS reports provide further discussion of memorials within the District of Columbia. Federal Role in Establishing and Maintaining Memorials Outside of Washington, DC No systematic law or set of regulations governs the establishment of memorials outside Washington, DC. While many such works are established without federal involvement, Congress also has established or recognized numerous memorials nationwide, and some have been designated by the executive branch. For purposes of this report, federal involvement in memorials outside the District of Columbia may be classified as "high," "medium," "low," or "none." ( Figure 1 ). 1. Memorials with "high" federal involvement typically are located on federal land; receive federal funds for design, construction, and maintenance; and are managed by federal agencies. These include memorials established by Congress as units of the National Park System or under the administration of another agency. 2. Memorials with "medium" federal involvement typically either are located on federal land but do not receive federal funding, or are located on nonfederal land but receive assistance from a federal agency. Examples include a number of memorials designated as NPS affiliated areas, which remain under nonfederal management but receive assistance from NPS. 3. Memorials with "low" federal involvement are those for which Congress provides statutory recognition, but which are not located on federal land or affiliated with a federal agency, and do not receive federal funds. 4. Memorials with no federal involvement are those that receive no federal recognition, are located on nonfederal land, and for which nonfederal resources were used to design and build the memorial. High Federal Involvement: Federal Agency Management In some instances, Congress authorizes a memorial to be created on federal land and administered by a federal agency. Such memorials have been established primarily as units of the National Park System, but also may be located within the jurisdiction of other agencies. Some of these memorials include multiple facilities such as a visitor center or kiosk in addition to the primary commemorative work. Congress also regularly enacts legislation to place plaques, markers, and similar works at federal sites, or to name federal sites in memory of individuals, groups, or events. In addition to congressional designations, executive-branch officials also have designated some commemorative works on federal land. Some agencies' regulations and policies allow for agency officials to authorize the placement of plaques, markers, and similar works on agency property, and to name structures or features in memory of a person, group, or event. For example, U.S. Army regulations allow for Army officials to approve memorials to certain distinguished individuals, including deceased Army uniformed and civilian personnel with records of outstanding and honorable service, under specified criteria. Memorials Within the National Park System To establish a national memorial as a unit of the National Park System, an act of Congress is required. For example, in the 107 th Congress, P.L. 107-226 established the Flight 93 National Memorial in Pennsylvania to "honor the passengers and crew of United Airlines Flight 93 of September 11, 2001." For a discussion of the process for creating a new NPS unit and associated issues, see CRS Report RS20158, National Park System: Establishing New Units . Table 1 lists national memorials outside the District of Columbia that are National Park System units. The table entries are organized alphabetically by state and the descriptions are adapted from the National Parks Index . Although two of the memorials do not include the word "national" in their names, NPS categorizes them all as national memorials. Although legislation is required to establish a memorial as an NPS unit, agency management policies allow for the NPS director to approve commemorative names and the placement of commemorative works within park units if specified criteria are met, including that there be a "compelling justification" for associating the memorialized person or event with the park in question, and a specified time lapse between the commemoration and the person's death or the event's occurrence. Other Federal Agency Memorials Both Congress and executive-branch officials also have established memorials on property administered by agencies other than NPS, such as the Department of Defense and others. These memorials typically are managed by the administering agency as part of its overall management of a larger site. For example, in 2015, Congress designated the Medicine Creek Treaty National Memorial, which is managed by the U.S. Fish and Wildlife Service (FWS), as part of the Billy Frank Jr. Nisqually National Wildlife Refuge in the state of Washington. In 2000, Congress directed the Secretary of the Interior to designate the Battle of Midway National Memorial in the Midway Atoll National Wildlife Refuge, also administered by FWS. Medium Federal Involvement: Federal Lands or Federal Funds In some instances, Congress has established a memorial on federal land but required it to be financed by a nonfederal entity, or alternatively, has provided federal financial and/or technical assistance to a nonfederal entity for management of a memorial that is not on federal land. NPS has played a large role in supporting these "medium-involvement" commemorative works, but other agencies have participated as well, especially branches of the Department of Defense. Memorials Designated as NPS Affiliated Areas Congress has designated some sites, including several national memorials, as affiliated areas of the National Park Service. These sites are not units of the National Park System and typically remain in nonfederal ownership and management, but receive technical and/or financial assistance from NPS. For example, P.L. 108-199 , the Consolidated Appropriations Act, 2004, transferred jurisdiction over the Oklahoma City Bombing Memorial from the NPS to the Oklahoma City National Memorial Foundation and provided that the NPS "is authorized to enter into 1 or more cooperative agreements with the Foundation for the National Park Service to provide interpretive services related to the Memorial." The Secretary of the Interior also may designate sites as NPS affiliated areas, but may not provide financial assistance to these sites without an act of Congress. Table 3 lists national memorials that are NPS affiliated areas, including the memorial's name, its location, and a description from the NPS. Other Memorials with Partial Federal Involvement Outside of the NPS affiliated area designation, Congress has sometimes provided for a federal agency to fund or otherwise assist a nonfederally administered memorial. For example, P.L. 107-117 appropriated $4.2 million to the Department of Defense to be used by the Secretary of the Navy as a grant to the U.S.S. Alabama Battleship Foundation, "to be available only for the preservation of the former USS Alabama (BB–60) as a museum and memorial." The same law also provided $4.3 million to the Intrepid Sea-Air-Space Foundation to preserve the former USS Intrepid as a museum and memorial. Congress has also sometimes provided a "medium" level of federal support to a memorial by authorizing its establishment on federal land, but without federal funding. For example, P.L. 115-170 authorized a private organization, Pacific Historic Parks, to establish a commemorative display within a national park unit—the World War II Valor in the Pacific National Monument in Hawaii—to honor soldiers who fought in the Pacific theater. The law specified that federal funds could not be used to design, procure, prepare, install, or maintain the commemorative display, although the NPS director is authorized to accept contributions of nonfederal funds and resources for such purposes. Similarly, P.L. 113-66 (§2842) authorized the Secretary of the Navy to allow a memorial to military divers to be established at a suitable location under the Secretary's jurisdiction; however, the law prohibited the use of federal funds to design, procure, prepare, install, or maintain the memorial. The law required the Secretary to approve the memorial's final design and to ensure that an "assured" source of nonfederal funding was established for the memorial's construction and ongoing maintenance. Another example is the National Fallen Firefighters Memorial, which is located on federal land (the National Fire Academy in Emmitsburg, MD) but does not receive federal funds for maintenance. It is maintained by the National Fallen Firefighters Foundation, a nonprofit organization. Other variations of federal-nonfederal partnerships have also been established. For example, P.L. 109-163 (§1017) authorized a nonfederal entity, the USS Oklahoma Memorial Foundation, to construct a memorial to the USS Oklahoma on federal land. Although the foundation was required to fund and execute construction of the memorial, the Secretary of the Interior was given ongoing responsibility for its administration. The Silent Heroes of the Cold War National Memorial was dedicated in 2015 by the U.S. Forest Service (FS) at a site in Nevada's Humboldt-Toiyabe National Forest, administered by FS, but was constructed with private funding. Low Federal Involvement: Statutory Designation of Nonfederal National Memorials On numerous occasions, Congress has designated an existing nonfederal memorial as a "national memorial" without any further federal affiliation. These memorials generally do not receive federal funds or support for maintenance or programming. Legislation designating these national memorials often includes explicit language stating that the memorial is not an NPS unit and that federal funds shall not be provided for the memorial. For example, the statute designating the National Distinguished Flying Cross Memorial in Riverside, CA, stated the following: (c) Effect of Designation.—The national memorial designated by this section is not a unit of the National Park System, and the designation of the national memorial shall not be construed to require or permit Federal funds to be expended for any purpose related to the national memorial. Table 5 lists statutorily designated national memorials outside of Washington, DC, that are not National Park System units, NPS affiliated areas, or associated with other federal agencies. Some of these memorials do not have the word "national" in their name, but are listed in the U.S. Code as national memorials. No Federal Involvement In some cases, memorials located outside of the District of Columbia have been called "national" memorials without being so designated by Congress. For example, the George Washington Masonic National Memorial in Alexandria, VA, and the National Memorial for Peace and Justice in Montgomery, AL, are privately established and maintained. In cases where nonfederal sponsoring entities have titled works as national memorials without congressional recognition, these works generally do not receive federal funds or support for maintenance or programming. A comprehensive list of such memorials is not currently available. Conclusions and Selected Options Federal involvement with memorials outside of Washington, DC, currently takes a wide variety of forms. Congress has established national memorials that are entirely federally funded and managed, often as units of the National Park System. Congress has also provided for more limited types of federal involvement, such as funding assistance to a nonfederally located memorial or hosting of a nonfederally funded memorial on federal land. Also, Congress has provided statutory recognition to numerous nonfederal memorials without any additional federal involvement. Beyond these federally endorsed memorials, a wide variety of other entities have established and maintained memorials throughout the country with no federal connection, including some titled as "national memorials." For certain types of commemorations, Congress has taken a more systematized approach. For example, the CWA governs the establishment of memorials on federal lands in the District of Columbia, with provisions for the creation, design, construction, and maintenance of such works. If Congress wished to consider a more systematized approach to the establishment and/or funding of national memorials outside the District of Columbia, there are a number of potential options. For example, Congress could establish a statutory definition of a "national memorial" to guide decisionmaking as new proposals for commemoration arise. Congress might consider applying criteria similar to those of the CWA, or to those used by individual agencies for non-CWA memorials, that relate to the types of people and events that may be commemorated, and the amount of time that must pass between an event or individual's death and the commemoration. Congress could potentially limit the number of memorial designations that would be appropriate in a given time period, similar to current limits on the number of commemorative coins the U.S. Mint can issue in a year. For commemorative coins, committee rules have also required a minimum number of cosponsors before a bill might be considered. Creating systematic limitations of this nature for national memorials outside of Washington, DC, could potentially make these designations more valuable (if fewer opportunities for recognition were available) and might allow time to elapse for informed historical judgment before memorials are designated. However, such requirements might also serve to limit the number of contemporary national memorial opportunities and could be seen as reducing Congress's flexibility to make case-by-case decisions about memorials. Conversely, Congress might wish to increase the number of memorials that are nationally recognized outside of Washington, DC, such as through the establishment of a program to identify nonfederal memorials deserving of a national designation. Such a program could potentially include provisions similar to those for the U.S. Civil Rights Network established by P.L. 115-104 , which require the Secretary of the Interior to review studies and take other steps to identify federal and nonfederal sites related to the African American civil rights movement for potential inclusion in the network. Congress also could potentially consider a program to provide grants to nonfederal entities for constructing and/or maintaining national memorials outside of Washington, DC. Such a program could be seen as beneficial in promoting opportunities for public learning and memory, and encouraging suitable maintenance and upkeep of valued commemorative works. Alternatively, it could be opposed (for example, some might claim it would divert federal funds from more highly prioritized uses). Congress might determine that current practices surrounding the creation of national memorials outside the District of Columbia are effective or that the potential cost of changes outweigh the potential benefits. Congress could thus continue to evaluate requests to designate national memorials outside Washington, DC, on a case-by-case basis.

Congress frequently faces questions about whether and how to commemorate people and events that have influenced the nation's history. Congress often has chosen to do so by establishing national memorials or by conferring a national designation on existing state, local, or private memorials. The National Park Service (NPS) defines national memorials within the National Park System as "primarily commemorative" works that need not be at sites historically associated with their subjects. The Commemorative Works Act (CWA; 40 U.S.C. §§8901-8910) was enacted to govern the establishment process for memorials located in the District of Columbia (Washington, DC) or its environs that are under the jurisdiction of the NPS or the General Services Administration. The CWA includes provisions related to memorial location, design, construction, and perpetual maintenance. Memorials in Washington, DC, include those with the word national in the name and those that are essentially national memorials but do not bear that title. For memorials outside the District of Columbia, no specific law or set of regulations governs their establishment. Congress has established a number of federally administered national memorials throughout the nation, most often as units of the National Park System but also under management of other federal agencies. Various nonfederal entities undertaking commemorative efforts also have petitioned Congress for assistance or statutory recognition, and some individual memorial organizers have titled their works as national memorials without congressional recognition. To clarify options for Congress when considering commemoration of individuals, groups, and events through memorials, this report discusses several types of congressional involvement in memorials outside the District of Columbia. For purposes of the report, these are characterized as high federal involvement (e.g., congressional establishment of a national memorial under federal agency administration); medium federal involvement (e.g., congressional authorization for a memorial to be located on federal property or to receive federal funds); low federal involvement (e.g., statutory recognition without additional federal support); and no federal involvement (e.g., a self-declared national memorial). The report provides examples of memorials of each type and discusses some options for Congress, with regard to both individual memorial designations and consideration of whether to systematize criteria for memorials outside Washington, DC, similar to the CWA's provisions for District of Columbia memorials. Because this report focuses specifically on memorials outside the District of Columbia, please see CRS Report R41658, Commemorative Works in the District of Columbia: Background and Practice, by Jacob R. Straus, for discussion of memorials governed by the CWA in Washington, DC, and its environs.

GAO_GAO-19-475T

DHS Has Made Important Progress in Strengthening Its Management, but Considerable Work Remains DHS Has Met 3 of 5 Criteria for Removal from the High-Risk List DHS’s efforts to strengthen and integrate its acquisition, IT, financial, and human capital management functions have resulted in the department meeting 3 out of 5 criteria for removal from the High-Risk List—leadership commitment, action planning, and monitoring progress. DHS has partially met the remaining two criteria—capacity and demonstrated, sustained progress, as shown in figure 1. With regard to leadership commitment, DHS’s top leadership, including the Secretary and Deputy Secretary of Homeland Security, has continued to demonstrate commitment and support for addressing the department’s management challenges. They have also taken actions to institutionalize this commitment to help ensure the long-term success of the department’s efforts. One such effort is the Under Secretary for Management’s Integrated Priorities initiative to strengthen the integration of DHS’s business operations across the department. During monthly leadership meetings with the Under Secretary for Management, the department’s Chief Executive Officers have been providing status updates on their respective actions to address this high-risk designation. Furthermore, top DHS leaders, such as the Under Secretary for Management and the department’s Chief Executive Officers, routinely meet with GAO management to discuss progress on high-risk areas. With regard to having an action plan and monitoring effectiveness, in January 2011, DHS produced its first Integrated Strategy for High-Risk Management and has issued 14 updated versions, most recently in September 2018. The September 2018 strategy describes DHS’s progress to-date, planned corrective actions to further strengthen its management functions, and includes performance measures to monitor key management initiatives. DHS’s Management Directorate leads this ongoing effort and DHS’s strategy and approach, if effectively implemented and sustained, provides a path for DHS to be removed from our High-Risk List. DHS has partially met the criteria for capacity but needs to make additional progress identifying and allocating resources in certain areas— namely acquisition, IT, and financial management—to fully demonstrate its capacity. DHS has analyzed components’ acquisition program staffing assessments but has yet to conduct an in-depth analysis across components or develop a plan to address any gaps. With regard to IT staffing, DHS has not fully identified or reported to Congress or the Office of Personnel Management (OPM) on its department-wide cybersecurity specialty areas of critical needs, such as cybersecurity management or incident response, as required by law. Additionally, DHS’s financial statement auditor has identified several capacity-related issues, including resource limitations and inadequate management and staff training, as causes for the material weaknesses reported. The final criterion is demonstrated progress, which remains partially met. In 2010, we identified, and DHS agreed, that achieving 30 specific outcomes in the areas of acquisition management, IT management, financial management, human capital management, and management integration would be critical to addressing the department’s management challenges. As such, these 30 outcomes became the key criteria by which we gauge DHS’s demonstrated progress. We reported in March 2019 that DHS has fully addressed 17 of the 30 needed outcomes, mostly addressed four, partially addressed six, and initiated actions to address the remaining three, as shown in table 1. In the last 2 years, DHS has made particular progress in the areas of human capital and IT management. Specifically, since 2017 DHS has taken steps to fully address 4 outcomes. The department fully addressed two key human capital outcomes by (1) demonstrating that components are basing hiring decisions and promotions on human capital competencies and (2) strengthening employee engagement efforts. In addition, in the last 2 years DHS has fully addressed two IT outcomes by (1) providing ongoing oversight and support to troubled IT investments to help improve their cost, schedule, and performance; and (2) demonstrating significant progress in implementing its IT strategic workforce planning initiative. Important progress and remaining work in all of the five key areas include: Acquisition management. DHS continues to face challenges in funding its acquisition portfolio. In May 2018, we found that recent enhancements to DHS’s acquisition management, resource allocation, and requirements policies largely reflect key portfolio management practices. However, we also found that of the 24 major acquisition programs we assessed with approved schedule and cost goals, 10 were on track to meet those goals during 2017—a decrease from 2016. In addition, we found that DHS’s portfolio of major acquisition programs was not affordable from fiscal years 2018 to 2022 because the planned costs exceeded the planned budget. DHS has taken steps to strengthen acquisition requirements development across the department, such as reestablishing the Joint Requirements Council in June 2014 to review and validate DHS acquisition requirements. However, opportunities remain to further strengthen DHS’s acquisition process by, for example, using the Joint Requirements Council to (1) identify overlapping or common requirements and (2) make recommendations to senior leadership to help ensure that DHS uses its finite investment resources wisely and maintains a balanced portfolio of investments that combine near-term operational improvements with long-term strategic planning. IT management. DHS has updated its approach for managing its portfolios of IT investments across all components. As part of the revised approach, the department is using its capital planning and investment control process and the Joint Requirements Council to assess IT investments across the department on an ongoing basis. For example, as part of its capital planning process for the fiscal year 2020 budget, the Office of the Chief Information Officer worked with the components to assess each major IT investment to ensure alignment with DHS’s functional portfolios, and to identify opportunities to share capabilities across components. This updated approach should enable DHS to identify potentially duplicative investments and opportunities for consolidating investments, as well as reduce component-specific investments. Additionally, DHS has continued to take steps to enhance its information security program. In November 2018, the department’s financial statement auditor reported that DHS had made progress in correcting its prior year IT security weaknesses. However, for the 15th consecutive year, the auditor designated deficiencies in IT systems controls as a material weakness for financial reporting purposes. Work also remains in implementing our six open recommendations concerning DHS’s cybersecurity workforce assessment requirements. DHS also faces challenges in fulfilling its pivotal role in government- wide cybersecurity efforts, as identified in our Ensuring the Cybersecurity of the Nation high-risk area. DHS has established the National Cybersecurity and Communications Integration Center, which functions as the 24/7 cyber monitoring, incident response, and management center for the federal civilian government. However, DHS has continued to be challenged in measuring how the center is performing its functions in accordance with mandated implementing principles. Financial management. DHS received a clean audit opinion on its financial statements for 6 consecutive years—fiscal years 2013 to 2018. However, in fiscal year 2018, its auditor reported two material weaknesses in the areas of financial reporting and information technology controls and financial systems, as well as instances of non-compliance with laws and regulations. These deficiencies hamper DHS’s ability to provide reasonable assurance that its financial reporting is reliable and the department is in compliance with applicable laws and regulations. Further, DHS components’ financial management systems and business processes need to be modernized; the current systems affect the department’s ability to have ready access to reliable information for informed decision-making. As we reported in 2017, DHS officials have faced various challenges in their efforts to address this—lack of sufficient resources, aggressive schedule, complex requirements, and increased costs. Effectively modernizing financial management systems for the Coast Guard, Federal Emergency Management Agency, and Immigration and Customs Enforcement would help address DHS’s risk in this area. Human capital management. DHS has continued to strengthen its employee engagement efforts by implementing our 2012 recommendation to establish metrics of success within components’ action plans for addressing its employee satisfaction problems. Further, DHS has conducted audits to better ensure components are basing hiring decisions and promotions on human capital competencies. OPM’s 2018 Federal Employee Viewpoint Survey data showed that in the past 2 years, DHS’s score on the Employee Engagement Index increased by 4 points—from 56 in 2016 to 60 in 2018—which was 1 point more than the government wide increase over the same period. While this improvement is notable, DHS’s 2018 score ranked 20th among 20 large and very large federal agencies. Increasing employee engagement and morale is critical to strengthening DHS’s mission and management functions. Management integration. Since 2015, DHS has focused its efforts to address crosscutting management challenges through the establishment and monitoring of its Integrated Priorities initiative. The department updated these priorities in September 2017. Each priority includes goals, objectives, and measurable action plans that are discussed at monthly leadership meetings led by senior DHS officials, including the Under Secretary for Management. DHS needs to continue to demonstrate sustainable progress integrating its management functions within and across the department. What Remains to be Done In closing, it is clear that significant effort is required to build and integrate a department as large and complex as DHS, which has grown to more than 240,000 employees and approximately $74 billion in budget authority. Continued progress for this high-risk area depends primarily on addressing the remaining outcomes. In the coming years, DHS needs to continue implementing its Integrated Strategy for High-Risk Management to show measurable, sustainable progress in implementing corrective actions and achieving outcomes. In doing so, it remains important for DHS to maintain its current level of top leadership support and sustained commitment to ensure continued progress in executing its corrective actions through completion; continue to identify the people and resources necessary to make progress towards achieving outcomes, work to mitigate shortfalls and prioritize initiatives as needed, and communicate to senior leadership critical resource gaps; continue to implement its plan for addressing this high-risk area and periodically provide assessments of its progress to us and Congress; closely track and independently validate the effectiveness and sustainability of its corrective actions, and make midcourse adjustments as needed; and make continued progress in achieving the 13 outcomes it has not fully addressed and demonstrate that systems, personnel, and policies are in place to ensure that progress can be sustained over time. We will continue to monitor DHS’s efforts in this high-risk area to determine if the outcomes are achieved and sustained over the long term. Madam Chairwoman Torres Small, Ranking Member Crenshaw, and Members of the Subcommittee, this completes my prepared statement. I would be happy to respond to any questions you may have at this time. GAO Contacts and Staff Acknowledgments If you or your staff members have any questions about this testimony, please contact me at (404) 679-1875 or curriec@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Other individuals making key contributions to this work include Claudia Becker, Assistant Director; Imoni Hampton, Analyst-in-Charge; Michele Fejfar, Melissa Greenaway, James Lawson, and Tom Lombardi. Key contributors for the previous work that this is based on are listed in each product. 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.

GAO has regularly reported on government operations identified as high-risk because of their increased vulnerability to fraud, waste, abuse, and mismanagement, or the need for transformation to address economic, efficiency, or effectiveness challenges. In 2003, shortly after the department was formed, we designated Implementing and Transforming DHS as a high risk area to the federal government because DHS had to transform 22 agencies into one department, and failure to address associated risks could have serious consequences for U.S. national security. In 2013, we reported that although challenges remained for DHS, the department had made considerable progress. As a result, we narrowed the scope of the high-risk area to focus on strengthening DHS management functions (human capital, acquisition, financial management, and information technology). discusses DHS's progress and remaining actions needed to strengthen and integrate its management functions. This statement discusses DHS’s progress and remaining actions needed to strengthen and integrate its management functions. This statement is based on our 2019 high-risk update and other reports issued from February 2017 through March 2019. Among other things, GAO analyzed DHS strategies and other documents related to the department's efforts to address its high-risk areas. As GAO reported in its 2019 high-risk update, the Department of Homeland Security (DHS) has continued its efforts to strengthen and integrate its acquisition, information technology, financial, and human capital management functions. As a result, the department has continued to meet three out of five criteria for removal from GAO's High-Risk List (leadership commitment, action plan, and monitoring) and partially meet the remaining two criteria (capacity and demonstrated progress). With regard to leadership commitment, DHS's top leadership has continued to demonstrate support for addressing the department's management challenges through, for example, its Integrated Priorities initiative to strengthen the integration of DHS's business operations across the department. Additionally, DHS has established an action plan for addressing the high-risk area and has issued 14 updated versions since 2011.This action plan also demonstrates DHS's ongoing monitoring of these efforts as it describes DHS's progress to-date and planned corrective actions. The two key areas where additional work is needed are DHS's capacity and demonstrated progress. With regard to capacity, DHS needs to make additional progress identifying and allocating resources in the areas of acquisition, information technology, and financial management. With regard to demonstrated progress, DHS should show the ability to achieve sustained improvement across 30 outcomes that GAO identified and DHS agreed were needed to address the high-risk area. GAO found in its 2019 high-risk update that DHS fully addressed 17 of these outcomes, while work remains to fully address the remaining 13. DHS has made some progress in recent years regarding human capital and information technology outcomes, but needs to continue implementing its action plan to show measurable, sustainable progress in achieving the 13 outcomes not yet fully addressed.

CRS_R46272

Overview The International Trade Administration (ITA), the U.S. International Trade Commission (USITC), and the Office of the United States Trade Representative (USTR) are funded through the annual Commerce, Justice, Science, and Related Agencies (CJS) appropriations. This report provides an overview of these agencies' programs and a comparison of the FY2020 CJS proposals with the previous year's enacted legislation. For FY2019, the Consolidated Appropriations Act, 2019 ( P.L. 116-6 ), provided a total of $647.0 million in funding for the three CJS trade-related agencies. The FY2019 act provided $484.0 million in direct appropriations for ITA, $95.0 million for USITC, and a total of $68.0 million for USTR. The FY2019 appropriations for the three CJS trade-related agencies was a 0.2% decrease (-$1.3 million) from FY2018 appropriations ($648.3 million). For FY2020, the Consolidated Appropriations Act, 2020 ( P.L. 116-93 ), provided $678.7 million for the three trade-related agencies, which was $31.7 million (4.9%) more than the FY2019 amount, and $58.5 million (9.4%) more than the Administration's request. See the Appendix for enacted budget authority for the trade-related agencies for FY2009-FY2020. In the FY2020 budget cycle, the House and Senate each passed different versions of their CJS proposals under the same bill number, H.R. 3055 . In this report, the House and Senate versions of H.R. 3055 refer to the CJS provisions passed on June 25, 2019 (House) and October 31, 2019 (Senate). The CJS provisions were later struck from H.R. 3055 , and a continuing resolution was inserted in their place. The CJS provisions were then inserted into a new measure, H.R. 1158 , which passed both chambers and was signed into law as the Consolidated Appropriations Act, 2020 ( P.L. 116-93 ). FY2020 Appropriations The President submitted his FY2020 budget request to Congress on March 11, 2019. The agencies released their congressional budget justification documents in the weeks afterward. In the President's FY2020 budget, the Administration requested a total of $620.2 million for the three CJS trade-related agencies. This request was $26.8 million less (-4.1%) than the FY2019 enacted level. The House Committee on Appropriations reported its FY2020 CJS appropriations proposal, H.R. 3055 , in early June 2019 and passed the measure on June 25, 2019 by a 227-194 vote. The House-passed bill included a total of $694.0 million for the three CJS trade-related agencies. This proposal was $47.0 million more (7.3%) than the FY2019 enacted funding, and $73.8 million more (11.9%) than the Administration's request. The House-passed bill included $521.0 million for ITA, $101.0 million for USITC, and a total of $72.0 million for USTR. The Senate Committee on Appropriations reported its CJS bill, S. 2584 , on September 26, 2019. In late October, the Senate took up the House-adopted proposal, H.R. 3055 , and passed it with amendments by a vote of 84-9. The Senate-passed version of H.R. 3055 included a total of $678.7 million for the three CJS trade-related agencies, which was $31.7 million more (4.9%) than the FY2019-enacted amount and $58.5 million more (9.4%) than the Administration's request. The Senate-passed version included $510.3 million for ITA, $99.4 million for USITC, and a total of $69.0 million for USTR. The Senate's proposed funding levels were enacted in the Consolidated Appropriations Act, 2020 ( P.L. 116-93 ). The President signed the Consolidated Appropriations Act, 2020 ( P.L. 116-93 ), on December 20, 2019, approving FY2020 annual appropriations for the three CJS trade agencies. The act provided $678.7 million for these agencies, which was $31.7 million more (4.9%) than the FY2019 amount, and $58.5 million more (9.4%) than the Administration's request. (For a full summary, see Table 1 ) International Trade Administration (ITA)10 The International Trade Administration is a bureau within the Department of Commerce. ITA's mission is to improve U.S. prosperity by strengthening the competitiveness of U.S. industry, promoting trade and investment, and ensuring compliance with trade laws and agreements. ITA provides export promotion services; works to enforce and ensure compliance with trade laws and agreements; administers trade remedies such as antidumping and countervailing duties; and provides analytical support for ongoing trade negotiations. ITA went through a major organizational change in October 2013 in which it consolidated four organizational units into three more functionally aligned units: (1) Global Markets, (2) Enforcement and Compliance, and (3) Industry and Analysis. ITA also has a fourth organizational unit, the Executive and Administrative Directorate, which is responsible for providing policy leadership, information technology support, and administration services for all of ITA. ( Table 2 outlines ITA FY2020 budget proposals by unit, and Table A-1 shows budget amounts for ITA by unit between FY2009 and FY2019.) For FY2020, the Administration requested $460.1 million for ITA in direct appropriations, with an additional $11.0 million to be collected in user fees, for a total of $471.1 million in authorized spending. With respect to direct appropriations, this request was $23.9 million less (-4.9%) than the FY2019 enacted funding level. The House-passed H.R. 3055 included $521.0 million in direct appropriations for ITA, with an additional $11.0 million to be collected from user fees, for a total of $532.0 million in authorized spending. With respect to direct appropriations, this proposal was $37.0 million more (7.6%) than the FY2019 enacted funding level and $60.9 million more (13.2%) than the Administration's request. The Senate-passed version proposed $510.3 million in direct appropriations for ITA with an additional $11.0 million to be collected from user fees, for a total of $521.3 in authorized spending. With respect to direct appropriations, this proposal was $26.3 million more (5.4%) than the FY2019 funding, and $50.2 million more (10.9%) than the Administration's request. The Consolidated Appropriations Act, 2020 ( P.L. 116-93 ), adopted the Senate-proposed funding level of $510.3 for ITA's top-level funding ( Table 1 ). Global Markets Unit ITA's Global Markets (GM) unit is a combination of the United States and Foreign Commercial Service (US&FCS) program that provides export promotion services to U.S. businesses and the SelectUSA program that works to attract foreign investment into the United States. Through US&FCS, GM aims to promote U.S. exports by helping U.S. exporters research foreign markets and identify opportunities abroad. GM's country and regional experts―in domestic and overseas offices—advise U.S. companies on market access, local standards, and regulations. The unit also helps to make connections through business-to-business trade shows, fairs, and missions. GM is designed to advance U.S. commercial interests by engaging with foreign governments and U.S. businesses, identifying and resolving market barriers, and leading efforts that advocate for U.S. firms with foreign governments. Through its SelectUSA program, the GM unit promotes the United States as a destination for foreign investment. (For more on SelectUSA, see section " SelectUSA Program " below.) For FY2020, the Administration proposed reducing funding for the Global Markets unit. The Administration requested $278.0 million for Global Markets, an amount $42.0 million less (-13.1%) than the FY2019-enacted amount ( Table 2 ). The Administration proposed rescaling the Global Markets unit by "reducing personnel worldwide and closing overseas and domestic offices… ITA estimated the need to close 32 offices overseas, 18 offices domestically, and reduce personnel [by 114 positions]" in an effort "to reduce fixed operational expenses. " In the reports accompanying the committee-reported bills, the House and Senate Committees did not adopt the Administration's proposed cuts to Global Markets, and instead recommended boosting funding for the Global Markets unit. For FY2020, the House Appropriations Committee recommended $338.6 million for Global Markets, an amount $18.6 million more (5.8%) than the FY2019 enacted funding level and $60.7 million more (21.8%) than the Administration's request. The Senate Committee on Appropriations recommended $335.3 for Global Markets, which was $15.3 million more (4.8%) than the FY2019 enacted amount, and $57.3 million more (20.6%) than the Administration's request. The report to accompany the Senate committee-reported CJS appropriations bill included language directing ITA to spend "no less than $130 million on employee compensation [for Global Markets];" and noted that, "at this funding level, the Committee will not approve any request to close foreign or domestic offices." As outlined in the explanatory statement accompanying the act, the Consolidated Appropriations Act, 2020, provided "no less than $333,000,000 for Global Markets." Enforcement and Compliance The mission of ITA's Enforcement and Compliance unit is to enforce U.S. trade laws and ensure compliance with negotiated international trade agreements. The Enforcement and Compliance unit is responsible for enforcing U.S. antidumping and countervailing duty (AD/CVD) laws; overseeing a variety of programs and policies regarding the enforcement and administration of U.S. trade remedy laws; assisting U.S. industry and businesses with unfair trade matters; and administering the Foreign Trade Zone program and other U.S. import programs. For FY2020, the Administration proposed $93.8 million for Enforcement and Compliance. This request was $5.3 million more (6.0%) than the FY2019 budget authority ( Table 2 ). According to ITA's congressional budget submission, some of the Administration's objectives for the proposed increase for Enforcement and Compliance were: to address increasing caseloads of AD/CVD investigations; to provide technical assistance on Section 232 exclusion requests; and to establish a dedicated team to investigate allegations of circumvention and duty evasion by foreign exporters and their U.S. importers. For FY2020, the House-passed version of H.R. 3055 included $94.8 million for Enforcement and Compliance, which was $6.3 million more (7.2%) than the FY2019 budget authority, and $1.0 million more (1.1%) than the Administration's request ( Table 2 ). In the Senate, language in the report accompanying the Senate committee-reported bill recommended "$1,000,000 above the fiscal year 2019 enacted level [$88.5 million] for the Office of Enforcement and Compliance to establish a dedicated anti-circumvention and duty evasion enforcement unit." The explanatory statement accompanying the Consolidated Appropriations Act, 2020, did not provide specific funding levels. The statement outlined that: The agreement does not assume House levels for Industry and Analysis, Enforcement and Compliance, and Executive Direction and Administration. However, ITA is directed to take steps to fill important vacancies across the agency in support of trade promotion, facilitation, and enforcement, as well as additional staff to support the Committee on Foreign Investment in the United States and the new Anti-Circumvention and Evasion Unit. Industry and Analysis ITA's Industry and Analysis unit brings together ITA's industry, trade, and economic experts to advance the competitiveness of U.S. industries through the development and execution of international trade and investment policies, export promotion strategies, and investment promotion. It develops economic and international policy analysis to improve market access for U.S. businesses, and designs and implements trade and investment promotion programs. The unit serves as the primary liaison between U.S. industries and the federal government on trade and investment promotion. It administers programs that support small and medium-sized enterprises, such as the Market Development Cooperator Program. For FY2020, the Administration proposed increasing funding for the Industry and Analysis unit. The Administration requested $62.6 million for Industry and Analysis. This request was $10.0 million more (19.1%) than the FY2019 budget authority ( Table 2 ). According to ITA's budget justification, some of the Administration's objectives for the proposed increase were: to meet the expected increase in cases related to foreign investment in the United States and to implement the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA); to develop staff with economic modeling skills and sectoral expertise; to manage the trade processes related to the tariffs imposed under certain U.S. trade law (Sections 301, 201, 232 ); and to provide analysis relevant to ongoing and future trade negotiations and the resolutions of trade barriers. For FY2020, the House-passed bill included $62.6 million for Industry and Analysis, which was $10.0 million (19.1%) more than the FY2019 budget authority and equal to the Administration's request ( Table 2 ). In the Senate, a specific funding level was not provided for Industry and Analysis. Language in the report accompanying the Senate committee-reported CJS bill did recommend "provid[ing] the requested program changes for Industry and Analysis to implement … [FIRRMA] ( P.L. 116-115 –232) and for increased analytical capabilities." The explanatory statement accompanying the Consolidated Appropriations Act, 2020, did not provide specific funding levels. The statement outlined that: The agreement does not assume House levels for Industry and Analysis, Enforcement and Compliance, and Executive Direction and Administration. However, ITA is directed to take steps to fill important vacancies across the agency in support of trade promotion, facilitation, and enforcement, as well as additional staff to support the Committee on Foreign Investment in the United States and the new Anti-Circumvention and Evasion Unit. U.S. International Trade Commission (USITC or the Commission) USITC is an independent, quasi-judicial agency responsible for conducting trade-related investigations and providing independent technical advice on U.S. international trade policy to Congress, the President, and USTR. The Commission (1) investigates and determines whether imports injure a domestic industry or violate U.S. intellectual property rights; (2) provides independent tariff, trade, and competitiveness-related analysis to the President, Congress, and USTR; and (3) maintains the U.S. tariff schedule. USITC also serves as a federal resource for trade data and other trade policy information. It makes most of its information and analyses available to the public to promote understanding of competitiveness, international trade issues, and the role that international trade plays in the U.S. economy. USITC's annual budget request to Congress is subject to two types of submission: (1) the President's budget request for the Commission, included in the President's annual budget; and (2) the Commission's independent budget request. USITC has the authority to submit its budget directly to Congress without revision by the President, pursuant to Section 175 of the Trade Act of 1974. The President's FY2020 budget requested $91.1 million in funding for USITC. This request was $3.9 million less (-4.1%) than FY2019-enacted appropriation ( Table 1 ). While the President requested a decrease in funding for USITC, the Commission's independent budget submission requested $101.0 million, which was $6.0 million more (6.3%) than FY2019 funding and $9.9 million more (10.9%) than the President's budget request. The House-passed H.R. 3055 included $101.0 million for USITC. This represented $6.0 million more (6.3%) than FY2019 funding and $9.9 million more (10.9%) than the President's budget request. The Senate-passed version of H.R. 3055 included $99.4 million for USITC. This proposal was $4.4 million more (4.6%) than the FY2019 funding, and $8.3 million more (9.1%) than the President's budget request. The Consolidated Appropriations Act, 2020 ( P.L. 116-93 ) enacted the Senate's funding level of $99.4 million for USITC ( Table 1 ). Office of the U.S. Trade Representative (USTR) USTR has primary responsibility for developing and coordinating U.S. international trade and direct investment policies, as the head of the interagency trade policy coordinating process. Located in the Executive Office of the President, USTR is the President's principal advisor on trade policy and the President's chief negotiator for international trade agreements, including commodity and direct investment negotiations. USTR negotiates directly with foreign governments to create trade agreements and resolve disputes, and participates in global trade policy organizations such as the World Trade Organization. It also meets with business groups, policymakers, and public interest groups on trade policy issues. In addition to direct appropriations for USTR, supplementary funding for the agency is available through the congressionally established Trade Enforcement Trust Fund. For more detail on the trust fund, see section " Trade Enforcement Trust Fund (TETF) " below. For FY2020, the Administration requested a total of $69.0 million for USTR, including $59.0 million for salaries and expenses and $10.0 million to be derived from the TETF for certain trade enforcement activities ( Table 3 ). This request was $1.0 million more (1.5%) than the FY2019 enacted funding level. The House-passed version of H.R. 3055 recommended a total of $72.0 total for USTR, including $57.0 million for salaries and $15.0 million to be derived from the TETF for certain trade enforcement activities ( Table 3 ). The House proposal for USTR was $4.0 million more (5.9%) than the FY2019 enacted funding and $3.0 million more (4.3%) than the request. The Senate-passed version recommended a total of $69.0 million for USTR, including $54.0 million for salaries and expenses and $15.0 million to be derived from the TETF. The proposed amount was $1.0 million more (1.5%) than the FY2019 funding amount. While the Senate-passed total funding amount for USTR was equal to the Administration's request, it included a different distribution of funds between USTR's salaries and expenses account and funds to be derived from the TETF (see Table 3 ). The Consolidated Appropriations Act, 2020 ( P.L. 116-93 ) enacted the Senate's funding levels of $69.0 million for USTR, including $54.0 million for salaries and expenses and $15.0 million to be derived from the TETF ( Table 3 ). Selected Trade-Related Programs and Activities Over the past decade, Congress has provided funding for specific trade-related programs or activities within broader agency budgets. The following programs are highlighted in this report, due to ongoing congressional interest: (1) ITA's China trade enforcement and compliance activities; (2) ITA's investment promotion activities in its SelectUSA Program; (3) the Survey of International Air Travelers (SIAT) within ITA; and (4) the Trade Enforcement Trust Fund, which funds certain activities of USTR. China Trade Enforcement and Compliance Activities, ITA Since 2004, Congress has dedicated some of ITA's funding to AD/CVD enforcement and compliance activities with respect to China and other nonmarket economies. ITA's Office of China Compliance was established by the Consolidated Appropriations Act of 2004 ( P.L. 108-199 ). Its primary role has been to enforce U.S. AD/CVD laws and to develop and implement other policies and programs aimed at countering unfair foreign trade practices in China. ITA's China Countervailing Duty Group was established by the Consolidated Appropriations Act, 2010 ( P.L. 111-117 ) to accommodate the workload that resulted from the application of countervailing duty law to imports from nonmarket economy countries. The Office of China Compliance is within the Enforcement and Compliance unit at ITA. ITA's FY2020 budget justification did not provide a breakdown of funding for its China AD/CVD activities. In agreement with both the House and Senate-passed proposals, the Consolidated Appropriations Act, 2020 ( P.L. 116-93 ) provided $16.4 million for China antidumping and countervailing duty enforcement and compliance activities in FY2020, an amount equal to the FY2019-enacted funding. SelectUSA Program, ITA SelectUSA was established by executive order in 2011 as a Commerce Department program to (1) promote the United States as an investment market and (2) address investor climate concerns that could impede investment in the United States. SelectUSA coordinates investment-related resources across more than 20 federal agencies; serves as an information resource for international investors; and advocates for U.S. cities, states, and regions as investment destinations. SelectUSA currently is part of ITA's Global Markets unit. ITA's FY2020 budget justification did not provide a breakdown for requested funding for SelectUSA. The House-passed H.R. 3055 also did not include a breakdown for specific funding for SelectUSA, within ITA's Global Markets unit. The Senate-passed H.R. 3055 included up to $10.0 million for SelectUSA for FY2020. The Consolidated Appropriations Act, 2020 ( P.L. 116-93 ) adopted the Senate funding level. Survey of International Air Travelers (SIAT), ITA ITA's Survey of International Air Travelers (SIAT) gathers statistics about air passenger travelers in the United States. Federal agencies use these statistics for a variety of purposes, such as to estimate the contribution of international travel to the economy, develop public policy on the travel industry, and forecast staffing needs at consulates and ports of entry. SIAT is within the Industry and Analysis unit at ITA. The Administration proposed an increase of $3.0 million to support SIAT in FY2020, within the Industry and Analysis' funding. The House and Senate both recommended $3.0 million to support SIAT in FY2020, within the ITA budget. The Consolidated Appropriations Act, 2020, did not provide a specific funding amount for SIAT. Trade Enforcement Trust Fund (TETF), USTR In order to provide additional funding for USTR's trade enforcement activities, Congress established the Trade Enforcement Trust Fund (TETF) in 2016. In Section 611 of the Trade Facilitation and Trade Enforcement Act of 2015 ( P.L. 114-125 ), Congress set up the trust fund and outlined authorized uses of the funds. According to Section 611(d), USTR can use funds from the TETF to (1) monitor and enforce trade agreements and World Trade Organization (WTO) commitments; (2) support trade capacity-building assistance to help partner countries meet their free-trade agreement obligations and commitments; and (3) investigate petitions concerning unfair trade practices under Section 301 of the Trade Act of 1974. USTR can also transfer funds to select federal agencies for trade enforcement activities authorized in Section 611(d) of the Trade Facilitation and Trade Enforcement Act of 2015. For FY2020, the Administration requested $10.0 million to be derived from the TETF. This request was $5.0 million less than the FY2019-enacted amount. (See Table 3 ). Both the House- and Senate-passed versions of H.R. 3055 included $15.0 million to be derived from the TETF, for trade enforcement activities authorized by the Trade Facilitation and Trade Enforcement Act of 2015. The recommendations were equal to the FY2019 enacted funding level, and were $5.0 million more than the Administration's request. (See Table 3 .) The House and Senate Appropriation committees also directed USTR to provide more detailed reporting on how funds from the Trust Fund are used. The Consolidated Appropriations Act, 2020 ( P.L. 116-93 ) provided $15.0 million to be derived from the TETF, for trade enforcement activities authorized by the Trade Facilitation and Trade Enforcement Act of 2015. The funding level was equal to the FY2019 enacted funding level, and was $5.0 million more than the Administration's request. Appendix. Budget Authority Tables

This report provides an overview of the Fiscal Year (FY) 2020 budget request and appropriations for the International Trade Administration (ITA), the U.S. International Trade Commission (USITC), and the Office of the United States Trade Representative (USTR). These three trade-related agencies are funded through the annual Commerce, Justice, Science, and Related Agencies (CJS) appropriations. This report also provides a review of these trade agencies' programs. The Administration's FY2020 Budget Request The President submitted his budget request to Congress on March 11, 2019. For FY2020, the Administration requested a total of $620.2 million for the three CJS trade-related agencies. The request was $26.8 million less (a 4.1% decrease) than the FY2019 appropriated amount. The request included the following for the three agencies. ITA : $460.1 million, 4.9% less than the FY2019 amount. USITC : $91.1 million, 4.1% less than the FY2019 amount. USTR : $69.0 million, 1.5% more than the FY2019 amount. Congressional Actions The House Committee on Appropriations reported its FY2020 CJS appropriations proposal, H.R. 3055 , in early June 2019 and passed the measure on June 25, 2019 by a 227-194 vote. The House-passed bill included a total of $694.0 million for the three CJS trade agencies, which was $47.0 million (or 7.3%) more than the FY2019-enacted amount, and $73.8 million (11.9%) more than the Administration's request. The House proposal included the following for the three agencies. ITA : $521.0 million, 7.6% more than the FY2019 amount, and 13.2% more than the Administration's request. USITC : $101.0 million, 6.3% more than the FY2019 amount, and 10.9% more than the Administration's request. USTR : $72.0 million, 5.9% more than the FY2019 amount, and 4.3% more than the Administration's request. The Senate Committee on Appropriations reported a CJS bill, S. 2584 , on September 26, 2019. In late October, the Senate took up the House-adopted CJS proposal, H.R. 3055 , and passed it with amendments, by a vote of 84-9 on October 31, 2019. The Senate-passed version included a total of $678.7 million for the three CJS trade agencies, which was $31.7 million (4.9%) more than the FY2019-enacted amount, $58.5 million (9.4%) more than the Administration's request, and overall $15.3 million less than the House-adopted bill. The Senate-passed version included the following for the three trade agencies. ITA : $510.3 million, 5.4% more than the FY2019 amount, and 10.9% more than the Administration's request. USITC : $99.4 million, 4.6% more than the FY2019 amount, and 9.1% more than the President's budget request. USTR : $69.0 million, 1.5% more than more than the FY2019 amount, and equal to the Administration's request. On December 20, 2019, the President signed the Consolidated Appropriations Act, 2020 ( P.L. 116-93 ), approving FY2020 annual appropriations for the three CJS trade agencies. The act included the Senate's proposed funding levels for these agencies. The act provided $678.7 million for the three trade-related agencies, which was $31.7 million (4.9%) more than FY2019, and $58.5 million (9.4%) more than the Administration's request. The act provided the following for the three trade-related agencies. ITA : $510.3 million, 5.4% more than the FY2019 amount, and 10.9% more than the Administration's request. USITC : $99.4 million, 4.6% more than the FY2019 amount, and 9.1% more than the Administration's request. USTR : $69.0 million, 1.5% more than more than the FY2019 amount, and equal in total to the Administration's request.

GAO_GAO-19-321

Background The F-35 Lighting II program is a joint, multinational acquisition program intended to develop and field a family of next-generation strike fighter aircraft for the U.S. Air Force, Navy, and Marine Corps (hereinafter referred to as the services), eight international partners, and foreign military sales customers (collectively hereinafter referred to as program participants). There are three F-35 variants, and each will be a multi-role, stealthy strike aircraft replacement for or complement to the services’ legacy fighter aircraft. F-35 Milestones and Stakeholders DOD initiated the F-35 program in October 2001, and began operational testing of the aircraft in December 2018. DOD has also, concurrently, been fielding and operating a growing fleet of aircraft as part of low-rate initial production. As of February 2019, more than 350 aircraft had been fielded and were operating from 16 bases worldwide. By 2023, the global F-35 fleet is expected to expand to more than 1,100 aircraft across 43 operational sites. In total, the program participants plan to purchase more than 3,300 F-35 aircraft, with the U.S. services planning to purchase nearly 2,500 of those aircraft. See figure 1 for a timeline of anticipated worldwide fleet growth and site activations in the F-35 program. Sustainment for the growing fleet of F-35 aircraft is a large and complex undertaking with several key stakeholders. The F-35 Joint Program Office, through its Product Support Manager, is responsible for managing and overseeing the support functions required to field and maintain the readiness and operational capability of the F-35 aircraft across the enterprise. As such, it establishes sustainment requirements, manages funding, develops contracts, and provides direction for and oversees the execution of F-35 sustainment strategy and policy. Additionally, in 2016, DOD established a Hybrid Product Support Integrator organization within the Joint Program Office, and it expects to fully implement this organization by the end of 2019. Once fully implemented, DOD intends for the Hybrid Product Support Integrator to bring together all government and commercial capabilities necessary to execute the F-35 sustainment strategy. The organization is led by a general officer, who is responsible for providing government oversight of all support providers to ensure that they deliver the required levels of performance. In particular, the F-35 program relies heavily on contractors to provide support for its F-35 aircraft. DOD has two primary contractors for the F-35 program: Lockheed Martin for the overall aircraft system and Pratt & Whitney for the engine. As the prime contractor for the overall aircraft system, Lockheed Martin (hereinafter referred to as the prime contractor) is responsible for managing the F-35 supply chain, depot maintenance, and pilot and maintainer training, as well as for providing engineering and technical support. Currently, DOD is contracting for this support with the prime contractor largely through annual contracts, and it plans to transition to multiple-year, fixed-price, performance-based sustainment contracts when the program achieves certain condition- based criteria, including the establishment of critical sustainment capabilities and the government’s ability to collect and more fully assess performance and cost data. In addition, the U.S. Air Force, Navy, and Marine Corps have each established an F-35 integration office or similar construct focused on how the services will operate and afford the F-35, among other things. Figure 2 below depicts how these key stakeholders provide support to the F-35 program participants across the three aircraft variants. The F-35 Global Support Solution and Supply Chain DOD is planning to meet the sustainment requirements of its F-35 customers by providing a common, global support solution. As part of this common solution, participants share most sources of support, such as spare parts, depot maintenance, and training. At the core of the F-35 global support solution is the F-35 supply chain. At maturity, the F-35 supply chain is intended to be a network of manufacturers, commercial and government part repair depots, and base and regional part warehouses that will be located around the world to provide parts to support the operational and training requirements of all F-35 program participants. As a part of the F-35 supply chain, all F-35 program participants— including the U.S. military services, international partners, and foreign military sales customers—share a global pool of F-35 spare parts (formally called the Joint Spares Pool), which we refer to in this report as the F-35 global spares pool. These pooled assets comprise only parts used for F-35 aircraft, such as consumable and repairable spare parts for the airframe, engine system, support equipment, pilot flight equipment, and training devices. The F-35 global spares pool consists of four different packages of parts—the base spares package, the global spares package, the deployment spares package, and the afloat spares package—as described below and in figure 3. Base spares package: A base spares package is a retail-level supply of parts inventory that is positioned at each F-35 main operating base to support the F-35 aircraft operating from that location. Each base spares package is intended to have a sufficient amount of parts to support the number of aircraft and planned flying hours at the base. While inventory within each base spares package is sized to meet the projected needs of the aircraft at that particular location, parts within the base spare packages are intended to be available for sharing among all global participants, as needed. Global spares package: A global spares package is a wholesale- level supply of parts inventory that is positioned at regional warehouses, original equipment manufacturers, and depot repair facilities. The prime contractor manages this inventory to replenish the stocks of parts in base spares packages and the other packages below, and to meet participants’ requirements for parts that are not in their base inventories. If a part is needed for the repair of an aircraft, and the unit does not have the part in its base inventory, the prime contractor sends a part from the global spares package to meet the unit’s requirement. Parts within the global spares package are intended to be available for sharing among all global participants. Deployment spares package: A deployment spares package is a retail-level supply of parts inventory that is purchased by a program participant to support its wartime or contingency operations. This package is intended to have a sufficient amount of parts to support a program participant’s contracted operational requirements for a defined period of time, until the F-35 supply chain is able to ship replenishment parts to the participant’s deployed location. For example, a deployment spares package could be sized to provide parts for 12 aircraft to fly a specified number of flight hours over a 20- day period and be fully mission capable 70 percent of the time. The parts in this package are generally reserved for use only by the participant who purchased the package. Afloat spares package: An afloat spares package is a retail-level supply of parts inventory that is purchased by a program participant to support its F-35 operations aboard a naval vessel. This package is intended to have a sufficient amount of parts to support a program participant’s contracted operational requirements for a defined period of time until the F-35 supply chain is able to ship replenishment parts to the participant aboard the ship. For example, an afloat spares package could be sized to provide parts for six aircraft stationed on a ship to fly a specified number of flight hours over a 20-day period, and be fully mission capable 70 percent of the time. The parts in this package are generally reserved for use only by the participant who purchased the package. All of the parts within the global spares pool are owned by the U.S. government when not installed on a participant’s aircraft. The U.S. military services and international participants do not purchase parts directly, but rather purchase access to parts in the shared pool based on how many F- 35 aircraft they own and the number of flight hours they plan to fly, among other factors. Accordingly, the F-35 program has developed a series of business rules that are intended to govern how parts within the F-35 global spares pool will be managed and shared, and how the costs of the parts will be allocated across participants. The prime contractor manages the F-35 supply chain and is responsible for allocating parts to F-35 sites and participants based on contracted requirements, such as numbers of aircraft and planned flying hours, and program business rules. The effective management of the F-35 supply chain requires significant technical data about the F-35 aircraft and parts, such as engineering data, maintenance instructions, and information related to how often the aircraft experiences failures and how much time it takes to repair those failures. Technical data constitute an important part of a weapon system program, such as the F-35. We have previously reported that identifying technical data needs, costs, and ownership are essential for DOD to effectively consider and maximize competition for future product support of F-35 sustainment, including supply chain management. F-35 Performance Will Likely Continue to Fall Short of Warfighter Requirements, and DOD Faces Challenges Related to the Availability of Spare Parts F-35 aircraft performance is not meeting warfighter requirements. While DOD is taking various actions to improve F-35 spare parts availability so that aircraft can fly and perform their missions, it will likely continue to struggle to meet warfighter requirements—due to how it is planning for and allocating spare parts. F-35 Aircraft Performance Is Not Meeting Requirements Due to Spare Parts Shortages and Limited Repair Capabilities Fleet-Wide F-35 Performance The performance of the F-35 fleet is hindered by lower-than-required aircraft availability and capability rates. Air vehicle availability, or the percentage of total time during which the aircraft can fly and perform at least one mission, was 45.8 percent across the F-35 fleet from May through November 2018, as compared with the warfighter minimum target of 65 percent. Full mission capability, or the percentage of time during which the aircraft can perform all of its tasked missions, was 26.8 percent from May through November 2018, as compared with the warfighter minimum target of 60 percent. However, parts availability and aircraft performance varied by aircraft variant and the age of the aircraft. For instance, fleet-wide rates of full mission capability for the F-35A aircraft were higher than those for the F-35B. Figure 4 below shows aircraft performance data by variant across key program metrics relative to stated U.S. warfighter requirements, referred to within the F-35 program as objective and minimum performance targets. From May through November 2018, fleet-wide F-35 aircraft performance did not meet any of the U.S. warfighter’s requirements. Lower-than-required F-35 aircraft performance is attributable in part to spare parts shortages. Specifically, the F-35 supply chain does not have enough spare parts available to keep aircraft flying enough of the time necessary to meet warfighter requirements. According to prime contractor data, from May through November 2018, F-35 aircraft across the fleet were unable to fly 29.7 percent of the time due to spare parts shortages (this metric is hereinafter referred to as the S-rate). Figure 5 below shows the percentage of aircraft that were unable to fly from May through November 2018 due to shortages of parts relative to the program’s target. According to prime contractor data, to keep aircraft flying despite parts shortages, from May through November 2018 F-35 squadrons cannibalized (that is, took) parts from other aircraft at rates that were more than six times greater than the services’ objective. These high rates of cannibalization mask even greater parts shortages, because personnel at F-35 squadrons are pulling parts off of other aircraft that are already unable to fly instead of waiting for new parts to be delivered through the supply chain. The F-35 program is taking a number of actions to try to increase the availability of spare parts, including steps to increase the capacity of suppliers to produce parts to meet sustainment requirements, improve the timing of spare parts deliveries, and address the reliability of certain parts that are failing more frequently than expected. DOD has identified specific parts shortages that are causing the greatest aircraft capability degradation, and it is developing short-term and long-term mitigation strategies to increase the quantity and reliability of these parts. For instance, DOD found that the special coating on the F-35 canopy that enables the aircraft to maintain its stealth failed more frequently than expected, and that the manufacturer could not produce enough canopies to meet demands. To address these challenges, the program is looking for additional manufacturing sources for the canopy and is considering design changes. Limited Spare Part Repair Capabilities and DOD Actions for Improvement A key contributor to spare parts shortages is the F-35 program’s limited capacity to repair broken parts. The average time to repair an F-35 part was more than 6 months, or about 188 days for repairs completed between September and November 2018—more than twice that of the program’s objective of 60—90 days. Also, there was a backlog of about 4,300 spare parts awaiting repair at depots or manufacturers (see figure 6). This backlog of parts awaiting repair is largely attributable to delays in the establishment of part repair capabilities at the military depots. The capabilities to repair all parts at the military depots were originally intended to be in place by 2016, but the F-35 program’s current plan now projects that the military depots will not have the capability to repair all parts at the expected repair demand rates until 2024. According to program officials and documentation, the plan includes the required material and technical instructions to repair parts, and DOD has allocated funding for these efforts in its budget planning. However, as of February 2019, funding decisions had not been finalized. In the meantime, to address the gap in part repair capabilities at the military depots, the prime contractor has begun incentivizing manufacturers to increase their capacity to repair spare parts by establishing performance-based repair agreements. As of October 2018, according to program documentation, the prime contractor had established seven such agreements, with six more planned by May 2019. In October 2017, we reported that DOD was experiencing supply chain challenges, largely as the result of sustainment plans that did not fully include key requirements or aligned funding. DOD concurred with our recommendation that it revise its sustainment plans to ensure that they include the key requirements and funding needed to fully implement its sustainment strategy. In January 2019, DOD issued an updated Life- Cycle Sustainment Plan for the F-35. The plan includes eight elements that DOD has identified as critical to enabling the program to achieve its aircraft capability and affordability targets by fiscal year 2024, including accelerating supply chain and depot repair capabilities. Challenges for Early Production Aircraft The F-35 program is a highly concurrent program wherein aircraft, spare parts, and mission software continue to be developed and redesigned while fielded aircraft must be sustained. As a result, there are at least 39 different part combinations across the fleet. Additionally, DOD’s training and operational squadrons are flying F-35 aircraft with three different blocks of mission software—2B, 3i, and 3F—with Block 3F software having the full warfighting capability. According to the program office, DOD spent more than $15 billion to purchase F-35 aircraft from the earliest lots of production, specifically lots 2 through 5 (hereinafter referred to as “early production aircraft”), but it faces challenges in providing enough spare parts for these aircraft. Early production F-35 aircraft have parts configurations and software that differ from those of later production aircraft, and they have faced more parts reliability issues and parts shortages than later-production aircraft. Figure 7 shows the differences in aircraft performance between early production aircraft and aircraft produced in production lot 6 or later (hereinafter referred to as “later production aircraft”). According to program documentation, DOD plans to upgrade all of its early production aircraft to Block 3F software capability. These upgrades were initially scheduled to be completed by the end of 2021, but DOD is taking actions to accelerate these modifications with the plan to complete the upgrades in September 2020. That upgrade is expected to address some of the reliability challenges the older aircraft have experienced. However, program and contractor officials said that these upgrades are not a comprehensive solution, as there will still be many parts that are used on these early production aircraft that are not reliable and are in short supply. Accordingly, DOD is taking action to retrofit some other parts that are not addressed by the modifications. These challenges disproportionately affect the U.S. services’ training fleets, as the majority of U.S. early production aircraft are currently being used for that mission. For example, the training units at Eglin Air Force Base were unable to fly due to parts shortages about 56 percent of the time from May 2018 through November 2018. ALIS Challenges The Autonomic Logistics Information System is an information technology system that is central to the F-35 sustainment strategy. It is intended to provide the necessary logistics tools to F-35 program participants as they operate and sustain the F-35 aircraft. ALIS consists of multiple software applications designed to support different squadron activities, including supply chain management, maintenance, training management, and mission planning. Specifically, for supply chain management, ALIS was intended to automate a range of supply functions—including updating the status of parts, generating supply work orders, and communicating critical data about parts. However, these capabilities are immature, resulting in numerous challenges and the need for maintainers and supply personnel at military installations to perform time-consuming, manual workarounds in order to manage and track parts. One Air Force unit estimated that it is spending the equivalent of more than 45,000 hours per year performing additional tasks and manual workarounds, including for supply-related functions, because ALIS is not functioning as intended. Supply and maintenance personnel we spoke with at various military installations cited challenges associated with ALIS, including the following: missing or corrupted electronic spare parts data that are required to install a part on an aircraft, necessitating extensive research and troubleshooting to resolve; maintenance and supply systems within ALIS not communicating with each other, resulting in difficulty in electronically tracking aircraft parts as they are physically moved between maintenance and supply locations at the same base; and limited automated capabilities, requiring manual and sometimes duplicative steps for receiving, tracking, and managing parts. We have previously reported on challenges related to ALIS. In April 2016, we reported that DOD did not have a plan to ensure that ALIS was fully functional as key program milestones approached. In October 2017, we reported that DOD faced delays in the development of required ALIS sustainment capabilities and uncertain funding for this development. We are currently conducting a separate review of ALIS, assessing how DOD is managing current and future issues related to the system. We plan to complete this review by the end of 2019. DOD Will Likely Continue to Face Challenges in Achieving F-35 Performance Requirements with its Current Approach to Planning for and Allocating Spare Parts In September 2018, the Secretary of Defense directed the services to achieve and maintain 80 percent mission capability for the F-35 fleet by the end of fiscal year 2019, which program and Office of the Secretary of Defense officials have told us will be difficult to accomplish, given the supply and maintenance challenges facing the fleet. DOD is pursuing a phased approach to achieving this requirement for the F-35 aircraft. DOD’s first priority is to increase the capability of its operational fleet to achieve the 80 percent mission capability target by the end of fiscal year 2019, with the intent to increase the capabilities of its entire F-35 fleet to achieve the target by the end of fiscal year 2020. While DOD has ongoing efforts to increase the availability of spare parts as described above, it is likely to face additional challenges in meeting this requirement as well as the other warfighter aircraft performance requirements, because of the ways in which the program is planning for and allocating parts. DOD Is Not Planning for Enough Parts in Its Spare Parts Projections to Meet Warfighters’ Performance Requirements The F-35 program is not planning for the quantity of parts necessary in its spare parts projections to meet warfighter performance requirements. The program’s S-rate requirement is used along with a number of other factors in an analytical model to determine the quantity of spare parts to be purchased. Based on this model, DOD is planning to purchase the quantity of parts necessary to achieve a fleet-wide S-rate of 20 percent— meaning the program is buying only enough parts to enable about 80 percent of its aircraft to be mission-capable based on the availability of parts. According to program documentation, the maximum fleet-wide mission capability rates that can be consistently expected when modeling for a 20 percent S-rate is about 70 percent—far lower than the warfighter’s requirements. This is the case because the time during which aircraft are unable to fly due to maintenance is also a factor, which the program projects will be about 10 percent. Figure 8 shows the difficulty that DOD will face in meeting the Secretary of Defense’s 80 percent mission capability target when planning for an S-rate of 20 percent given the time that is also required for maintenance. According to program and prime contractor documentation, DOD would need to model and fund the spare parts pool to achieve an S-rate of no higher than 10 percent in order to achieve requirements for aircraft performance, such as the mission capability target set by the Secretary of Defense and the services’ goals for air vehicle availability. Doing so would significantly increase the costs for spare parts. According to the prime contractor, in order to achieve a fleet-wide S-rate of 10 percent, the U.S. government would need to initially pay hundreds of millions of dollars to buy more parts for already-fielded aircraft. Costs would also increase on an annual basis—above the nearly $1 billion the U.S. services collectively paid in fiscal year 2018—to buy more parts each year. The current projected costs of F-35 sustainment are not affordable for the services. In 2018, DOD established constraints based on the military services’ future budget projections that indicate that DOD needs to reduce F-35 sustainment costs per aircraft per year by 43 percent for the F-35A, 24 percent for the F-35B, and 5 percent for the F-35C in order for the aircraft to be affordable for the services. DOD will be challenged to support this increase in annual costs for spare parts given its need to make significant cost reductions. Furthermore, as part of DOD’s fiscal year 2020 program budget review, DOD conducted modeling and analysis to project how various courses of action—such as increasing purchases of spare parts to compensate for how long it actually takes to repair parts or reducing aircraft production– would affect F-35 fleet performance. DOD’s analysis projected that if no additional actions were taken beyond what the U.S. services had already planned for and funded, F-35 aircraft performance would increase for a period of time. However, it would then worsen significantly with the growth of the fleet. Officials from the Office of the Secretary of Defense said that, as a result of this analysis, DOD is considering some additional investments to increase the availability of parts that would result in increased funding requirements for the U.S. services, but that as of January 2019, decisions were not finalized. They further said that their recent modeling and analysis efforts for the fiscal year 2020 program budget review did not formally consider additional investments to lower the planned S-rate to 10 percent as a course of action, but that this misalignment between the quantity of parts that DOD is planning to purchase and what is needed will hinder DOD’s ability to meet warfighter performance requirements. DOD May Have Limited Options to Increase F-35 Spare Parts Availability for Its Operational Fleet Supporting Recent F-35 Shipboard Deployments The F-35 program was not able to fill the Marine Corps’ afloat spares packages (packages of spare parts designed for aircraft stationed on ships) for the first F-35 deployments aboard the U.S.S. Essex and U.S.S. Wasp in 2018 in time to support those deployments. As a result, the F-35 program pulled spare parts from inventories at Marine Corps Stations Yuma, Arizona, and Iwakuni, Japan. Marine Corps officials stated that these actions reduced F-35 readiness in Iwakuni. Moreover, DOD may have limited options to increase spare parts availability for its operational fleet because of the way in which the program is currently structured to allocate parts. Within the F-35 program, the U.S. services do not have control over how F-35 parts are allocated, but rather share access to the parts along with the rest of the global fleet. The prime contractor is responsible for allocating parts to meet the requirements of all participants who share in the global spares pool. In response to parts shortages to date, Air Force and Marine Corps officials have said that the program has generally supported big events, such as the 2018 operational deployments of the U.S. services, by shifting parts to those units from the broader global spares pool (see sidebar). According to service officials, decisions to shift parts to different locations to support operational priorities could potentially be made by either a military service that owns those parts or DOD leadership within a legacy program. However, Office of the Secretary of Defense and program officials said that there is no mechanism within the current construct of the F-35’s global support strategy for program participants to optimize readiness for certain units by increasing the allocation of parts to those locations, short of deviating from existing program rules or contractual arrangements. As the size of the fleet and number of operational squadrons grow, the F-35 program will face increasing demands on its supply chain and competing operational priorities across participants that will likely make it more difficult for the program and the U.S. services to mitigate fleet-wide shortages of F-35 parts. GAO’s Standards for Internal Control in the Federal Government states that agencies should define objectives clearly to identify risk, including considering external requirements and internal expectations, and to design and implement activities to respond to those risks. DOD guidance on performance-based arrangements also states that performance-based logistics arrangements should be structured to deliver outcomes that are tied to warfighter requirements. Taken together, the current supply chain challenges and the issues related to how the program is planning for and allocating parts expose a significant gap between the F-35 aircraft performance targets the U.S. services need to achieve and what the F-35 supply chain is positioned to deliver within affordability constraints. DOD’s updated F-35 Life-Cycle Sustainment Plan identifies a number of actions needed to improve aircraft performance, such as those related to spare parts availability and repair capability. While the identification of such actions is a positive step, the plan also states that those actions do not take into account policy, program structure, or resource constraints, which could make them difficult to implement. Furthermore, DOD’s recent modeling efforts have already identified the need for some initial additional investments that could further strain the services’ budgets. Without a comprehensive review to determine what additional actions are needed to close the gap between warfighter requirements for aircraft performance and what the F- 35 supply chain is capable of delivering, taking into account also the need to reduce the sustainment costs of the F-35, DOD risks that its F-35 fleet may fall short of the capability needed to support its critical national defense missions in the future. DOD Has Supported Initial U.S. Deployments, but Faces Challenges in Managing and Moving Spare Parts to F-35 Aircraft around the World DOD’s F-35 Supply Chain Has Supported Initial Deployments and U.S. and International F-35 Bases Overseas DOD’s F-35 supply chain has provided spare parts to support the few F- 35 deployments that have occurred to date, including the following: U.S. Air Force deployment of 12 F-35A aircraft to Japan, November U.S. Marine Corps deployment of six F-35B aircraft aboard the U.S.S. Wasp, March—April 2018 (see figure 9); and U.S. Marine Corps deployment of six F-35B aircraft aboard the U.S.S. Essex, July 2018—February 2019. These units deployed with packages of parts to support the first 20 days of their deployment (that is, deployment and afloat spares packages), and then received replenishment parts from the broader global spares pool once their packages of parts were depleted. DOD officials generally characterized these deployments as operational successes and significant milestones for the F-35 program. In addition to these early deployments, the F-35 supply chain is also providing parts to activated U.S. and international F-35 bases in six different countries outside of the United States. DOD Faces Challenges in Managing and Moving Spare Parts to an Expanding F-35 Global Fleet DOD faces challenges in managing and moving parts to support a deploying and expanding global F-35 fleet. While the initial operational deployments have been successful and the program has established overseas F-35 bases in six different countries, these events have also highlighted several key risks that could hinder future F-35 fleet readiness. These risks are related to (1) the make-up of the afloat and deployment F-35 parts packages, (2) the prioritization process for distributing scarce parts among global F-35 participants, and (3) the F-35 program’s global networks for moving parts. Spare Parts for Deploying Aircraft Do Not Always Match Military Service Needs DOD faces challenges in ensuring that the parts in its purchased afloat and deployment spares packages match the needs of deploying operational aircraft. According to Air Force and Marine Corps officials, ensuring that these parts packages are appropriately configured is of significant operational concern because units may be completely reliant on them while deployed to locations that the F-35 supply chain cannot yet readily support. The afloat and deployment spare parts packages are purchased according to a list of parts planned and paid for by an F-35 program participant at least 2 to 3 years in advance, aligning with the aircraft being purchased at that time and the best projections of what the demand for the parts will be. However, given the immaturity of the F-35 program, continued modifications to parts and aircraft can make such packages out-of-date by the time F-35 units are preparing to deploy. For example, Air Force officials told us that the spare parts packages for its November 2017—May 2018 operational F-35 deployment in Japan included parts that were not compatible with the aircraft with which they intended to deploy. Thus, the Air Force had to change its plans and deploy with older aircraft with less advanced capabilities that matched the parts in the package instead of the aircraft that best met their operational requirements. The Marine Corps faced similar challenges with its first shipboard deployments in 2018. Table 1 shows the number of parts and examples of parts in the Marine Corps’ afloat spares packages for the U.S.S. Wasp and U.S.S. Essex deployments that were not initially configured to be compatible with the Marine Corps’ deploying aircraft. Air Force and Marine Corps officials also said the quantity of parts within their parts packages were not fully reflective of the actual demands for certain parts, based on updated information about the reliability of certain parts and how frequently they needed to be replaced. In other words, the initially built packages did not have enough of the right parts to meet mission requirements. For example, Marine Corps officials said they were able to identify more than a dozen different parts in one of their afloat spares packages prior to deploying that were not provided in sufficient quantities because the program did not account for the actual fleet demand for these parts in its modeling for the afloat spares package. Air Force officials expressed similar concerns and said that they have had difficulty in getting information from the program that would enable the Air Force to assess whether there are enough of the right parts in its deployment spares packages relative to the actual demands for these parts. This is a concern for the Air Force as it prepares for its next F-35 deployment, because officials said that they cannot be sure that the package of parts with which they will deploy will have sufficient parts to support the deployment. The F-35 program does not have a process in place for changing out the parts within the afloat and deployment spares packages that are put on contract years before a deployment. Such a process is needed to ensure that the packages reflect the actual configurations of the deploying aircraft or updated demand projections for parts. Service and program officials said that such a process would need to include a review of the parts within the packages to ensure that they match deploying aircraft and aligning the funds to pay for any necessary updates or modifications to the parts, which could potentially cost tens of millions of dollars. F-35 program policy recognizes that the program may need to adjust the configurations or quantity of parts in the packages based on updated information, noting that such actions may necessitate contractual changes, but it does not specify the process for these adjustments. In our discussions with the prime contractor, program office, and military services, officials have lacked clarity regarding who is responsible for reviewing the parts in the package to ensure that they are appropriately configured and for determining whether additional contract actions or funding are needed to update the packages. In lieu of an established process to refresh these parts, service and contractor officials described an ad hoc and manual effort to review the packages prior to deployment. To address non-matching parts, contractor officials said that the program had to pull parts from the global and base spares packages to make exchanges. Officials said that this cuts into the parts that are available for the other F-35 units that rely on those packages, because the global and base packages are not stocked with the parts to support the deployments. For example, the program used 187 parts from the inventory at Marine Corps Air Station Iwakuni to backfill parts for the U.S.S. Wasp. The Marine Corps’ squadron in Iwakuni stated that this had a measurable effect on the squadron’s readiness to support its operational requirements, as reflected by lower availability of parts within their inventory to support broken aircraft. Specifically, during the time of the U.S.S. Wasp deployment, only about 46 percent of the critical parts (that is, parts needed to fix aircraft that cannot fly) that the squadron at Iwakuni needed were available in its inventory, and the squadron had to wait an average of about 12 days to receive these parts from off-base. As the F-35 fleet continues to expand and the number of operational deployments increases, military service officials said that these manual workarounds and the singular focus on ensuring that one unit has the appropriate parts to deploy will not be tenable. Program officials said that they have started a working group to look at options for addressing this issue, but they could not provide a timeframe or details about this effort. DOD guidance for risk management in acquisition programs states that defense programs must anticipate and address risks on a continuing basis, and suggests that programs implement processes that include risk identification, analysis, mitigation, monitoring, and planning. Further, the services have recognized that, to meet operational readiness objectives in a deployed environment, it is critical to have mechanisms ensuring that spare parts packages with which units plan to deploy are built to support the configurations and expected missions of the deploying aircraft, and have established guidance and processes to that effect. DOD also has a separate, ongoing initiative to determine whether using risk-based assumptions can produce a more efficient and effective mix of parts within deployment parts packages across a range of weapon systems, including the F-35. While this effort is nascent, it could potentially offer insights for the F-35 program to consider when reviewing the make-up of the F-35 deployment and afloat spares packages. Without a process for DOD to modify the F-35 afloat and deployment spares packages, to include reviewing the parts within the packages to ensure that they match deploying aircraft and accounting for updated parts demand, and without aligning any necessary funding for needed updates, the military services face risk that the parts that they have specifically purchased to meet their operational requirements will not be sufficient to do so. Uncertainty Exists about How Scarce Spare Parts Will Be Prioritized among All F-35 Customers Uncertainty exists about how the program will prioritize scarce F-35 spare parts among global participants. The program has developed a set of business rules to govern the prioritization of scarce F-35 parts. The business rules are to differentiate between the relative significance of competing needs and create a structure to be responsive to customer requirements during both peacetime and war. These rules are critical to ensuring fair and transparent allocation of parts to all program participants, particularly given the significant shortages of spare parts throughout the F-35 program. Under these rules, F-35 units are assigned numerical designations based on the importance of their mission (that is, force activity designators), and their part requests are similarly assigned designations based on how important the part is to aircraft functionality (that is, urgency of need). Under these rules, the force activity designators of each unit and the urgency of need for each part request are combined to create an analysis that is applied to requests for scarce parts to determine which unit should receive the part. For example, according to such an analysis, a deployed F-35 unit that orders a part for an aircraft that cannot fly without that part would have priority over all other units. Conversely, an F-35 training unit that needs a part to replenish the inventory of parts on its shelves would have very low priority for the part relative to that of other units. See figure 10 for a general depiction of the prioritization scheme for F-35 parts. According to program and contractor officials, the prime contractor has been allocating parts according to these business rules, but these rules are not comprehensive. Officials from the Joint Staff, Office of the Secretary of Defense, program office, and military services cited a number of areas where the rules lack clarity and detail. For example, there is a lack of clarity around how force activity designations will be assigned and by whom. The business rules state that each unit’s force activity designation will be assigned by the participant’s national command authority, but they do not specify the process for doing so; provide for a clear role for the U.S. combatant commanders in the process; or specify the level of U.S. and international leadership required in order to make changes to this designation. In addition, stakeholders with whom we spoke said that the existing force activity designations do not provide for enough differentiation between types of activities or account for the unit’s unique mission requirements when determining how important a part is to aircraft functionality. For example, military units that are engaged in combat operations are assigned the same force activity designations as units that are forward-based to react to potential threats. These officials expressed concern that as the global fleet expands and more units are engaged in operations, this practice could lead to a situation in which too many units are a “priority” at any one time. Stakeholders have also raised questions about whether and how F-35 participants should be charged for increases in their force activity designations, as this matter is not addressed within the current business rules. Furthermore, the F-35 Product Support Manager has at times waived these business rules to support deployments and other activities, such as aircraft operational tests. For example, the Air Force unit that deployed to Japan in 2017 experienced significant readiness challenges because the business rules had established the replenishment of its spare parts package as a low priority relative to other competing demands for scarce parts. Air Force officials said that this contributed to its aircraft being unable to fly due to shortages of parts more than 30 percent of the time (cumulative over a month). According to Air Force and contractor officials, Air Force leadership then made a number of calls to the program office to request that its replenishment requirements be given higher priority. Subsequently, the F-35 Product Support Manager directed that the contractor deviate from the business rules to place a higher priority on the replenishment of the deployed unit’s parts package so that it could get parts faster. Service and program officials said that such deviations may be necessary to meet operational requirements, and that program leadership needs some flexibility in the business rules to make those decisions. According to program officials, the F-35 Product Support Manager has the authority to issue waivers to the business rules, but the business rules do not clearly grant this waiver authority to the Product Support Manager, or address how and when such waivers should occur. Stakeholders have been raising some of these concerns for several years. For example, the Office of the Secretary Defense and the Joint Staff developed related position papers that identified gaps in the business rules. Officials from these offices said that the papers were sent to the program office in 2014 and early 2017, respectively. In response, the F-35 program established a working group in May 2018 to begin revising the business rules. As of January 2019, program officials said that the revised business rules were undergoing internal review, but the date for completion was not yet determined due to potentially lengthy timeframes associated with obtaining formal approval through the F-35 governance process. This ongoing effort is promising, but the specific action items that the working group was tasked with incorporating into the business rules do not clearly address some of the areas of concern raised by stakeholders. For example, these action items do not include the issue of deviations from the business rules. DOD directs its components to comply with DOD’s established materiel management guidance, which outlines DOD policy, assigns responsibilities and specifically provides procedures for how parts and materiel should be prioritized for responding to customer supply chain demands for all DOD components, including outlining the application of force activity designators and the role of the combatant commanders. The F-35 program’s existing business rules incorporate many aspects of this standard DOD prioritization guidance, but they are not fully aligned with this guidance. For example, DOD’s standard process outlines the use of five potential force activity designators, while the F-35 program provides for only three different designations. Additionally, Standards for Internal Control in the Federal Government states that agencies should design control activities to achieve objectives and respond to risks, including implementing control activities through policies. U.S. service and international officials said that, as the fleet and competition for spare parts increases, they are concerned that participants may try to manipulate the system due to the lack of clarity within the existing rules. Without ensuring that the revisions to its business rules for the prioritization of scarce F-35 parts across all program participants define stakeholder roles and responsibilities, the process for assigning and arbitrating force activity designations, and the manner in which deviations from the business rules will be conducted, the F-35 program may face challenges allocating parts to support competing U.S. and international warfighter requirements. Further, F-35 program participants may lack confidence in the equity of decisions regarding scarce parts that affect their operational requirements. DOD’s Networks to Move F-35 Parts around the World Are Immature DOD is now moving F-35 parts around the world, but its global networks for doing so are immature and there is risk that they will not be fully capable to support an expanding fleet. The F-35 program has a growing number of U.S. and international participant bases outside of the United States and is providing supply support from its global spares pool for an increasing number of operational deployments. For its supply chain construct to work as intended, F-35 parts must be able to move freely and efficiently among U.S. and international program participants, suppliers, and repair facilities, regardless of the country or company of origin. The program has projected that F-35 parts could potentially be moved on 132 different paths between participating countries (for example, Italy to United Kingdom, Italy to Norway) and 2,162 paths between F-35 sites (for example, a warehouse in the Netherlands to a base in Norway). This will require the program to establish strategically located warehouses, synchronize global distribution networks, and navigate a complex web of import and export activities and international weapon control laws. However, the envisioned global network is not yet in place. For instance, regional warehouses planned for the Netherlands and Australia are not expected to reach initial operational capability until, at the earliest, late 2019 and 2020, respectively. Furthermore, the program is still working to establish functional shipping networks and locations at which to receive parts. It also does not have mechanisms in place to support the range of required import and export activities. Spare parts are instead being moved under a less efficient system, with the parts originating from and returning to the United States before being delivered to an international program participant. Figure 11 compares a depiction of the program’s intent for the future global network for moving F-35 parts with the existing “hub-and-spoke” network. The immaturity of the global network has contributed to long wait times for parts for the U.S. and international F-35 squadrons that are deployed or permanently based overseas. The 2018 F-35 sustainment contract establishes minimum and objective targets for customer wait times across the F-35 fleet. The targets are the same regardless of whether the aircraft are located inside or outside of the United States, thus reflecting the intended global nature of the network. However, customer wait times for parts for units located outside of the continental United States have been significantly higher than those for units located inside of the continental United States, as shown in figure 12. Unless otherwise noted, the data are inclusive of customer wait times for both U.S. and international participants. Officials from Marine Corps, Air Force, and international F-35 squadrons that were based or deployed overseas in Japan and the United Kingdom described long wait times of up to 17 days—well outside of the 6-and 10- day customer wait-time metric ranges for critical parts—to receive available parts overseas that have degraded their readiness. They cited several reasons for these delays, such as export and import licenses not being in place, delays in customs, inefficient routing or processing of parts, and ineffective commercial freight forwarders. For example, Air Force and contractor officials said that it was initially taking parts up to 14 to 16 days to reach the deployed Air Force unit in Japan using a commercial shipper, which was hurting the unit’s readiness. According to DOD and contractor officials, these concerns drove the prime contractor to start shipping parts via military air, which subsequently decreased customer wait times significantly. However, these officials said that the program did not have the appropriate contracting and funding mechanisms in place to utilize military air and had to return to using a different commercial shipper. The F-35 program’s plan for full establishment of the global networks for moving parts is not complete. Program officials and contractor officials told us that planning for this network is 3 to 4 years behind the need because the program was more focused on producing the aircraft than on sustainment. Prime contractor officials also said that they did not realize the complexity of setting up the network, which will require them to establish export and import authorizations in every country and to work through the Department of State to establish export licenses. In addition, the construct necessitates that each of the international participants takes actions within its own government to ensure that the appropriate arrangements are in place, such as obtaining waivers for taxes, tariffs, and duties, or pursuing any necessary changes to its own government’s laws. The F-35 program initiated its focused planning for this network in 2018, with the establishment of a working group tasked to develop plans for implementing the network. In January 2019, the F-35 program issued a high-level strategy that provided some limited information on the program’s objective and key principles for the network. It also indicated that a forthcoming F-35 program instruction would provide a framework for executing the strategy, but it did not have a timeline or details for the completion of this instruction. Also in January 2019, DOD selected the U.S. Transportation Command and the Defense Logistics Agency as the entities responsible for the global transportation and distribution networks for F-35 parts—a transition that is expected to occur over the next 12 to 24 months. According to Department of Defense documentation, existing U.S. Transportation Command and Defense Logistics Agency networks are already in place to support much of the required F-35 global parts movements, particularly for U.S. units and foreign military sales customers. However, these organizations will still be reliant on the F-35 program to establish the necessary licenses and legal frameworks for the movement of parts between partner countries. The program has established a target date of September 1, 2021 for full operational capability of the network, at which point spare parts are intended to be able to be moved freely throughout the F-35 enterprise. However, the program does not yet have a detailed plan with clear requirements and milestones or an integrated schedule to move the network from initial operational capability to full operational capability. Program officials stated that they believe this date is achievable, due to the increased emphasis on developing the network among all program participants. However, there are risks to the program’s planning effort. Beyond the complexity of the network, the F-35 program office and contractors do not control all elements needed to support the successful implementation of the network. Specifically, each international partner is responsible for establishing the necessary legal framework in its own country to support the network, which can be a lengthy process. Program officials further noted that other international participants have national laws or have made decisions that are not conducive to the free flow of parts throughout the global network. F-35 program policy provides some provisions to address non-conformance by partners—for example, stating that partners will be responsible for any taxes or tariffs charged to the program by their own countries. However, program officials said that the mechanisms to manage any such deviations will be complex to implement and are still being developed. Our prior work on acquisition management has identified a number of key program management practices that can improve program outcomes if implemented, such as clearly establishing well-defined requirements and developing realistic schedules that include risk analysis. DOD guidance related to managing risk in acquisition programs also states the importance of program managers taking actions to identify, manage, and mitigate programmatic risk, which can either be intrinsic to the program or arise from inadequate planning. The F-35 program’s recent focused efforts in this area are positive steps, but its planning efforts still lack detail about how the network will be fully implemented. Furthermore, the schedule, planning, and risks associated with this delayed global network are not addressed in DOD’s recently updated F-35 Life Cycle Sustainment Plan. Without completing a detailed plan for the establishment of the F-35 program’s global network for moving parts that outlines clear requirements and milestones to get the network to full operational capability, and includes mechanisms to identify and mitigate risks of delays or gaps in the global network, the program cannot ensure that its supply chain will support U.S. and international program participants as intended. Furthermore, delays or gaps in in the establishment of the envisioned global network will likely result in increased costs associated with additional travel segments and delays to the warfighter in receiving spare parts that could hurt the operational readiness of the global F-35 fleet. DOD Cannot Fully Account for F-35 Spare Parts within the Supply Chain and Their Associated Costs DOD cannot fully account for F-35 spare parts within the supply chain and their associated costs. Specifically, the department does not have records indicating how many F-35 spare parts it has purchased, or where they are all located. In addition, DOD does not have comprehensive cost information for individual F-35 spare parts, and the military services cannot track the funds that they have spent on F-35 spare parts to the actual parts purchased by the program office on their financial statements and supporting documentation. Accountability of government property, such as F-35 spare parts, facilitates financial audits by providing the necessary documentation to ensure the accuracy of transactions for government property and contracted services. Congress required the Secretary of Defense to ensure that an external audit be performed on DOD’s financial statements for fiscal year 2018, and to submit such audit to Congress no later than March 31, 2019. Congress directed this audit, in part, to help improve the accuracy and reliability of management information on DOD’s mission- critical assets—such as F-35 spare parts—and services for which they contract. Subsequently, DOD completed its first consolidated, department-wide, full financial statement audit in November 2018. The DOD Office of the Inspector General reviewed the department-wide financial statements and identified 20 material weaknesses—that is, serious problems with DOD’s internal processes that hamper its ability to reasonably assure that its financial reporting is reliable—including processes related to accountability for government property in the possession of contractors and the accuracy and completeness of financial statements. DOD Does Not Know How Many F-35 Spare Parts It Has Purchased or Where All of Them Are Located DOD cannot fully account for its spare parts within the F-35 supply chain, including the quantity of all the spare parts it owns and where they are located. The prime contractor manages the F-35 supply chain and the movement of all F-35 parts across the F-35 enterprise to meet warfighter needs. DOD initially did not intend to own the F-35 parts, but in 2012 the F-35 program’s executive steering board issued a decision memorandum declaring the F-35 parts in the global spares pool to be titled to the U.S. government when they are not installed on an aircraft. However, program officials told us that DOD did not develop a corresponding plan to maintain accountability over the parts that it already owned or would purchase in the future. According to program officials, this is due in part to property accountability not being a priority for the program in its effort to field aircraft. This is evidenced by the number of staff within the program office dedicated to this mission; program officials said that until recently there was only one government official at the program office overseeing property accountability for the F-35 system. In order to maintain accountability for government property, such as the spare parts within the F-35 supply chain, DOD guidance requires that DOD components establish and maintain a physical inventory control program for assets within the DOD supply chain to serve as a key internal control for providing information to inform inventory financial statements. Defense Contract Management Agency officials also told us that in order to improve F-35 readiness and decrease costs, DOD must have an understanding of the F-35 spare parts it owns, where those parts are located, and how those parts are being used to support the weapon system. However, the F-35 program has not consistently followed DOD guidance for property accountability. For example: As of December 2018, the program office had not populated an accountable property system of record with data for its F-35 parts. DOD components are required to establish and maintain accountable property systems of record for property that DOD components own and manage. An accountable property system of record is required to contain information such as cost, location, and custodial ownership data for property, including individual parts, that meet certain criteria, and to provide a comprehensive log of transactions that can be audited. Such a system would allow the F-35 program office to have asset visibility for spare parts within the F-35 supply chain. The program office has identified a database to use as its accountable property system of record, but DOD officials stated that the program office does not have the data necessary to populate it. According to program officials, the prime contractor keeps some of the required data in proprietary databases to which the program office does not have access. In addition, DOD officials told us that the program office is working through some limitations that need to be addressed with the system the program office has chosen to be its accountable property system of record in order to properly maintain data records. The program office has not fully identified which spare parts the prime contractor is required to enter into DOD’s Item Unique Identification registry (hereinafter referred to as DOD’s central registry for government property). In addition to component-specific accountable property systems of record, DOD’s central registry for government property is DOD’s primary data source for government furnished property, and it is intended to provide department-wide asset visibility for all government property and links with financial and accountability systems in order to maintain accountability over the assets DOD owns. DOD guidance states that agencies are to require contractors to report government furnished property in DOD’s central registry for government property. DOD guidance also states that DOD agencies are to identify which assets require unique item-level traceability. However, the program office has not clearly defined for the prime contractor all F-35 spare parts that should be entered into DOD’s central registry. As a result, DOD officials said the prime contractor is not entering in information about all required parts. Moreover, a property accountability official said that the prime contractor is not consistently entering F-35 parts into DOD’s central registry when the parts are delivered, because the prime contractor may delay entering information into DOD’s central registry until all items associated with a specific contract line item have been delivered to DOD. This official also said that there are some contract line items dating back to the first production lot, which delivered aircraft in 2011, that remain open, and thus there are potentially thousands of F-35 parts that are being used within the global spares pool that have not been entered into the registry, thereby impeding DOD’s visibility over these parts. DOD has not established a program policy that explicitly defines how it will maintain accountability of F-35 spare parts in accordance with DOD guidance. According to program officials, DOD has made some recent progress to address accountability issues, such as taking steps to bring contracts into compliance with property accountability regulations and increasing the number of staff focused on property accountability within the F-35 program office. However, DOD faces continued challenges in accounting for F-35 assets. In the absence of a program policy, the program lacks clarity on how to categorize assets and which property data the contractor is required to provide for those assets, how to implement policies and regulations, and how to define prime contractor roles and responsibilities. For example, F-35 contracts contain Federal Acquisition Regulation clauses that convey requirements for the prime contractor related to the accountability of government furnished property, including specifying the data that the contractor must maintain and provide to DOD. However, DOD officials said that the F-35 program office has not contractually established which items—including spare parts—are government furnished property, which has made it difficult for the program office to hold the contractor accountable for those required functions. As a result, the contractor has disputed which items should be considered as government furnished property, which has implications for how the prime contractor maintains accountability and provides data for F-35 spare parts it manages. Property accountability officials at the F-35 program office have developed a draft directive that seeks to address the factors currently impeding the program from being compliant with property accountability guidance by clarifying roles and responsibilities within the program office for maintaining accountability of all government furnished property and pooled assets, including the F-35 spare parts in the supply chain, and defining prime contractor responsibilities for managing these items and providing data to the program office for them. Officials told us, however, that the draft directive is undergoing internal review, and that its timeline for approval and implementation has not been established. Program officials said they are also in the process of developing a program instruction that may provide general procedures for implementing the policies that will be established in the directive. Furthermore, while the draft program directive defines property accountability goals for the F-35 program, it does not detail the actions the program office will take to achieve these goals. The program office will face challenges that may impede its ability to achieve the goals of the draft directive, both retroactively and prospectively, for the billions of dollars in F-35 spare parts for which it currently cannot fully account. For example, DOD officials said that the costs for the prime contractor to obtain the data required to meet DOD’s requirements for property accountability will likely be high, as the prime contractor does not centrally maintain all the data, nor do they maintain the data in a readily usable format for property accountability purposes. The contractor has estimated that more than 450,000 hours of labor could be necessary to provide the data. Program officials also acknowledged that the successful implementation of the draft directive is dependent upon support from program office leadership to ensure that its guidance is followed by both program officials and the prime contractor. However, according to these officials, the program has not historically prioritized property accountability in negotiations with the prime contractor because the program office has been focused on the production and fielding of aircraft and developing contracts to which the prime contractor will agree. Standards for Internal Control in the Federal Government states that agencies should define objectives to identify risk, and to design and implement control activities to respond to those risks. These standards also state that without a strong tone at the top to support an internal control system, the entity’s risk identification may be incomplete, risk responses may be inappropriate, control activities may not be appropriately designed or implemented, information and communication may falter, and results of monitoring may not be understood or acted upon to remediate deficiencies. DOD’s recent efforts related to property accountability are positive, but DOD stakeholders have raised concerns about issues related to property accountability within the F-35 program dating back to 2012 that have not been resolved, such as the program’s lack of a populated property system of record. As the fleet expands and the number of spare parts in the supply chain continues to grow, the program office will only continue to face increasing difficulty in obtaining accountability over its F-35 assets if it does not address these challenges. To address the scope of these challenges, DOD will need to establish a unified approach that provides clarity on how to categorize these assets, implement policies and regulations, and define prime contractor roles and responsibilities. Without developing a policy that clearly resolves these issues and defines how the F-35 program will maintain accountability for spare parts within the supply chain that is consistent with DOD guidance—and identifying the steps that it will take to implement it retrospectively and prospectively, such as how the program will obtain the necessary data from the contractor— DOD cannot ensure that it will be able to obtain and maintain comprehensive accountability and visibility over spare parts within the F- 35 supply chain. Moreover, without an understanding of the assets it owns and how those assets are being managed by the prime contractor, DOD cannot ensure that the prime contractor is providing sufficient readiness for its most expensive weapon system at a reasonable cost. DOD Cannot Identify Costs nor Can the Military Services Track the Funds Spent on F-35 Spare Parts DOD cannot identify individual costs for each F-35 spare part, nor can the military services track the funds that they have spent for the use of F-35 spare parts to the actual parts purchased on their financial statements and related documentation. According to contract administration officials, the ability to track costs and assets is also critical to understanding and improving F-35 fleet performance. DOD Does Not Have Comprehensive Cost Information for Individual F-35 Spare Parts DOD does not have comprehensive cost information for individual F-35 spare parts. DOD purchases a high volume of spare parts across several contracts each year. According to program documentation, DOD was appropriated more than $960 million for F-35 spare parts in fiscal year 2018 alone (see sidebar). DOD does not have a consistent, methodical process to identify and track the costs of individual F-35 spare parts, which would typically be done through the purchase contracts for the parts. However, the F-35 contracts do not identify the individual parts or their costs. Instead, these costs are aggregated under broad contract line items, such that individual pricing for spare parts cannot be determined. For example, the annual sustainment contract for fiscal year 2018 aggregates the costs to repair and replace spare parts for F-35A aircraft under one contract line item totaling $276 million. The contracts and related documentation do not specify how the money will be distributed among costs for repair or replacement, nor do they specify how many spare parts the contractor will purchase and at what cost. Program officials said that their system for contract management has limitations that make it difficult to separate individual F-35 parts into their own line items. Since those costs are not being specifically provided in the contracts, program officials said that DOD has relied upon several ad hoc, manual workarounds in an attempt to obtain such data for the thousands of F-35 spare parts it owns, but these efforts are not comprehensive. For example, a program official said that they are obtaining cost information from the inspection and receiving forms accompanying deliveries of F-35 spare parts and then manually entering these cost data into attachments to the sustainment contracts. However, DOD officials said that the inspection and receiving forms for deliveries of F-35 spare parts are often not being entered into the registry until years after the parts are delivered, because such forms are not required until the delivery of all parts purchased under the same contract line item are complete. Furthermore, DOD officials said that this process is not an effective long-term solution for maintaining cost data of the billions of dollars in F-35 spare parts that DOD owns, because data entered in the program’s contract management system through manual workarounds do not automatically link to the program office’s other data systems. Program officials said that such linkages are necessary to maintain proper accounting of F-35 spare parts, as cost data constitute one of the required data elements for an accountable property system of record. Similar to the challenges that DOD faces with property accountability, program officials said that DOD faces significant hurdles in obtaining cost data from the prime contractor for individual F-35 spare parts because the contracts have not been written to require those data from the outset of the program. According to program officials, the program office has attempted to negotiate for cost data for F-35 spare parts, but the attempts have not been successful because of the high price the prime contractor would have charged the government for these data. DOD guidance states that understanding program costs, such as those for F-35 spare parts, is critical to both achieving desired performance and supporting financial audits. Specifically, DOD guidance states that the government should clearly understand program costs in order to have effective performance-based arrangements. Along these lines, we have previously reported that DOD’s limited understanding of the actual sustainment costs of the F-35 system will hinder its ability to accurately determine how much fleet performance should cost under performance- based contracts, thus putting DOD at risk of overpaying the prime contractor while not receiving the expected level of sustainment support. Additionally, DOD guidance requires that DOD agencies assign dollar values for spare parts in financial accounting systems. Without a methodical process for consistently obtaining comprehensive cost information from the prime contractor for individual F-35 spare parts, the program office will not be able to maintain financial or property accountability over these parts in accordance with DOD guidance. Furthermore, DOD will continue to face challenges in developing a complete understanding of the costs for the F-35 system, which will impede its ability to effectively negotiate with the prime contractor for sustainment support and to improve readiness of the expanding F-35 fleet. Military Services Cannot Track the Funds Spent on F-35 Parts The military services cannot track the funds that they have spent for the purchase of F-35 spare parts to the actual parts on their financial statements and related documentation due to the lack of an established accounting methodology for the parts within the global spares pool. Under this global spares pool construct, the military services and international partners each pay for access to the common pool of spare parts instead of owning the physical parts themselves. However, there is no established accounting methodology for defining how to track funding to the spare parts such that the military services can properly report assets on financial statements. DOD’s Financial Management Regulation requires that DOD agencies—such as the military services—account for all spare parts they purchase for accountability and financial reporting purposes. According to DOD officials, the F-35 program and the DOD Comptroller have been working to develop a policy that provides such guidance since 2015, but it has not yet been finalized and the timeline for completion is unclear. Specifically, program officials said that they are waiting for the DOD Comptroller to finalize a memorandum that would identify the DOD component responsible for maintaining financial accountability of the F-35 spare parts in the global spares pool. According to DOD officials, the memorandum would include an attachment that defines a methodology for tracking funding contributed by the military services and international partners to F-35 spare parts. A draft of this memorandum has laid out a possible methodology to maintain financial accountability for the spare parts within the global spares pool that includes identifying the program office as the DOD component responsible for financial reporting for F-35 parts, but a program official said that the DOD Comptroller has not yet completed this memorandum because the DOD Comptroller is reconsidering the proposed approach. DOD Comptroller officials said that they are reconsidering the proposed approach based on input received from independent public accountants who performed the services’ financial statement audits, to consider having the Department of the Navy or the Air Force, rather than the program office, be the reporting entity for F-35 parts. Without a DOD Comptroller-approved methodology for the services to account for the funds they have spent on F-35 parts within the global spares pool on their financial statements, DOD will be hindered in its efforts to comply with financial improvement and audit readiness requirements, provide supporting details for its financial statement transactions, and render accurate cost information for DOD management, Congress, and others stakeholders to use in assessing and managing program costs and other financial activities associated with the F-35 program. We previously reported that F-35 sustainment costs are not fully transparent to the military services and recommended that DOD should take steps to improve communication with the military services about how the F-35 sustainment costs they are being charged relate to the capabilities received. Furthermore, discrete cost information and an ability to account for funds spent would help DOD in its efforts to decrease costs and make one of its most expensive weapon systems more affordable. DOD Actions to Address Supply Chain Management Challenges Are Not Consistent with the Established F-35 Sustainment Strategy DOD Actions Related to Supply Chain Management Diverge from the Established F-35 Sustainment Strategy Challenges related to readiness and costs—including those we have discussed in this report—are driving the Office of the Secretary of Defense and the services to take actions that diverge from the established F-35 sustainment strategy. These actions indicate a potential shift in DOD’s intent for F-35 supply chain management and a growing desire for more direct involvement by the military services and access to program information from the prime contractor. reliant on the program office for information about system performance and costs. Furthermore, according to Office of the Secretary of Defense and service officials, many of the military services’ sustainment organizations that provide supply and maintenance support to other platforms have had almost no role in the planning for and establishment of sustainment capabilities or ongoing sustainment support for the F-35. Of these common items, more than 6,000 100,000 demands for these common items, 435 of which had impacts on fleet readiness. In April 2018, in a departure from the strategy and structure of the program and at the direction of the Assistant Secretary of Defense (Logistics and Materiel Readiness), the Defense Logistics Agency and the military services’ supply and sustainment organizations initiated planning efforts to develop an option for organic—that is, DOD-managed—supply chain management support that would include increased roles for the services’ supply organizations and the Defense Logistics Agency in assuming responsibility for F-35 supply chain management. In support of this effort, these organizations have begun to develop notional plans to provision an organic supply chain for F-35 aircraft, which includes determining how many parts are required to support the system and how they can be procured. In addition, the Defense Logistics Agency has begun to catalogue a limited portion of F-35 consumable parts from production lots 6 and 7 into DOD’s supply system (see sidebar). However, officials from the Office of the Secretary of Defense and the Defense Logistics Agency said that this initial cataloguing effort only includes the level of detail necessary to support disposal of the parts, and that more comprehensive cataloguing would require DOD to have access to significantly more technical data than are currently available. Prior to this effort, parts used on F-35 aircraft were not tracked by DOD in its logistics information systems. Officials from the Office of the Secretary of Defense said that there are multiple reasons behind DOD’s recent effort to develop an option for DOD-led, organic supply chain management, including DOD’s need to significantly reduce sustainment costs and improve readiness. For example, according to DOD officials, DOD’s early cataloguing efforts have identified more than 7,300 F-35 consumable items that are common to other DOD platforms. Defense Logistics Agency officials said that they are actively working with the program office and prime contractor to identify opportunities for the program to leverage the parts that are already on DOD’s shelves. In the longer term, identifying common parts could potentially allow DOD to directly procure them at a lower cost rather than through the prime contractor, and thereby provide economies of scale across other aviation platforms. Furthermore, the prime contractor and F-35 Joint Program Office have not been able to deliver the supply chain performance that the services need under the current sustainment strategy and structure, as discussed earlier in this report. According to an official from the Office of the Secretary of Defense, DOD is supposed to have a viable back-up plan for contractor logistics support under performance-based logistics contracts, in case the contractor cannot meet the government’s performance requirements. Prior to the ongoing effort, DOD did not have such a plan. Similarly, DOD guidance on performance-based agreements states that robust performance-based logistics solutions include appropriate criteria to cease the arrangement if necessary in order to manage risk. DOD officials involved in the cataloguing and provisioning efforts described a long-term (5 to 10 years) and phased approach to the potential development of DOD-led supply chain management capabilities for the F-35 that would require major changes to the F-35 program structure and contracts. It would also require DOD to obtain significant amounts of technical data on F-35 parts from the manufacturers of those parts (see sidebar). DOD has submitted a request to the prime contractor for a proposal regarding supplying the data necessary to provision an organic supply chain and to catalogue all F-35 parts into DOD’s supply inventory, but as of October 2018, DOD officials said that the prime contractor had not yet provided the costs of these data. Officials from the Office of the Secretary of Defense told us that DOD had initially planned to negotiate for these data as part of the annual sustainment contract for fiscal year 2019, but that the prime contractor had cautioned that this could delay the awarding of the sustainment contract because of the complexity around the data negotiations. Officials said that there were also questions about the type of funds that should be used for the acquisition of these data (that is, procurement or operations and maintenance), and whether some data would need to be directly procured by DOD from the original equipment manufacturers. The lack of data from the contractor to support competition in the F-35 supply chain and DOD’s understanding of the costs and performance of the system has long been a challenge, as we have previously reported. In September 2014, we recommended that DOD develop an Intellectual Property Strategy, to include identification of all critical technical data needs and associated costs. Further, in October 2017, we recommended that prior to entering into multi-year, fixed-price, performance-based contracts, DOD should ensure that it has sufficient knowledge of the actual costs of sustainment and technical characteristics of the aircraft after baseline development is complete and the system reaches maturity. DOD concurred with both recommendations but has not yet implemented them. In addition, ongoing dialogue among stakeholders within the Department of Defense demonstrates a growing desire for more direct military service influence and access to information within the F-35 program. In 2018, the Secretary of Defense directed the U.S. military service chiefs to correct the F-35 parts shortages and to be agents of change in pursuing 80 percent mission capability for the F-35 aircraft. In a September 2018 memorandum responding to the Secretary of Defense’s direction to address F-35 parts shortages, the Air Force Chief of Staff, the Chief of Naval Operations, and the Commandant of the Marine Corps raised concerns about the program’s inadequate supply chain and repair networks and reported on the funding that the services, as customers, provided to the Joint Program office to improve delivery of spare parts and accelerate depot maintenance capability. Furthermore, officials whom we interviewed from each of the military service headquarters expressed frustration with the current sustainment construct of the F-35 program in which they pay large sums of money for less-than-required readiness outcomes but have minimal influence on actions being taken to improve readiness and limited visibility into supply chain modeling and data to support their operational decisions. DOD Has Not Determined the Actions and Investments Needed to Support Its Future Strategy for F-35 Supply Chain Management DOD has not yet determined the actions and investments needed to support the F-35 supply chain in the future, because the department has not charted a clear strategy for F-35 supply chain management. There is a tension between two distinct sustainment concepts—the official contractor logistics support construct and DOD’s current effort to have greater involvement in supply chain management—and F-35 program officials said that the program is caught between the two. In October 2018 DOD issued an updated F-35 Acquisition Strategy, but it did not clearly outline a shift in supply chain management. The new strategy includes references to the potential for increased organic support of the supply chain in the future—but does not provide details about the actions or timelines necessary to support this—while also reaffirming the current sustainment strategy of contractor logistics support for supply chain management. In addition, while the new strategy states the intent to support supply chain cataloguing and provisioning efforts, it does not provide detailed information regarding the investments in technical data necessary to support these efforts. In January 2019, DOD issued an updated F-35 Life-Cycle Sustainment Plan, which highlighted the absence of the technical data to support provisioning and cataloguing as a gap. The plan stated the intent to have all cataloguing and provisioning data available to the services by the end of fiscal year 2024. However, the plan did not provide details regarding how the data were to be procured or address DOD’s future strategy for supply chain management. According to F-35 program, Office of the Secretary of Defense, and Air Force officials, DOD has to provide clear and consistent direction regarding its intent for F-35 supply chain management in order to guide investments in technical data, negotiations with industry, and program actions. In particular, F-35 program officials said that DOD’s mixed messages about supply chain management have led to inefficiency as the F-35 program tries to support both the formal, current strategy and initiatives driven by the informal shift toward more DOD involvement in F- 35 supply chain management. According to program officials, the Product Support Manager organization at the F-35 Joint Program Office was structured for management of a program in which the primary contractors would be providing comprehensive contractor logistics support for the life of the program, and it has not grown in size as the fleet has grown. Furthermore, many of the positions at the program office that are critical to establishing and managing sustainment and supply chain capabilities are unfilled, even as the program office is taking on new responsibilities as Hybrid Product Support Integrator. For example, as of September 2018, Of the 16 positions on the product support maintenance team, which includes depot planning, three were vacant. Of the seven positions on the product support supply chain management team, two were vacant. As of January 2019 program officials said that the number of vacancies had grown to four of seven positions. Of the 42 positions in the directorate of sustainment strategy, 11 were vacant, including the lead roles for strategic planning and risk management and scheduling for the global support solution. In other cases, the numbers of staff dedicated to complex planning efforts are limited or have experienced frequent turnover. For example, officials said that there are only two officials within the program office dedicated to planning for the establishment of the program’s delayed global networks for moving parts, and the lead role had changed four times in a year. Moreover, program officials said that they are inundated with requests for data and information from the Office of the Secretary of Defense and the U.S. military services, which they partially attributed to the informal shift in the program’s strategic intent for sustainment, and to scrutiny related to sustainment performance failures. Officials said that the time spent in responding to requests for data is hindering their ability to focus on long- term actions to improve sustainment performance. The lack of clarity about the future F-35 sustainment strategy could also increase the risk perceived by industry, thus driving up tensions and potential costs in contract negotiations. Program officials said that the increasing technical data requests sent to the prime contractors to support DOD’s provisioning and cataloguing efforts signal to industry a potential change from the acquisition strategy of contractor logistics support for supply chain management. According to Hybrid Product Support Integrator officials, mixed messages about the F-35 program’s future supply chain strategy could make manufacturers reluctant to invest in increasing their capacity to produce new parts and to repair parts, if they do not have confidence in the scope of future business to warrant such investments. Many options for F-35 supply chain management are available to DOD on a spectrum ranging from full contractor logistics support to DOD-led supply chain management or a blend thereof, depending on the aircraft system or subsystem. DOD guidance for program managers states that a sound program strategy requires understanding and clarity of the program’s desired outcomes, and the plans and resources necessary to achieve those outcomes. Furthermore, federal internal control standards demonstrate the necessity of programs defining a clear strategy in order to support program actions. Specifically, the standards state that management should define objectives clearly so that they are understood at all levels of the organization, to include defining what is to be achieved, who is to achieve it, how it will be achieved, and timeframes for achievement. Without clearly defining its strategy for how it will manage the F-35 supply chain in the future and updating key strategy documents accordingly, DOD will continue to face uncertainty about how F-35 sustainment support will be provided over the system’s life cycle and the actions and investments needed to ensure that support. Such uncertainty could further hinder the program’s efforts to improve supply chain performance and reduce costs. Conclusions The F-35 aircraft, with its advanced warfighting capabilities, is a critical component of the National Defense Strategy. However, DOD will need to overcome substantial supply chain challenges for the aircraft to perform its expected role. Current F-35 performance continues to fall short of warfighter requirements, largely due to spare parts shortages and delays in the development of key repair capabilities. Simply purchasing more F- 35 parts without other trade-offs may not be a viable long-term solution for DOD, given the steep reductions in sustainment costs that the military services have recognized are needed to make the aircraft affordable. These complex problems necessitate a comprehensive review by DOD to determine what actions should be taken to close the gap between warfighter requirements and the capabilities that the F-35 supply chain can deliver. Absent such actions, DOD risks that the F-35 will not be able to conduct the full range of intended missions. The military services are integrating the F-35 into their operations with recent deployments and the establishment of F-35 bases overseas, but these events have also highlighted key risks for DOD in how it is managing and moving aircraft parts around the world. If not addressed, these risks could hinder the readiness of the global fleet. To date, DOD has been able to mitigate some of these risks by placing singular focus on ensuring the success of early F-35 deployments, but this will not be possible with the rapid expansion of the fleet in the next few years. Specifically, without a process and funding to make changes to the spare parts within their afloat and deployment spares packages to ensure that these match their needs, the military services risk not meeting operational requirements during future deployments. Fleet-wide spare parts shortages are also putting the F-35 program’s process for prioritizing scarce F-35 parts to the test. Absent comprehensive business rules, the F-35 program could face challenges in transparently allocating parts to support competing U.S. and international requirements. Further, because the F-35 program did not fully recognize the complexity of establishing a global network for moving F-35 parts, this network is now several years behind schedule. Without a detailed plan that includes clear requirements and milestones to fully establish the network, as well as mechanisms to identify and mitigate the risk posed by any gaps or delays, DOD cannot ensure that it will be able to take the network from concept to reality so that F-35 participants do not experience long wait-times for parts in order to fly their aircraft. Moreover, in its rush to field aircraft and its heavy reliance on the prime contractor, DOD has not focused on property and financial accountability of F-35 spare parts. Simply put, DOD does not have records of all the F- 35 spare parts it has purchased; where those parts are located; and how much the military services paid for them. Until DOD establishes a policy that clearly defines how the F-35 program will maintain accountability for spare parts within the supply chain and lays out the steps that it will take to implement that policy, DOD will continue to lack critical visibility of F-35 assets, which is necessary to hold the prime contractor accountable for providing sufficient readiness at a reasonable cost. Additionally, without a process to consistently obtain comprehensive cost information from the prime contractor for F-35 spare parts, DOD will not have a full picture of F-35 costs, which could impede its ability to effectively negotiate with the prime contractor for sustainment support and to improve readiness of the expanding F-35 fleet. Further, absent a DOD Comptroller-approved methodology for the military services to record on their financial statements the funds spent on F-35 parts, DOD will be hindered in its efforts to comply with financial improvement and audit readiness requirements. As a result, DOD will not be able to assure the taxpayer that it fully understands how funds have been spent on this costly weapon system. Finally, from the start of the F-35 program, the U.S. military services have been largely reliant on the prime contractor to manage the F-35 supply chain and to support their operations, with oversight from the program office. However, the Office of the Secretary of Defense and the services have grown dissatisfied with the program’s inability to meet their readiness requirements and reduce costs, and they have begun to take actions that indicate the potential for a significant shift in DOD’s F-35 sustainment strategy that would have far-reaching implications for the program. This shift, if fully implemented, would give more control of the supply chain to the federal government, but it also would run counter to the way in which agreements with industry and international participants have been constructed. Until DOD clearly defines its strategy for managing the F-35 supply chain in the future—to include any additional actions and investments necessary to support that strategy—the F-35 program will lack the certainty and unity of effort necessary to meaningfully improve supply chain performance and reduce costs. Recommendations for Executive Action We are making the following eight recommendations to DOD. The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the F-35 Program Executive Officer, the Secretaries of the Air Force and Navy, and the Commandant of the Marine Corps, conducts a comprehensive review of the F-35 supply chain to determine what additional actions are needed to close the gap between warfighter requirements for aircraft performance and the capabilities that the F-35 supply chain can deliver, in light of the U.S. services’ affordability constraints. Potential actions could include adjustments to the quantities of parts DOD is planning to procure, or developing a mechanism for providing increased availability of parts to operational units, as a means to mitigate fleet-wide shortages. (Recommendation 1) The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the F-35 Program Executive Officer, the Secretaries of the Air Force and Navy, and the Commandant of the Marine Corps, develops a process to modify the afloat and deployment spares packages, to include reviewing the parts within the packages to ensure that they match deploying aircraft and account for updated parts demand, and aligning any necessary funding needed for the parts updates. (Recommendation 2) The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the F-35 Program Executive Officer, the Secretaries of the Air Force and Navy, and the Commandant of the Marine Corps, revises the business rules for the prioritization of scarce F-35 parts across all program participants so as to clearly define the roles and responsibilities of all stakeholders, the process for assigning force activity designations, and the way in which deviations from the business rules will be conducted. (Recommendation 3) The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the F-35 Program Executive Officer, completes a detailed plan for the establishment of the global network for moving F-35 parts that outlines clear requirements and milestones to reach full operational capability, and that includes mechanisms to identify and mitigate risks to the F-35 global spares pool. (Recommendation 4) The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the F-35 Program Executive Officer, issues a policy consistent with DOD guidance that clearly establishes how DOD will maintain accountability for F-35 parts within the supply chain, and identify the steps needed to implement the policy retrospectively and prospectively—for example, how DOD will obtain the necessary data from the contractor. This policy should provide clarity on how F-35 parts will be categorized, specify how the program will implement DOD regulations, and define prime contractor roles and responsibilities. (Recommendation 5) The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the F-35 Program Executive Officer, develops a methodical approach to consistently obtain comprehensive cost information from the prime contractor for F-35 spare parts within the supply chain. (Recommendation 6) The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the Department of Defense Comptroller, the Secretaries of the Air Force and Navy, and the F-35 Program Executive Officer, completes and formalizes a methodology for the U.S. services to use in recording on their financial statements the funds spent on F-35 parts within the global spares pool. (Recommendation 7) The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment, together with the F-35 Program Executive Officer, the Secretaries of the Air Force and Navy, and the Commandant of the Marine Corps, clearly defines the strategy by which DOD will manage the F-35 supply chain in the future and update key strategy documents accordingly, to include any additional actions and investments necessary to support that strategy. (Recommendation 8) Agency Comments and Our Evaluation We provided a draft of this report to DOD for review and comment. In its written comments, reproduced in appendix II, DOD concurred with our recommendations and identified actions that it was taking or planned in response. We are providing copies of this report to appropriate congressional defense committees; the Acting Secretary of Defense; the Under Secretary of Defense for Acquisition and Sustainment; the F-35 Program Executive Officer; the Secretaries of the Air Force and Navy; and the Commandant of the Marine Corps. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-9627 or maurerd@gao.gov. 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 this report are listed in appendix III. Appendix I: Scope and Methodology For each of our objectives, we reviewed relevant F-35 sustainment and supply chain plans, program briefs, guidance, and other documentation and collected information by interviewing officials from the Office of the Secretary of Defense for Acquisition and Sustainment, the F-35 Joint Program Office, the U.S. Air Force, the U.S. Navy, the U.S. Marine Corps, and the prime contractor, Lockheed Martin. To interview officials and observe F-35 supply and maintenance operations, we conducted site visits to two F-35 operational locations—Hill Air Force Base, Utah, and Marine Corps Air Station Yuma, Arizona; and one training location—Luke Air Force Base, Arizona. We selected these locations to obtain perspectives from both operational and training units from multiple U.S. military services using different variants of the aircraft, and to gather insights of international partners co-located at these bases, among other factors. Additionally, we interviewed officials from the only overseas- based U.S. F-35 operational squadron at Marine Corps Air Station Iwakuni, Japan, by phone. A complete listing of organizations we contacted for this review is provided later in this appendix. In support of our objectives, we gathered various data related to the F-35 supply chain, such as parts availability, repair, aircraft performance, and customer wait time data. We gathered data for fiscal year 2018 (October 2017 – September 2018) and available data from the F-35 program’s 2018 sustainment contract period (May – November 2018) in order to provide the most recent information for F-35 fleet performance and overall supply chain management available during our audit timeframes. To determine the reliability of these data, we collected information on how the data were collected, managed, and used through a questionnaire and interviews with relevant DOD officials and the prime contractor. Although we identified some limitations in the way that certain data are being collected and reported— such as data related to aircraft performance, aircraft that are not mission capable due to a lack of parts, and parts cannibalization that could potentially result in inaccuracies—we determined that they are sufficiently reliable for the way in which we reported them and our purposes of providing information on the progress and challenges within the program. Specifically, the parts cannibalization rates that we discuss are sufficiently reliable to discuss generally in comparison to program objectives. All other supply chain and performance data presented in our report are sufficiently reliable to present as specific data points. To assess the extent to which F-35 performance is meeting warfighter requirements and any challenges with spare parts availability, we reviewed DOD and contractor sustainment and supply chain plans, briefings, and reports, and interviewed Office of the Secretary of Defense, U.S. service, program office, and prime contractor officials to determine the degree to which the supply chain is currently able to provide parts to meet the U.S. services’ requirements. In addition, we obtained data related to F-35 parts availability and aircraft performance data for May through November 2018 and compared these to the program’s target and the U.S. services’ requirements for these metrics to identify any gaps between requirements and actual performance. We also obtained data related to 3-month average part repair times and part repair backlogs as of November 2018—the most currently available data at the time of our review. In order to assess the extent to which the supply chain is positioned to meet future warfighter requirements, we examined program plans, briefs, and other related documentation, and we interviewed Office of the Secretary of Defense, U.S. service, program office, and prime contractor officials to identify the actions that DOD is taking to increase the availability of F-35 spare parts, DOD’s projections for when these actions will result in improvements in F-35 aircraft performance, and ongoing areas of challenge that could create risk for the program in meeting future warfighter requirements. Finally, we used principles from the Standards for Internal Control in the Federal Government and DOD guidance for performance-based arrangements related to how programs should be structured to meet requirements and respond to risk as a basis to determine whether DOD needs to take further actions to ensure that the F-35 supply chain is positioned to meet future warfighter requirements. To assess the extent to which DOD can effectively manage and move F- 35 parts to support aircraft around the world, we reviewed military service and program briefings and data related to DOD’s fiscal year 2018 F-35 operational deployments, and we interviewed service, program office, and contractor officials about how the F-35 supply chain and its global spares pool were able to support these deployments, including the extent to which the packages of parts that the military services purchased to support these deployments were built to meet their requirements. We reviewed DOD guidance related to managing risk in acquisition programs and the Navy’s process and guidance for ensuring that the packages of parts for legacy aircraft are built to meet the requirements of deploying aircraft, and we assessed the F-35 program’s processes for identifying and addressing risks related to the sufficiency of its deployment parts packages against these criteria. We also reviewed the F-35 program’s business rules for allocating and prioritizing scarce F-35 assets and related documentation, and we interviewed officials from the Joint Staff, Office of the Secretary of Defense, the services, the program office, and the prime contractor to understand how the business rules are being applied and to identify any related F-35 program participant perspectives about or gaps in the rules. We also reviewed DOD guidance related to prioritizing materiel and parts to identify standard DOD policies for legacy aircraft, and Standards for Internal Control in the Federal Government, and we used these as a basis to assess whether the F-35 program’s business rules for allocating scarce F-35 parts are sufficiently clear and comprehensive. In addition, we reviewed available plans, briefs, and other documentation to understand the F-35 program’s envisioned global network for moving F-35 parts, the current state of the network, and the program’s projections for full implementation of the network. Further, we obtained data from December 2017 through November 2018 related to customer wait times for parts to determine whether program participants located outside of the continental United States are waiting longer for parts than those located inside of the continental United States. We also interviewed officials from the program office, prime contractor, Office of the Secretary of Defense, the services, and U.S. Transportation Command to discuss the progress being made and challenges the program faces in developing the global network to move F-35 spare parts. Finally, we assessed DOD’s plans for establishing its global network for moving parts against key acquisition program management practices that can improve program outcomes if implemented and DOD guidance related to managing risk in acquisition programs. To assess the extent to which DOD can account for F-35 spare parts within the supply chain and their associated costs, we reviewed program briefs, DOD guidance and the Federal Acquisition Regulation, and sustainment contracts and related documentation, and we interviewed program and contractor officials to determine how the program office is maintaining accountability for F-35 spare parts, to include roles and responsibilities for property accountability and any associated challenges. In addition, we reviewed draft guidance and program briefs and documentation, as well as interviewed officials from the program office, to identify the actions the program is taking to improve its ability to maintain accountability of parts in the F-35 program. We compared these efforts against criteria in DOD guidance for property accountability and Standards for Internal Control in the Federal Government to assess whether the program’s current efforts to obtain and maintain accountability for F-35 spare parts are sufficient to bring the program into alignment with DOD guidance, and whether any additional actions are needed. To assess the extent to which DOD is maintaining accountability over costs associated with F-35 spare parts, we reviewed program plans and documentation related to the construct of the global spares pool. We also reviewed sustainment contracts and supplemental contract documentation, and we interviewed officials from the program office, Office of the Secretary of Defense, and Defense Contract Management Agency to determine what information DOD has been able to obtain about the quantity and cost of F-35 spare parts and the approaches that DOD uses to collect such information. Additionally, we identified criteria within DOD guidance for performance-based arrangements and the DOD Financial Management Regulation to serve as a basis to assess whether the program office’s approach for obtaining cost information is sufficient to support program and financial management requirements. We also reviewed DOD and program office documentation and spoke with officials from the program office and the Office of the Under Secretary of Defense (Comptroller) to determine the extent to which the program office has developed a methodology to track the funds paid by the U.S. military services for F-35 parts to the actual parts within the global spares pool. Finally, we used the DOD Financial Management Regulation as a basis to assess whether the program has the ability to adequately track funds paid by the U.S. military services for F-35 spare parts to the actual parts within the global pool to support financial audits. To assess the extent to which actions DOD is taking to address supply chain challenges are consistent with the established F-35 program sustainment strategy, we reviewed key F-35 program strategy, planning, and structure documents—such as the 2016 and 2018 F-35 Acquisition Strategies, the Life-Cycle Sustainment Plan, and program office organizational structures—and F-35 sustainment contracts to determine the program’s formal strategy and structure for F-35 supply chain management. We also reviewed documentation related to DOD’s efforts to develop an option for DOD-management of the F-35 supply chain, such as data requests and a memorandum, and we interviewed officials from the Office of the Secretary of Defense for Acquisition and Sustainment, Defense Logistics Agency, military service sustainment commands, the program office, and the prime contractor to understand the extent to which DOD is pursuing a DOD-managed F-35 supply chain, whether these efforts are aligned with the established F-35 program strategy, and the effects of such actions on the program office’s ability to execute F-35 sustainment with the prime contractor, Lockheed Martin. In addition, we assessed DOD’s efforts to establish a DOD-managed option for supply chain management against principles from DOD planning guidance and Standards for Internal Control in the Federal Government for defining objectives and clearly aligning actions and resources to meet those objectives. Department of Defense and Other Organizations with Whom GAO Conducted Interviews In support of our work, we interviewed officials from the following DOD organizations and other organizations during our review. We selected these organizations based on their oversight, planning, and execution roles related to F-35 sustainment, supply chain management, and operations. DOD Organizations Contractor and Other Organizations United Kingdom Ministry of Defence We conducted this performance audit from January 2018 to April 2019 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. Appendix II: Comments from the Department of Defense Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Alissa Czyz (Assistant Director), Vincent Buquicchio, Kasea Hamar, Amie Lesser, Sean Manzano, Michael Silver, Tristan T. To, and Cheryl Weissman made key contributions to this report. Related GAO Products 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 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. F-35 Aircraft Sustainment: DOD Needs to Address Challenges Affecting Readiness and Cost Transparency. GAO-18-75. Washington, D.C.: October 26, 2017. F-35 Joint Strike Fighter: DOD’s Proposed Follow-on Modernization Acquisition Strategy Reflects an Incremental Approach Although Plans Are Not Yet Finalized. GAO-17-690R. Washington, D.C.: August 8, 2017. F-35 Joint Strike Fighter: DOD Needs to Complete Developmental Testing Before Making Significant New Investments. GAO-17-351. Washington, D.C.: April 24, 2017. F-35 Joint Strike Fighter: Continued Oversight Needed as Program Plans to Begin Development of New Capabilities. GAO-16-390. Washington, D.C.: April 14, 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. F-35 Joint Strike Fighter: Preliminary Observations on Program Progress. GAO-16-489T. Washington, D.C.: March 23, 2016. F-35 Joint Strike Fighter: Assessment Needed to Address Affordability Challenges. GAO-15-364. Washington, D.C.: April 14, 2015. F-35 Sustainment: Need for Affordable Strategy, Greater Attention to Risks, and Improved Cost Estimates. GAO-14-778. Washington, D.C.: September 23, 2014. F-35 Joint Strike Fighter: Slower Than Expected Progress in Software Testing May Limit Initial Warfighting Capabilities. GAO-14-468T. Washington, D.C.: March 26, 2014. F-35 Joint Strike Fighter: Problems Completing Software Testing May Hinder Delivery of Expected Warfighting Capabilities. GAO-14-322. Washington, D.C.: March 24, 2014. F-35 Joint Strike Fighter: Restructuring Has Improved the Program, but Affordability Challenges and Other Risks Remain. GAO-13-690T. Washington, D.C.: June 19, 2013. F-35 Joint Strike Fighter: Program Has Improved in Some Areas, but Affordability Challenges and Other Risks Remain. GAO-13-500T. Washington, D.C.: April 17, 2013. F-35 Joint Strike Fighter: Current Outlook Is Improved, but Long-Term Affordability Is a Major Concern. GAO-13-309. Washington, D.C.: March 11, 2013. Joint Strike Fighter: DOD Actions Needed to Further Enhance Restructuring and Address Affordability Risks. GAO-12-437. Washington, D.C.: June 14, 2012. Joint Strike Fighter: Restructuring Added Resources and Reduced Risk, but Concurrency Is Still a Major Concern. GAO-12-525T. Washington, D.C.: March 20, 2012. Joint Strike Fighter: Implications of Program Restructuring and Other Recent Developments on Key Aspects of DOD’s Prior Alternate Engine Analyses. GAO-11-903R. Washington, D.C.: September 14, 2011. Joint Strike Fighter: Restructuring Places Program on Firmer Footing, but Progress Is Still Lagging. GAO-11-677T. Washington, D.C.: May 19, 2011. Joint Strike Fighter: Restructuring Places Program on Firmer Footing, but Progress Still Lags. GAO-11-325. Washington, D.C.: April 7, 2011. Joint Strike Fighter: Restructuring Should Improve Outcomes, but Progress Is Still Lagging Overall. GAO-11-450T. Washington, D.C.: March 15, 2011.

DOD's F-35 fighter jet provides key aviation capabilities to support the U.S. National Defense Strategy. The F-35 is also DOD's most costly weapon system, with sustainment costs estimated at more than $1 trillion over a 60-year life cycle. The F-35's supply chain has a unique design. Rather than owning the spare parts for their aircraft, the Air Force, Navy, and Marine Corps—along with eight international partners and other foreign military sales customers—share a common, global pool of F-35 parts that are managed by the prime contractor. You asked us to review the F-35 supply chain. This report assesses, among other things, the extent to which (1) F-35 performance is meeting warfighter requirements and any challenges related to the availability of spare parts; (2) DOD can effectively manage and move F-35 spare parts to support aircraft around the world; and (3) DOD can account for F-35 spare parts and their costs within the supply chain. GAO reviewed DOD and contractor documentation, analyzed performance data, and interviewed relevant officials. F-35 aircraft performance is falling short of warfighter requirements—that is, aircraft cannot perform as many missions or fly as often as required. Figure: F-35 Fleet Aircraft Performance, May 2018 — November 2018 This lower-than-desired aircraft performance is due largely to F-35 spare parts shortages and difficulty in managing and moving parts around the world: Spare parts shortages and limited repair capabilities. F-35 aircraft were unable to fly nearly 30 percent of the May—November 2018 time period due to spare parts shortages. Also, the Department of Defense (DOD) had a repair backlog of about 4,300 F-35 parts. DOD is taking steps to fix these issues, such as improving the reliability of parts. However, it has not fully determined actions needed to close the gap between warfighter requirements and the performance the F-35 supply chain can deliver. Mismatched parts for deploying aircraft. DOD purchases certain sets of F-35 parts years ahead of time to support aircraft on deployments, including on ships. But the parts do not fully match the military services' needs because F-35 aircraft have been modified over time. For example, 44 percent of purchased parts were incompatible with aircraft the Marine Corps took on a recent deployment. Without a process to modify the sets of parts for deployments, DOD may be unable to meet the services' operational needs. An immature global network to move F-35 parts. DOD's networks for moving F-35 parts around the world are immature, and overseas F-35 customers have experienced long wait times for parts needed to repair aircraft. Without a detailed plan for the network, DOD may not be ready to support an expanding fleet. In addressing these challenges, DOD must grapple with affordability. The Air Force and Marine Corps recently identified the need to reduce their sustainment costs per aircraft per year by 43 and 24 percent, respectively. DOD has spent billions of dollars on F-35 spare parts but does not have records for all the parts it has purchased, where they are, or how much they cost. For example, DOD is not maintaining a database with information on F-35 parts the U.S. owns, and it lacks the necessary data to be able to do so. Without a policy that clearly defines how it will keep track of purchased F-35 parts, DOD will continue to operate with a limited understanding of the F-35 spare parts it owns and how they are being managed. If left unaddressed, these accountability issues will impede DOD's ability to obtain sufficient readiness within affordability constraints.

CRS_96-708

Introduction This report is a brief summary of House and Senate procedures for reaching agreement on legislation. It discusses the provisions of House Rule XXII and Senate Rule XXVIII as well as other applicable rules, precedents, and practices. The report focuses on the most common and customary procedures. There are many exceptions, complications, and possibilities that are not addressed, and the House and Senate may modify or waive their procedures by unanimous consent or by other means. Acting on the Same Bill The House and Senate must pass the same bill or joint resolution, and they must reach full and precise agreement on its text before it is submitted to the President for his approval or veto. The same requirements apply to a concurrent resolution and a joint resolution proposing a constitutional amendment, although neither receives presidential action. At some stage of the legislative process, therefore, the House must pass a Senate bill or the Senate must pass a House bill. The simplest way of meeting this requirement is for one house to pass its own bill and send it to the "other body," which then considers and passes it, with or without amendments. Frequently, however, House and Senate committees each develop their own bills on the same subject. In these cases, one house often debates and amends the bill reported by its committee but then amends and passes the corresponding bill that the other chamber has already passed. For example, after the House passes a bill, it frequently takes up a bill on the same subject that it has already received from the Senate. The House then amends the Senate bill by striking out the text passed by the Senate (striking out all after the enacting clause) and replacing it with the text of the House bill it has just passed. The House then passes the amended Senate bill. In this way, the House passes two bills with exactly the same text, but the Senate bill is the one likely to become law because both houses now have passed it, although with different provisions. Much the same thing could happen in the Senate. After considering its own bill, the Senate, by unanimous consent, could take up and pass the House bill after amending it with the text of the Senate-passed bill. Because this action would take unanimous consent in the Senate, however, the Senate might choose instead to begin consideration of the similar House bill. The floor manager could offer as the first amendment to the House bill a full-text substitute consisting of the text of the Senate bill. This process is usually routine, but it can become more complicated. For instance, the Senate may pass one bill on several related matters before the House passes two bills of its own that address the same subjects. After the House passes its two bills, it may take up the one Senate bill and replace the text of that bill with the texts of both of its own bills. In other instances, the House and Senate may confront political and procedural situations that make it convenient for them to include their versions of legislation on one subject as amendments to some third bill on an unrelated subject that serves as a convenient "vehicle." Such arrangements can be necessary because the House and Senate cannot begin the formal process of resolving their policy differences until these differences are embodied as amendments by one house to the version of the same bill as passed by the other. Amendments Between the Houses After one house passes a bill and the other then passes it with amendments, the House and Senate may attempt to resolve the differences between their positions. When confronted with a major bill, the two houses have historically created a conference committee for this purpose. However, a conference may not be necessary if they can reach an agreement through informal negotiations and an exchange of amendments between the houses. The amendments of one house to a bill from the other may be amended twice as the bill is sent ("messaged") back and forth between the House and Senate. Suppose, for example, that the Senate passes a House bill with amendments. The House can accept (concur in) the Senate amendments, in which case the differences are resolved. Alternatively, the House can amend the Senate amendments (concur in the Senate amendments with amendments). These House amendments are first degree amendments between the houses. The Senate can then accept (concur in) the House amendments to the Senate amendments, which would produce agreement. Or the Senate can concur in the House amendments to the Senate amendments with further Senate amendments, which are amendments in the second degree. At this stage, the House can concur in the most recent Senate amendments, but it cannot propose new House amendments to them because they would be third degree amendments, which are not permitted. (Of course, exactly the same process can occur in reverse if the House passes a Senate bill with amendments.) In both chambers, the prohibition on third degree amendments between the houses can be waived. The House might do this by special rule, suspension of the rules, or unanimous consent. In the Senate, unanimous consent is necessary to agree to an amendment in the third degree, unless the House has already waived the rule, in which case further degrees of amendment are permitted in the Senate. If the House and Senate adamantly defend their last amendments, they can send the bill back and forth several more times. In the unlikely event that neither house retreats from its last position or is willing to discuss a compromise in conference, the bill ultimately dies. It cannot be shuttled back and forth indefinitely. This process rarely results in stalemate, because the two houses either reach agreement or decide to submit their differences to a conference committee. However, an exchange of amendments sometimes takes the place of a conference. Once the two houses pass their versions of the same bill, the members and staff of the House and Senate committees of jurisdiction often meet informally to compare the two versions and discuss a compromise. If they reach an agreement that other concerned Representatives and Senators also accept, the House can, for example, concur in the Senate amendment with a House amendment that embodies the negotiated agreement. If the Senate then accepts (concurs in) this House amendment, the House and Senate have resolved their differences through the informal equivalent of a conference committee. Considering Amendments from the Other House House amendments to a Senate bill (or House amendments to Senate amendments to a House bill) are privileged for floor action by the Senate. This means there is no debate on whether to take up the House amendment. Instead, a Senator, most often the majority leader, typically requests that a House amendment be laid before the Senate. Motions to dispose of the House amendments—such as motions to concur or to concur with amendments—are debatable and, therefore, subject to filibusters. It is possible for the majority leader to move that the Senate concur in the House amendment and then propose motions that preempt all other available motions. This is often referred to as "filling the tree" on a motion to concur. If the majority leader can garner the necessary support to end debate on the motion to concur (60 Senators, assuming no vacancies), then both further amendment to the House amendment and extended debate can be avoided. The Senate sometimes arranges to consider a House amendment by unanimous consent. Like the Senate, the House sometimes acts on Senate amendments by unanimous consent. Until the House officially disagrees to Senate amendments to a House bill (or Senate amendments to House amendments to a Senate bill), these amendments are usually not privileged for consideration on the House floor. No motion is in order to concur in the Senate amendments, with or without amendments. When there is little or no controversy, the House often accepts or amends the Senate amendments by unanimous consent. Otherwise, the House can usually do so only through a motion to suspend the rules or under a special rule recommended by the Rules Committee and adopted by the House. A motion that is privileged at this stage is a motion to disagree to the Senate amendments and go to conference, but this motion must be made at the direction of the committee that originally reported the bill to the House. Both houses cannot consider the same bill at the same time, because the House or Senate can act only if it has the "papers." The papers are comprised of the official copy of the bill as passed by the house in which it originated, the official copies of amendments by either house, and the messages by which each house informs the other of the actions it has taken. After one house acts on a bill or amendments from the other, it returns all the papers with an accompanying message describing its action. Thus, the House and Senate always act in sequence as custody of the papers changes hands. Going to Conference Before a conference committee is created to resolve disagreements between the two houses, the House and Senate must each state disagreement over a bill, either by disagreeing to the amendments of the "other body" or by insisting on its own amendments. So long as one house concurs in the amendments of the other and proposes its own amendments, there is no formal disagreement. But at any point during an exchange of amendments between the House and Senate, either house can propose that they can go to conference instead. The two houses usually decide in one of two ways to establish a conference committee. When the Senate passes a House bill with amendments, for example, it can immediately insist on its amendments and request a conference with the House. The House almost always agrees to the conference, although it need not do so—for example, it could simply agree to the Senate amendments instead. At other times, however, when the Senate passes a House bill with amendments, it may merely send back the bill and the amendments in the hope that the House will accept the Senate's amendments, making a conference unnecessary. If the House does not accept the amendments, it can disagree to them and request a conference. The Senate normally then insists on its amendments and agrees to the conference, after which it informs the House and returns the papers. Of course, the equivalent of either sequence of events may occur after the House passes a Senate bill with amendments. Both chambers sometimes agree by unanimous consent to the necessary procedural steps to send a measure to conference. In the House, if there is an objection to the unanimous consent request, then a privileged motion can be made, at the direction of the committee(s) of jurisdiction, to disagree to the Senate amendment (or insist on the House amendment) and request (or agree to) a conference with the Senate. If unanimous consent cannot be reached in the Senate, then a motion can be made to authorize a conference committee, which is subject to debate under regular Senate rules. If a cloture motion to end debate is filed on this motion, however, it matures after just two hours of debate. If three-fifths of the Senate agrees to invoke cloture, then the Senate could immediately vote to approve the motion to authorize a conference. No further debate of the motion would be in order. Appointing and Instructing Conferees Each house usually appoints its conferees (also known as managers) immediately after deciding to go to conference. The Speaker appoints House conferees. The Senate frequently decides, by unanimous consent, to authorize the presiding officer to appoint "the managers on the part of the Senate." The Senate could also empower the presiding officer to appoint conferees, or appoint conferees directly, through the motion to authorize a conference, discussed above. The chairman and ranking minority member of the committee or subcommittee that reported the bill are almost always conferees. They also play a major part in deciding who else is appointed. The committee or subcommittee leaders usually prepare a list of conferees from their chambers that the Speaker normally accepts and the presiding officer of the Senate always accepts. The party leaders may also become involved in selecting conferees, especially if the bill is particularly important, if it was reported by two or more committees, or if amendments to the bill from the other house touch the jurisdiction of more than one committee. Most conferees are members of the committee that reported the bill. In the case of a bill that involves the jurisdiction of more than one committee, members of each committee are often appointed as conferees with authority only to negotiate an agreement with respect to the subjects or provisions of the bill that fall within the jurisdiction of their committees. Thus, some members may be designated as conferees for purposes of the entire bill while others are appointed only to address a specific section or title. Representatives may also be appointed as conferees for limited purposes when the Senate proposes a nongermane amendment that is within the jurisdiction of another House committee. In addition, the Speaker may appoint other Representatives who, for example, offered important floor amendments. The list of conferees generally reflects the party balance in each house. The House and Senate do not have to appoint the same number of managers, and they frequently do not. House conferees vote as a delegation, as do Senate conferees, and a majority of each delegation must sign the conference report. Thus, three Representatives have the same voting power in conference as 30 Senators. Each house is likely to appoint a larger number of conferees when the bill involves the jurisdiction of more than one of its standing committees. A Representative or Senator may move to instruct the conferees from his or her chamber immediately after that house agrees to go to conference but just before the conferees are appointed. For example, the House can instruct its managers to insist on the House position on a particular amendment, or the Senate can instruct its managers to recede to the House position on another amendment. However, instructions to conferees are never binding; no point of order lies against a conference report that is inconsistent with House or Senate instructions to its conferees. The House can also instruct its conferees if they do not report within 45 calendar days and 25 legislative days after being appointed (or 36 hours after being appointed during the last six days of a session). Conference Rules and Reports Conference committee meetings are open to the public unless the conferees vote to close them, and the House must vote to authorize its conferees to do so. Both chambers also have guidelines concerning conference meetings, generally encouraging frequent meetings with open discussions, but these guidelines are often waived or in some cases are not procedurally enforceable. Beyond these guidelines, there are virtually no House or Senate rules governing conference meetings. Conferees select their own chairman and usually work without formal rules on quorums, proxies, debate, amendments, and other procedural matters. Conferences are negotiating forums, and the two chambers allow conferees to decide for themselves how best to conduct their negotiations. It is most common that a conference committee holds a single public meeting, sometimes for members to offer opening statements only. However, the House and Senate have important, and roughly the same, rules governing what decisions conferees can make. Conference committees are established to resolve disagreements between the House and Senate over their versions of the same bill. Therefore, the authority of conferees is limited to matters in disagreement. As a general rule, they may not change a provision on which both houses agree, nor may they add anything that is not in one version or the other. Furthermore, conferees are to reach agreements within the "scope" of the differences between the House and Senate positions. For example, if the House appropriates $10 million for some purpose and the Senate amends the bill by increasing the appropriation to $20 million, the conferees exceed their authority if they agree on a number that is less than $10 million or more than $20 million. It is much harder to determine the scope of the differences when they are qualitative, not quantitative. Also, conferees have more latitude under some circumstances than under others. Under a previous practice, when one house would pass a bill and the other would then pass it with a series of separate amendments—each making a change in a different provision of the bill—these amendments were usually numbered, and it was relatively easy for the conferees to determine the scope of the differences over each amendment. This is generally not true, however, under modern practice when the Senate passes a House bill (or the House passes a Senate bill) with an amendment in the nature of a substitute that totally replaces the text of the bill. In this situation, which arises nearly all of the time, there is only one amendment in conference—for example, a Senate substitute for the House version of a bill. The two versions of the bill can take very different approaches to the same subject, making it difficult for the conferees to isolate every point of agreement and disagreement and to identify the scope of each disagreement. Under these circumstances, the conferees may write their own conference substitute, so long as it is a germane modification of the House and Senate versions. If a conference agreement exceeds the scope of the differences or deals with a matter that is not in disagreement, the conference report is subject to a point of order when the House or Senate considers it. The House, however, typically protects a conference report against points of order by adopting a resolution reported by the Rules Committee waiving the applicable rules. The Senate, meanwhile, interprets the authority of its conferees generously, especially when they develop a conference substitute. Furthermore, the Senate can waive its rule with a three-fifths vote of Senators duly chosen and sworn (60 Senators if there are no vacancies). The authority of Senate conferees is further limited by Senate Rule XLIV, paragraph 8. Under this rule, a Senator can raise a point of order against discretionary and mandatory spending provisions of a conference report if they constitute "new directed spending provisions," or what are sometimes called "air drops." Paragraph 8 defines a "new directed spending provision" as follows: any item that consists of a specific provision containing a specific level of funding for any specific account, specific program, specific project, or specific activity, when no specific funding was provided for such specific account, specific program, specific project, or specific activity in the measure originally committed to the conferees by either House. The Senate can waive these restrictions on the content of conference reports by a three-fifths vote of Senators duly chosen and sworn (60 Senators assuming no vacancies). When the conferees reach full agreement, their staffs prepare a conference report that states how they propose to resolve each of the disagreements. Accompanying the report itself is a joint explanatory statement (also known as the statement of managers), which describes the various House and Senate positions and the conferees' recommendations in more detail. A majority of the House managers and a majority of the Senate managers must sign both the conference report and the joint explanatory statement. House rules require that House conferees be given an opportunity to sign the conference agreement at a set time and place. At least one copy of the final conference agreement must be made available for review by House managers with the signature sheets. Each chamber then debates and votes on the conference report in turn. Floor Action on Conference Reports At the conclusion of a successful conference, the papers usually change hands. The conferees from the house that requested the conference bring the papers into conference and then turn them over to the conferees from the other house. Thus, the house that agreed to the conference normally acts first on the conference report. However, this is a practice that is not required by House or Senate rules. The Senate usually takes up a conference report by unanimous consent, although a Senator can make a nondebatable motion to consider it. The report may be called up at any time after it is filed, but it is not in order to vote on the adoption of a conference report unless it has been available to Members and the general public for at least 48 hours before the vote. (This requirement can be waived by three-fifths of Senators duly chosen and sworn or by joint agreement of the majority and minority leaders in the case of a significant disruption to Senate facilities or to the availability of the internet.) Under Senate rules, a report is considered to be available to the general public if it is posted on a congressional website or on a website controlled by the Library of Congress or the Government Publishing Office. When considered on the Senate floor, a conference report is debatable under normal Senate procedures; it is subject to extended debate unless the time for debate is limited by unanimous consent or cloture or if the Senate is considering the report under expedited procedures established by law (such as the procedures for considering budget resolutions and budget reconciliation measures under the Budget Act). Paragraph 8 of Senate Rule XXVIII states that, if time for debating a conference report is limited (presumably by unanimous consent), that time shall be equally divided between the majority and minority parties, not necessarily between proponents and opponents of the report. A point of order may be made against a conference report at any time that it is pending on the Senate floor (or after all time for debate has expired or has been yielded back if the report is considered under a time agreement). If a point of order is sustained against a conference report on the grounds that conferees exceeded their authority, either by violating the "scope" rule (Rule XXVIII) or the prohibition against "new directed spending provisions" (paragraph 8 of Rule XLIV), then there is a special procedure to strike out the offending portion(s) of the conference recommendation and continue consideration of the rest of the proposed compromise. Under the procedure, a Senator can make a point of order against one or more provisions of a conference report. If the point of order is not waived (see below), the presiding officer rules whether or not the provision is in violation of the rule. If a point of order is raised against more than one provision, the presiding officer may make separate decisions regarding each provision. After all points of order raised under this procedure are disposed of, the Senate proceeds to consider a motion to send to the House, in place of the original conference agreement, a proposal consisting of the text of the conference agreement minus the provisions that were ruled out of order and stricken. Amendments to this motion are not in order, and debate is limited only if it had been limited on the conference report. In short, the terms for consideration of the motion to send to the House the proposal without the offending provisions are the same as those that would have applied to the conference report itself. If the Senate agrees to the motion, the altered conference recommendation is returned to the House in the form of an amendment between the houses. The House then has an opportunity to act on the amendment under the regular House procedures for considering Senate amendments discussed in earlier sections of this report. Senate rules also create a mechanism for waiving these restrictions on conference reports. Senators can move to waive points of order against one or several provisions, or they can make one motion to waive all possible points of order under either Rule XXVIII or Rule XLIV, paragraph 8. If the motion to waive garners the necessary support, the Senate is effectively agreeing to keep the matter that is potentially in violation of the rule in the conference report. In the House, the conference report cannot be considered unless it has been available in the Congressional Record or on the House document repository website for 72 hours. Copies of the report and the statement must also be available to Representatives for at least two hours before they consider it. These availability requirements are sometimes waived by a rule reported by the Rules Committee, and they do not apply during the last six days of a session. Typically, the House calls up a conference report under the terms of a special rule that protects the report against one or more points of order if the Rules Committee reports and the House adopts a resolution waiving the applicable rules. The House debates a conference report under the one-hour rule, with control of the hour equally divided between the two parties. However, if both floor managers support the report, a Representative opposed to it may claim one-third of the time for debate. At the end of the first hour, the House normally votes to order the previous question, which precludes additional debate. If Representatives could make points of order against a report, sometimes the House first considers and agrees to a resolution, recommended by its Rules Committee, that protects the report by waiving the points of order. Conference reports are not amendable. Each report is a compromise proposal for resolving a series of disagreements; the House prevails on some questions, the Senate on others. If the House and Senate were free to amend the report, they might never reach agreement. At the end of debate, therefore, each house votes on whether to agree to the report as a whole. However, the house that considers the report first also has the option of recommitting it to conference. But when one chamber acts on the report, it automatically discharges its conferees. As a result, the other house cannot vote to recommit, because the conference committee has been disbanded. If the House and Senate agree to the conference report, the bill is enrolled (printed on parchment in its final form) and presented to the President for his approval or disapproval. Additional Resources The report is based upon the original author's interpretation of the rules and published precedents of the two houses and an analysis of the application of these rules and precedents in recent practice (see "Acknowledgements"). Readers may wish to study the provisions of House and Senate rules and examine the applicable precedents—especially in the sections on "Senate Bills," "Amendments Between the Houses," and "Conferences Between the Houses"—in House Practice: A Guide to the Rules, Precedents and Procedures of the House and the corresponding sections on "Amendments Between Houses" and "Conferences and Conference Reports" in Riddick's Senate Procedure (Senate Document No. 101-28). There is also more detailed information on this subject in CRS Report 98-696, Resolving Legislative Differences in Congress: Conference Committees and Amendments Between the Houses , and CRS Report R41003, Amendments Between the Houses: Procedural Options and Effects .

The House and Senate must pass the same bill or joint resolution in precisely the same form before it can be presented to the President. Once both houses have passed the same measure, they can resolve their differences over the text of that measure either through an exchange of amendments between the houses or through the creation of a conference committee. The House and Senate each have an opportunity to amend the other chamber's amendments to a bill; thus, there can be House amendments to Senate amendments to House amendments to a Senate bill. If either chamber accepts the other's amendments, the legislative process is complete. Alternatively, each house may reach the stage of disagreement at any time by insisting on its own position or by disagreeing to the position of the other chamber. Having decided to disagree, they then typically agree to create a conference committee to propose a single negotiated settlement of all their differences. Conference committees are generally free to conduct their negotiations as they choose, but under the formal rules they are expected to address only the matters on which the House and Senate have disagreed. Moreover, they are to propose settlements that represent compromises between the positions of the two houses. When they have completed their work, they submit a conference report and joint explanatory statement, and the House and Senate vote on accepting the report without amendments. Only after the two houses have reached complete agreement on all provisions of a bill can it be sent to the President for his approval or veto.

CRS_R46356

A growing number of reported Coronavirus Disease 2019 (COVID-19) cases have been identified in the United States, significantly impacting many communities. As this situation rapidly evolves, the economic impact due to illnesses, quarantines, social distancing, local stay-at-home orders, and other business disruptions will be large. Consequently, many Americans will lose income and face financial hardship due to the impact of the COVID-19 pandemic. In response, four pieces of COVID-19-related legislation have been enacted—most relevant for this report is the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136 ) enacted on March 27, 2020. The act establishes consumer rights to be granted forbearance for many types of mortgages (Section 4022) and for most federal student loans (Section 3513). The law also protects the credit histories of consumers with forbearance agreements (Section 4021). In addition, financial regulatory agencies have updated their guidance to provide clarity to financial institutions responding to these events. For loan obligations where the CARES Act does not guarantee a right to loan forbearance, such as auto loans, credit cards, private student loans, and bank-owned mortgages, a consumer's ability to access this option may vary. Reports suggest that many consumers have requested payment relief for these types of loans not covered by the CARES Act. Different financial institutions may be subject to different laws and incentives to handle consumer relief requests. For this reason, an individual consumer may find a range of responses from different financial institutions when requesting relief options. This report focuses on policy responses relating to the financial services industry for consumers who may have trouble paying their loan obligations, such as mortgages, student loans, auto loans, and credit cards. First, it provides an overview of loan forbearance and other possible relief options for consumers. Then, the report discusses relevant CARES Act provisions and federal financial regulatory responses. Lastly, the report describes the impact this pandemic and the proceeding policy responses have had on financial institutions and consumers. Ov erview of Loan Forbearance and O ther Relief Options for Consumers During previous natural disasters, government shutdowns, or other similarly destabilizing events, the financial industry has provided financial assistance to some affected consumers, particularly those having temporary difficulties repaying their mortgages, credit cards, or other loans. For example, financial institutions have agreed to defer payments, limit late or other fees, and extend credit to ease consumer financial struggles. In response to the coronavirus pandemic, many banks have recently announced measures to offer various forms of assistance to affected consumers. However, the COVID-19 pandemic is more widespread than previous events, affecting consumers across the country; therefore, financial industry responses may differ from the past. This section begins with a discussion of loan forbearance, a common form of consumer relief. It then describes other types of assistance that financial institutions could provide to impacted consumers. Loan Forbearance Loan forbearance plans are agreements allowing borrowers to reduce or suspend payments for a short period of time, providing extended time for consumers to become current on their payments and repay the amounts owed. These plans do not forgive unpaid loan payments. Loan forbearance plans between consumers and financial institutions usually include a repayment plan, which is an agreement allowing a defaulted borrower to repay the amount in arrears and become current on the loan according to an agreed upon schedule. Repayment plans take many shapes. For example, these plans may include a requirement that all suspended payments are to be due at the end of the loan forbearance period; the past due amount is to be added to the regular payment amount over the year after loan forbearance ends; or payments are to be added to the end of the loan's term. Interest or fees may or may not accrue during the loan forbearance period. As loan forbearance and repayment plans are generally offered to consumers experiencing a temporary hardship, they have become a common form of consumer relief during the COVID-19 pandemic. During this pandemic, many businesses might be closed either by mandate (e.g., restaurants, concerts, or sporting event venues) or facing significant revenue declines due to social distancing efforts (e.g., more space between people at open stores or restaurants) or changes in consumer behavior (e.g., airlines, hotels, and the travel industry). Many of these disruptions may be temporary, lasting only for the duration of the pandemic. Many financial institutions offer loan forbearance plans as an option for consumers who have experienced job loss or temporary income loss but may be able to continue to repay their credit obligations after the disruption ends. In addition, financial institutions may see loan forbearance plans as a good option for consumers at this time because these plans often do not involve renegotiating contracts. Loan forbearance may be a less viable option to deal with the financial ramifications of the pandemic if it causes prolonged disruptions, such as persistent elevated levels of unemployment or permanent business closures. Other Relief Options Available to Consumers Loss mitigation (or workout options) refers to a menu of possible options financial institutions may offer to help a distressed borrower become and stay current with loan payments and avoid default. Loan forbearance is one type of loss mitigation. Loan modifications are another type of loss mitigation that renegotiates the contract with concessions to the borrower. These concessions can take the form of principal balance reductions, interest rate reductions, term to maturity extensions, or some combination of such options. Financial institutions or loan servicers generally weigh the costs and benefits of the various loss mitigation options and offer borrowers the least costly option from a business perspective. Loan forbearance can be the least costly option when the duration of consumer hardship is temporary and short, and the lender can be paid back quickly. Loan modifications may also be beneficial to the lender under circumstances when the costs to modify and retain the loan are lower than the costs of default. If a borrower's circumstances, such as becoming disabled or long-term unemployed, make it difficult for servicers to offer a workout option, the lender may find options such as debt collection, auto repossession, foreclosure, or wage garnishment a less costly way to resolve the default. Finally, various contractual arrangements that loan servicers are obligated to follow may dictate servicer actions from the time the loan became distressed until resolution. These arrangements may limit servicers' authorities and options. Financial institutions can provide other types of relief to consumers, such as agreeing to limit late or other fees and offering new credit or loan products. For example, a consumer can refinance out of a distressed mortgage into a new mortgage contract, potentially pulling equity out of their home to repay arrears and accumulated penalties. Generally financial institutions would choose to extend new credit only if they determine that the borrower is in a good position to pay the loan back in the future. During the COVID-19 pandemic, some banks have decided to limit new credit to consumers due to increased economic risk. Loss mitigation procedures provided by financial institutions or loan servicers are regulated in order to help protect consumers. For example, during the 2008 financial crisis, many consumers had trouble paying their mortgages due to unemployment and decreasing house prices. When mortgage delinquency and foreclosure rates rose, federal regulators identified pervasive documentation issues at many mortgage servicers, which became an issue when a large number of consumers defaulted. In response, the Consumer Financial Protection Bureau (CFPB), using its authority under the Real Estate Settlement Procedures Act (RESPA; P.L. 93-533 , implemented by Regulation X), issued the RESPA Mortgage Servicing Rule in January 2013. Among other things, the rule created an obligation for mortgage servicers to establish consistent policies and procedures to contact delinquent borrowers, provide information about mortgage loss mitigation options, and evaluate borrower applications for loss mitigation in a timely manner. Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136) This section of the report discusses various relief provisions of the CARES Act for borrowers and consumer lenders. Table 1 presents a summary of CARES Act provisions that pertain to loan forbearance by consumer credit type. In addition, other provisions of the CARES Act, which help financial institutions cope financially when experiencing increased loan losses, will be discussed. Lastly, this section discusses legislative policy issues relating to consumers missing loan payments. Mortgage Forbearance The CARES Act includes some measures to provide temporary forbearance relief for certain affected mortgage borrowers—those with "federally backed" mortgages. Section 4022 allows borrowers with federally backed mortgages to request forbearance from their mortgage servicers (the entities that collect payments and manage the mortgage on behalf of the lender/investor) due to a financial hardship caused directly or indirectly by COVID-19. The borrower must attest to such hardship, but no additional documentation is required. Servicers must grant forbearance for up to 180 days and must extend the forbearance up to an additional 180 days at the borrower's request. Either period can be shortened at the borrower's request. The servicer may not charge fees, penalties, or interest beyond what would have accrued if the borrower had made payments as scheduled. The CARES Act mortgage provisions potentially raise the question of what happens after the forbearance period. The act does not address how repayment should occur. Servicers are to negotiate repayment terms with borrowers, subject to existing requirements or any additional guidance provided by the entity backing the mortgage. Federal Student Loan Forbearance18 Federal loans to support students' postsecondary educational pursuits are currently available under the William D. Ford Federal Direct Loan (Direct Loan) program and the Federal Perkins Loan program. Loans were previously available through the Federal Family Education Loan (FFEL) program, and some of those loans remain outstanding. Due to the current economic situation, many consumers may have trouble repaying their federal student loans. In response, Section 3513 of the CARES Act suspends all payments due and interest accrual for all loans made under the Direct Loan program and for FFEL program loans held by the Department of Education through September 30, 2020. A suspended payment is to be treated as if it were a regularly scheduled payment made by a borrower for the purpose of reporting information about the loan to a consumer reporting agency and toward specified loan forgiveness (e.g., public service loan forgiveness) or loan rehabilitation programs. In addition, involuntary collections on defaulted loans are suspended through September 30, 2020. Consumer Credit Reporting Consumers can harm their credit scores when they miss consumer loan payments, and lower credit scores can impact their access to credit in the future. Section 4021 of the CARES Act requires financial institutions to report to the credit bureaus that consumers are current on their credit obligations if they enter into an agreement to defer, forbear, modify, make partial payments, or get any other assistance on their loan payments from a financial institution and fulfil those requirements. The covered period for this section starts on January 31, 2020, and extends to the later of 120 days after enactment or 120 days after the national emergency declared by the President on March 13, 2020, terminates. Before this law was enacted, lenders could choose whether to report loans in forbearance as paid on time; with this law, these options are no longer voluntary for the lender. Some affected consumers may still experience harm to their credit record because the CARES Act does not give consumers a right to be granted forbearance for many types of consumer loans (such as auto loans, credit cards, and mortgages and student loans not covered by the CARES Act; see Table 1 ). Although many financial institutions have announced efforts to provide assistance to affected consumers, lenders have discretion whether to enter into an assistance agreement with an individual consumer. Therefore, the ability of consumers to protect their credit scores could vary. Bank and Credit Union Loan Loss Related Provisions Other provisions in the CARES Act are intended to reduce or remove potential disincentives related to accounting and capital requirements that banks may face when deciding whether to grant a forbearance for non-federally backed loans. When the inflow of payments on loans unexpectedly decreases, as happens when unanticipated forbearances are granted, banks must account for this by writing down the value of the loans. The lost value must be reflected with a reduction in income or value of the bank's capital, which can be thought of as the bank's net worth. Banks face a number of requirements to hold minimum levels of capital; if the value were reduced, the bank eventually would fail to comply with those requirements. Thus, these accounting and capital requirements may make a bank hesitant to grant a forbearance (if it judges that the borrower will ultimately be able to make payment) or cause a bank to put off accounting for realized losses at a later date. Sections 4012, 4013, and 4014 of the CARES Act may mitigate these concerns. Certain small banks can elect to be subject to a single, relatively simple—but relatively high—capital rule called the Community Bank Leverage Ratio (CBLR). Bank regulators are authorized to set the CBLR between 8% and 10%. Prior to the enactment of the CARES Act, it was set at 9%. Section 4012 directs regulators to lower it to 8% and give banks that fall below that level a reasonable grace period to come back into compliance with the CBLR. As a result, qualifying banks are to be able to write down the value of more loans before they reach the minimum CBLR level. This relief expires the earlier of (1) the date the public health emergency ends or (2) the end of 2020. When a lender grants a loan forbearance, it may be required to record it as troubled debt restructuring (TDR) in its accounting. Generally Accepted Accounting Principles (GAAP) require the lender to reflect in its financial records any potential loss as a result of a TDR. Section 4013 requires federal bank and credit union regulators to allow lenders to determine if they should suspend the GAAP requirements for recognizing any potential COVID-19-related losses from a TDR related to a loan modification. This relief expires the earlier of (1) 60 days after the public health emergency declaration is lifted or (2) the end of 2020. Another feature of bank and credit union accounting is determining the amount of credit loss reserves , which help mitigate the income overstatement on loans and other assets by adjusting for expected future losses on related loans and other assets. In response to banks' financial challenges during and after the 2007-2009 financial crisis, the Financial Accounting Standards Board promulgated a new credit loss standard—Current Expected Credit Loss (CECL)—in June 2016. CECL requires earlier recognition of losses than the current methodology. All public companies were required to issue financial statements that incorporated CECLs for reporting periods, beginning on December 15, 2019. Section 4014 gives banks and credit unions the option to temporarily delay CECL implementation until the earlier of (1) the date the public health emergency ends or (2) the end of 2020. Policy Issues Some consumer advocates argue that during the COVID-19 pandemic, Congress could do more to help consumers experiencing financial hardship. Some consumers may not receive loan forbearance for credit obligations outside of those with rights under the CARES Act. In addition, consumers may continue to incur bank fees and face issues relating to debt collection and negative credit reporting. For this reason, other legislative proposals would prevent creditors and debt collectors from collecting on delinquent loans, charging fees and interest, or reporting negative information to the credit bureaus during the coronavirus pandemic period. Some financial institutions would likely incur significant costs under these proposals. Some proponents of these proposals argue that the federal government may consider compensating financial institutions for these losses in order to implement these policies. On the other hand, other types of government policies outside of the financial industry, such as unemployment insurance or small business aid to keep people employed, can also target impacted Americans. Non-Legislative Federal COVID-19 Responses In addition to legislative responses, financial regulatory agencies have taken other steps to respond to the COVID-19 pandemic by encouraging loan forbearance and other financial relief options for impacted consumers. On March 9, 2020, federal and state financial regulators coordinated a guidance statement to the financial industry, encouraging it to help meet the needs of consumers affected by the virus outbreak. The regulators stated that "financial institutions should work constructively with borrowers and other consumers in affected communities," as long as they employ "prudent efforts that are consistent with safe and sound lending practices." This statement was similar to financial regulators' past statements during disruptive events, such as natural disasters and government shutdowns. Beyond this statement, financial regulatory agencies have used existing authorities to issue new COVID-19 guidance to help financial firms support consumer needs during this time. Regulatory guidance does not force a financial institution to take any particular action for consumers (such as offering loan forbearance), but it can increase the incentives or reduce the disincentives of taking such actions. Consumer Regulatory Guidance When processing these loan forbearance or other consumer relief requests, financial institutions must ensure that they are acting fairly and complying with the law. For mortgage loan forbearance requests, financial institutions must comply with RESPA mortgage servicing standards. In addition, for all consumer loan forbearance or relief requests, financial institutions must also ensure that they are complying with fair lending laws. The main federal consumer financial regulator in the United States is the CFPB, which implements and enforces federal consumer financial law while ensuring that consumers can access financial products and services. In response to the COVID-19 pandemic, the CFPB issued new guidance about complying with legal requirements during this period of increased loan forbearance requests. The CFPB released additional guidance on regulatory compliance with Regulation X during the mortgage loan transfer process. In addition, the CFPB announced a new joint initiative with the Federal Housing Finance Agency (FHFA) to share mortgage servicing information to protect borrowers. The FHFA is to share information with the CFPB about forbearances, modifications, and other loss mitigation initiatives undertaken by Fannie Mae and Freddie Mac. In combination with CFPB consumer complaints, these data would help the CFPB monitor whether mortgage servicers are complying with the law when they offer these relief options to impacted customers. In addition to mortgage servicing guidance, federal and state financial regulatory agencies also instructed financial institutions that for all consumer credit products, "when working with borrowers, lenders and servicers should adhere to consumer protection requirements, including fair lending laws, to provide the opportunity for all borrowers to benefit from these arrangements." The CFPB has also issued guidance to temporarily reduce regulatory burden by delaying industry reporting requirements for mandatory data collections and providing flexibility on timing requirements. The agency also stated that while continuing to do its supervisory work, it would work with affected financial institutions in scheduling examinations and other supervisory activities to minimize disruption and burden as a result of operational challenges due to the pandemic. These efforts to reduce regulatory burden aim to allow financial institutions more bandwidth to work with impacted consumers and provide them with financial relief during the pandemic. Financial institutions can also provide other types of relief to consumers, such as offering new credit or loan products, so a consumer can pay their loan payments, medical bills, or other expenses to maintain their standard of living during the pandemic period. For this reason, financial regulators have encouraged financial institutions to provide small-dollar loans to affected consumers. However, financial institutions generally would choose to extend new credit only if they were to determine that the borrower is in a good position to pay the loan back in the future, and there may be a significant amount of uncertainty in making such a determination during this pandemic. Therefore, it is unclear whether this guidance will encourage financial institutions to provide small-dollar loans to many consumers. Financial Institution Regulatory Guidance A variety of financial institutions make different types of credit available to consumers. In particular, bank and mortgage institutions are subject to various regulatory controls to ensure they are operating in a safe and sound manner while complying with relevant laws. In response to COVID-19, regulators have issued guidance to signal to financial institutions that it is acceptable to take certain actions that may temporarily weaken their financial positions without facing regulatory actions. Guidance for Depository Institutions The banking regulators—the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the National Credit Union Administration (NCUA)—have worked together to issue guidance and updates to the financial institutions they regulate about how those institutions should work with customers who are negatively impacted by COVID-19. Regulators' efforts to deal with the potential effects of COVID-19 began in early March with attempts to ensure that depository institutions were adequately planning for potential risks. On March 6, 2020, the Federal Financial Institutions Examination Council (FFIEC) updated its influenza pandemic guidance to minimize the potentially adverse effects of COVID-19. The guidance identifies business continuity plans as key tools to address pandemics and provides a comprehensive framework to ensure the continuation of critical operations. Since then, regulators have built on this guidance to encourage financial institutions to take actions to continue to serve customers financially affected by the virus. On March 13, 2020, the Federal Reserve, the OCC, and the FDIC issued guidance identifying ways to assist customers, including waiving fees, offering repayment accommodations, extending payment due dates, increasing credit card limits, and increasing ATM withdrawal limits. Repayment accommodations include allowing borrowers to defer or skip payments or extending payment due dates to help consumers avoid delinquencies, which is a form of forbearance. Regulators can also use incentives to encourage financial institutions to work with consumers and offer repayment accommodations. Recent regulatory guidance signaled to financial institutions that certain activities with consumers would be eligible to earn credit toward their performance assessments under the Community Reinvestment Act (CRA; 12 U.S.C. §2901), which encourages banks to extend credit to the communities from which they accept deposits by considering this factor in applications to bank regulators to expand operations, such as through mergers and acquisitions. On March 19, 2020, banking regulators issued a new statement encouraging depository institutions to continue working with affected customers and communities—particularly those that are low- and moderate-income—by providing favorable CRA consideration for activities including "offering payment accommodations, such as allowing borrowers to defer or skip payments or extending the payment due date, which would avoid delinquencies and negative credit bureau reporting, caused by COVID-19-related issues." Guidance for the Housing Finance System The many federal agencies involved in housing finance have taken actions to encourage or authorize financial institutions to offer forbearance to mortgage borrowers affected by COVID-19. Government-Sponsored Enterprises Fannie Mae and Freddie Mac, commonly referred to as government-sponsored enterprises (GSEs), provide liquidity to the housing finance market by purchasing mortgages from lenders and subsequently guaranteeing the default risk linked to their issuances of mortgage-backed securities (MBS, a process known as securitization). In 2008, Fannie Mae and Freddie Mac were placed under conservatorship by their primary regulator, FHFA. The FHFA also regulates the Federal Home Loan Bank (FHLB) system, which is also a GSE, and comprises 11 regional banks that provide wholesale funding to its members—mortgage lenders, such as banks, credit unions, and insurance companies. On March 18, 2020, Fannie Mae issued guidance signaling to Fannie Mae single-family mortgages borrowers affected by COVID-19 that they could request mortgage assistance by contacting their mortgage servicer—this guidance was updated with the enactment of the CARES Act and includes forbearance for up to 12 months with no late fees. Similarly, Freddie Mac issued guidance to provide mortgage relief options in line with the CARES Act that include loan modifications and mortgage forbearance for up to 12 months. Federal Housing Agencies The Federal Housing Administration (FHA) —an agency within the Department of Housing and Urban Development (HUD)—as well as the Department of Veterans Affairs (VA) and the Department of Agriculture (USDA), each have loan programs that insure or guarantee loans for certain mortgages. Ginnie Mae is a federal government agency that issues MBS linked to mortgages whose default risks are guaranteed by the FHA, VA, and USDA. Ginnie Mae guarantees its MBS investors timely principal and interest payments. On April 1, 2020, HUD instructed mortgage servicers for mortgages with FHA insurance to extend deferred or reduced mortgage payment options (forbearance) for up to six months. In addition, they must provide an additional six months of forbearance if requested by the borrower. This mandate implements provisions contained in the CARES Act. On April 8, 2020, the VA issued a circular that similarly aligns with CARES Act provisions. Through its home loan program, the VA stated that borrowers may request forbearance from their servicer on VA-guaranteed loans or VA-held loans, including Native American Direct Loans or Vendee loans, if they are facing financial hardship from COVID-19. Mortgage Servicers After the passage of the CARES Act, the federal banking agencies and state bank regulators issued a joint statement encouraging mortgage servicers to continue to work with homeowners affected by COVID-19. Much of this guidance aligns with the CARES Act provisions for federally backed mortgages, but many banks issue mortgages that are not federally backed; therefore, they are not required to offer mortgage forbearance. This guidance, while not binding, encourages financial institutions to consider ways to work with consumers through short-term forbearance programs similar to the ones established in the CARES Act. Policy Issues Some observers argue that the federal financial regulators could do more to promote fair access to consumer relief options during the COVID-19 pandemic. Although recent guidance from financial regulators mentioned fair lending concerns, some commentators argue that to ensure fair treatment when consumers apply for loan relief options or become delinquent, additional more detailed guidance to financial institutions about how to comply with consumer protection and fair lending laws during the COVID-19 pandemic would be helpful. In addition, with its data partnership with FHFA, some argue that the CFPB could compile and make public information on how many consumers are accessing relief options and how the frequency of use varies based on type of financial institution. These types of data could help policymakers determine whether relief requests are allocated appropriately or whether additional measures should be considered to help those in need. Forbearance Implications for the Financial System The large economic impact of the COVID-19 pandemic affects the financial system in many important ways. For example, if many consumers were to miss loan payments, this would have negative consequences on banks and other financial institutions. These institutions have worked to comply with the CARES Act and relevant regulatory guidance during the COVID-19 pandemic period to provide loan forbearance and other flexibilities to distressed consumers. However, the potential strain on the financial system might make it challenging for institutions to provide this support, and these efforts may be insufficient to provide widespread assistance without direct government intervention. This section of the report describes which types of financial institutions hold different types of consumer loans and how the CARES Act or different financial regulatory regimes may impact consumer's access to loan forbearance. It also discusses how private sector institutions may be significantly impacted by missed consumer loan payments and the economic impact of the COVID-19 pandemic. Consumer Loans Owners A consumer's ability to get a forbearance and under what terms may be significantly influenced by what type of institution owns the loan. These various institutions—including banks and credit unions, private nonbank financial institutions, GSEs, and the federal government—are subject to different laws, regulations, and business considerations. In addition, different types of loans—such as mortgages, student loans, and other consumer debt—are subject to different regulations and legal mandates related to forbearance. Mortgages72 Of the $11.2 trillion dollars of mortgages outstanding on one-to-four-family homes at the end of 2019, 63% of mortgage loans in the United States were held or insured by the federal government and therefore covered by the CARES Act's consumer right to be granted loan forbearance, as shown in Figure 1 . Most of these "federally backed" mortgages were held by GSEs or in mortgage pools backed by GSEs or other agencies (such as Fannie Mae, Freddie Mac, and Ginnie Mae). Banks held almost $2.7 trillion in mortgage loans, nearly 24% of the total, and credit unions held over $572 billion, making up 5%. The remaining 8% are mostly held by a variety of nonbank financial institutions, such private issuers of MBS, real estate investment trusts, nonbank lenders, and insurance companies. Mortgage servicers can be banks and nonbanks. Nonmortgage Consumer Loans In contrast, most nonmortgage consumer loans are not covered by the CARES Act. At the end of 2019, the amount of consumer loans outstanding was nearly $4.2 trillion dollars. Over $1.6 trillion (39% of the total) were student loans; about $1.2 trillion (29%) were auto loans; nearly $1.1 trillion (26%) were credit card debt; and $258 billion (6%) were other consumer installment loans. As shown in Figure 2 , four types of institutions hold the vast majority of this debt: (1) banks—about $1.8 trillion, or 42% of the total; (2) the federal government—more than $1.3 trillion, or 31%; (3) finance companies—$537 billion, or 13%; and (4) credit unions—$482 billion, or 12%. Analysis of other data sources indicate all, or nearly all, of the $1.3 trillion of consumer debt held by the federal government is student loan debt. Federal student loans are generally eligible for CARES Act loan forbearance relief. For other types of nonmortgage credit—such as auto loans, credit cards, and private student loan—banks, credit unions, and finance companies are large players. In these markets, the CARES Act does not guarantee a right to loan forbearance; therefore, financial institutions are to have discretion about whether to offer consumers various loss mitigation options based on what is most profitable for the institution. Although banks and credit unions are regulated to ensure they are operating in a safe and sound manner, nonbank finance companies generally are not subject to this type of regulation. In addition, all institutions must comply with fair lending and other consumer laws when offering loss mitigation options, but supervision and enforcement of these laws may vary based on the institutions' regulatory regime. For these reasons, different financial institutions may respond to consumers' requests for relief options in varying ways. In addition, the financial impact of missed consumer loan payments may vary by institution. Potential Impacts on Banks and Mortgage Servicers Many financial institutions may be impacted by missed consumer loan payments due to the COVID-19 pandemic. Two industries that will be significantly impacted are banks and mortgage servicers. Potential Impacts on Banks A bank's main business is to make loans and buy securities using funding it raises by taking deposits. A bank earns money largely through borrowers making payments on their loans and securities issuers making payments on securities, along with charging fees for certain services. In addition to accepting deposits, a bank also raises funds by issuing debt (such as bonds) and capital (such as stock). Unlike deposits and debt that place specific payment obligations on a bank, payments on capital can generally be reduced, delayed, or cancelled, and the value of capital can be written down. Thus, if incoming payments unexpectedly stop, capital allows a bank to withstand losses to a point. However, if a bank exhausts its capital reserves, it could face financial distress and potentially fail. A significant portion of a typical bank's assets consists of loans to households, which consumers use to purchase houses, cars, and other consumer goods. Thus, when consumers unexpectedly stop making payments on their loans, such as during a loan forbearance, this can cause banks to incur losses. Current data on U.S. bank balance sheets suggest that as a whole, the banking industry is comparatively well positioned to withstand losses on household debt due to low exposure to mortgage loans and high capital buffers relative to historic norms. Yet, individual banks differ across the business models they choose to deploy, and some banks specialize in a particular loan type, such as mortgage or consumer loans. CRS analysis suggests that some banks have a high exposure to consumer loans; therefore, if consumers miss loan payments, these banks could be especially vulnerable. These high-exposure banks tend to be smaller than an average bank. These financial considerations could also limit banks' abilities to provide relief options to consumers during the COVID-19 pandemic. Potential Impacts on Mortgage Servicers After a mortgage has been originated, a mortgage servicer carries out various administrative tasks, including collecting payments from borrowers and remitting the principal and interest to the owner (e.g., lender, investor); processing the loan title once paid in full; and administering loss mitigation (e.g., forbearance plans or foreclosure resolution on behalf of the lender) when payments are not made. Mortgage servicers are often required to advance payments to securities holders, even if borrowers do not make payments on time. Because of this obligation, there are rising concerns about the impact of a large volume of forbearances on mortgage servicer liquidity. Some of the federal housing agencies have taken steps to address potential liquidity issues. The FHFA and Ginnie Mae have recently announced a number of measures to facilitate liquidity by making it easier for mortgage lenders and servicers to receive various forms of short-term cash advances. GSE Servicers : On March 23, 2020, the FHFA announced that it would allow flexibility in some of the appraisal and employment verification requirements for new mortgages purchased by Fannie Mae and Freddie Mac until May 17, 2020. The FHFA announced on April 21, 2020, that Freddie Mac and Fannie Mae would limit the obligation of mortgage servicers to advance payments to the GSEs for loans that are in forbearance to four months of payments, allowing servicers to forgo remitting payments after that time frame. Similarly, the FHFA announced on April 22 that the GSEs would be allowed to purchase qualified loans in forbearance to facilitate market lending. Ginnie Mae Servicers : Approved financial institutions that service mortgages underlying Ginnie Mae MBS are among the servicers that are required to remit timely payments to investors, even when monthly payments are not received from borrowers. As consumers are allowed to defer payments and others involuntarily miss payments due to financial hardship, Ginnie Mae servicers—particularly nondepository servicers—could face significant liquidity shortages. On March 27, 2020, Ginnie Mae announced a last resort financing option, the Pass-Through Assistance Program, to allow servicers facing shortfalls to request a cash advance to meet the scheduled payments to investors. These measures apply to single-family mortgages. Ginnie Mae also announced that similar programs are expected for reverse mortgages and multifamily mortgages in the near term. Consumer Awareness and Education Issues Most households rely on credit to finance some expenses because they do not have enough assets saved to pay for them . Some consumers may not be aware of their right to loan forbearance for certain loan obligations or other relief options their financial institution is offering, so these efforts might not reach the most in need. In addition, an increase in COVID-19 pandemic-related scams might further confuse or harm consumers. Consumer Awareness of Their Relief Options Communication and financial education may play an important role in consumers receiving forbearances or other assistance. Many consumers may not realize that the CARES Act gives consumers a right to loan forbearance in certain circumstances, and that their financial institutions can provide loan forbearance, access to credit, or other assistance. Both government agencies and financial institutions can play an important role communicating with impacted consumers. The CFPB has published resources for consumers financially affected by the COVID-19 pandemic, including those having trouble paying their bills or experiencing loss of income. Fannie Mae and Freddie Mac have created a new portal for consumers to find out whether these GSEs own the consumer's mortgage loan and whether consumers are thus eligible for loan forbearance and other relief options. Many financial institutions also have conducted outreach to consumers to let them know about their possible options. Some observers argue that the federal government agencies could do more to ensure appropriate communication with consumers during the COVID-19 pandemic. For example, a recent HUD study from their Office of Inspector General (OIG) found that CARES Act loan forbearance information to consumers from FHA mortgage servicers was often incomplete, inconsistent, outdated, and unclear. Some argue that more guidance to financial institutions about how to comply with relevant consumer protection laws and to share best practices during the coronavirus pandemic may be helpful. In addition, the federal regulatory agencies could also prioritize supervisory exams around COVID-19 pandemic communication efforts to better ensure appropriate conduct. Consumer Scams Since February 2020, concerns about financial fraud scams related to the COVID-19 pandemic have increased. Driven by fear and confusion about the COVID-19 pandemic, as well as an increased dependence on internet and phone-based communication while "social distancing," more fraud schemes seem to be appearing. On February 10, 2020, the Federal Trade Commission (FTC) published a warning about rising COVID-19 pandemic scams, and it has since then published additional consumer resources. In addition, on March 26, 2020, a bipartisan group of 34 Senators sent a letter to the FTC urging it to inform and assist senior citizens affected by COVID-19-related fraud. Some of these consumer scams focus on consumer financial products or services. On March 16, 2020, Ranking Member Patrick McHenry and other members of the House Financial Services Committee sent a letter to CFPB Director Kathleen Kraninger expressing their concerns about the increasing number of elder financial fraud cases due to misinformation related to the COVID-19 pandemic, and they requested an update to applicable guidance for financial institutions. Since this letter, the CFPB has published COVID-19 pandemic scam resources for consumers on its website. Conclusion During the COVID-19 pandemic, Congress and various financial regulators have taken significant actions to require, incentivize, and encourage lenders to grant loan forbearances and other types of relief to financially impacted consumers. However, despite these major actions, the impact of these efforts on consumers and financial firms is still unclear due to uncertainty about the pandemic's persistence. If the economic ramifications of the COVID-19 pandemic causes prolonged disruptions, such as persistent elevated levels of unemployment or permanent business closures, loan forbearance may become a less viable option. In this scenario, Congress may choose to consider additional types of assistance to consumers and financial institutions.

A growing number of reported Coronavirus Disease 2019 (COVID-19) cases have been identified in the United States, significantly impacting many communities. This situation is evolving rapidly, and the economic impact has been large due to illnesses, quarantines, social distancing, local stay-at-home orders, and other business disruptions. Consequently, many Americans will lose income and face financial hardship due to the COVID-19 pandemic. Many consumers may have trouble paying their loan obligations, such as mortgages, student loans, auto loans, and credit cards. Due to increasing hardship, l oan forbearance has become a common form of consumer relief during the COVID-19 pandemic. Loan forbearance plans are agreements that allow borrowers to reduce or suspend payments for a short period of time, providing extended time for consumers to become current on their payments and repay the amounts owed. These plans do not forgive unpaid loan payments and tend to be appropriate for borrowers experiencing temporary hardship. Loan forbearance may become a less viable option to deal with the financial ramifications of COVID-19 if the pandemic causes prolonged disruptions, such as persistent elevated levels of unemployment or permanent business closures. A consumer's ability to get a forbearance and under what terms may be significantly influenced by what type of institution owns the loan. These various institutions—including banks and credit unions, private nonbank financial institutions, government-sponsored enterprises (GSEs), and the federal government—are subject to different laws, regulations, and business considerations. In response to the COVID-19 pandemic, the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136 ) on March 27, 2020. The act establishes consumer rights to be granted forbearance for federally insured mortgages (Section 4022) and federal student loans (Section 3513). The law also protects the credit histories of consumers with forbearance agreements (Section 4021). The CARES Act establishes consumer rights to be granted forbearance for many types of mortgages and federal student loans, but the act does not grant consumers these rights for other types of consumer loan obligations, such as auto loans, credit cards, private student loans, and bank-owned mortgages. In these cases, financial institutions have discretion about when and how to offer loan forbearance or other relief options to consumers. Therefore, a consumer's ability to access these options may vary. In addition to legislative responses, financial regulatory agencies have responded to the COVID-19 pandemic using existing authorities to encourage loan forbearance and other financial relief options for impacted consumers. Many financial regulatory agencies have updated their guidance to help financial firms support consumer needs during this time. Regulatory guidance does not force financial institutions to take any particular action for consumers (such as offering loan forbearance), but it can encourage them to offer various forms of support. In recent weeks, many banks and credit unions have announced measures to offer various forms of assistance to affected consumers . The economic effects of the COVID-19 pandemic impact the financial system in important ways. Large numbers of missed consumer loan payments can have significant negative consequences for financial institutions. Because of the potential strain on the financial system, it might be challenging for institutions to provide consumer relief, and financial relief efforts may be insufficient to provide widespread assistance to impacted consumers without direct government intervention. Many consumers having trouble paying their loans may not realize that the CARES Act gives consumers a right to be granted loan forbearance in certain circumstances, and that their financial institutions can provide loan forbearance, access to credit, or other assistance. If consumers are not aware of these existing relief options, it is possible that relief might not reach the most in need. In addition, increasing fraud schemes relating to COVID-19 seem to be occurring, which can drive consumer confusion. Both government agencies and financial institutions can play an important role in communicating with financially impacted consumers.

GAO_GAO-19-631

Background Legacy Retirement System The military retirement system is a government-funded benefit system that has historically been considered a significant incentive in recruiting and retaining a voluntary, career military force. Until recently, almost all active-duty servicemembers were enrolled in the High-3 (legacy) retirement system. In this system, servicemembers who served at least 20 years earned a DB annuity. Those who were eligible earned 2.5 percentage points per year of service multiplied by the average of their highest 36 months of basic pay, with payments beginning upon retirement from the military and adjusted annually for inflation. Servicemembers also had the option to contribute a portion of their basic pay to a personal TSP account, but DOD provided no contributions. A previous GAO report found that active-duty servicemembers’ rate of reaching 20 years of service varied substantially among the military service branches (see fig. 1). For example, for active-duty servicemembers entering military service in 1992, the estimated probability of reaching 20 years of service was almost 15 percentage points higher—and more than three times higher—for the Air Force than the Marine Corps. Federal law established the Military Compensation and Retirement Modernization Commission (MCRMC) in the NDAA for Fiscal Year 2013 to study the military’s compensation system in detail and make recommendations to modernize servicemembers’ pay and benefits. The MCRMC’s final report, released in January 2015, recommended that Congress revise the military retirement system so DOD could help more servicemembers save for retirement earlier in their careers, leverage the retention power of the legacy retirement system, give the services greater flexibility to retain quality people in demanding career fields, and promote servicemembers’ financial literacy, among other things. Blended Retirement System (BRS) The NDAA for Fiscal Year 2016 established BRS to replace the legacy retirement system. As with the legacy retirement system, servicemembers in BRS must serve 20 years to receive a DB annuity. Under BRS, eligible retirees receive a DB monthly benefit equal to 2 percentage points per year of service multiplied by the average of a servicemember’s highest 36 months of basic pay—lower than the 2.5 percentage point multiplier under the legacy retirement system. BRS also provides servicemembers with DC benefits through an employer contribution, which did not exist in the legacy retirement system. For servicemembers who began their service on or after January 1, 2018, DOD automatically contributes 1 percent of a servicemember’s basic pay into the individual’s TSP account after 60 days of service and, after 2 years of service, matches a servicemember’s contributions up to 4 percent of their basic pay, for a maximum military contribution of 5 percent of a servicemember’s basic pay. These servicemembers are automatically enrolled in BRS at a 3 percent default contribution rate. DOD estimates that with automatic enrollment in TSP and the automatic government contribution, 85 percent of new servicemembers covered by BRS will receive at least some retirement benefits when they leave military service. BRS offers servicemembers some additional features and benefits not offered under the legacy retirement system. Servicemembers under BRS are eligible for a one-time continuation payment as a retention incentive at the servicemember’s mid-career point, between 8 and 12 years of service. Servicemembers who accept the continuation benefit incur an additional service obligation. BRS also offers servicemembers who serve 20 years or more the option to convert the present-value equivalent of either 25 or 50 percent of their DB annuity payments for the period from their date of retirement until the date they reach their Social Security full retirement age (FRA) to a lump-sum payment upon retirement from the military. Taking this lump-sum payment would reduce the retiree’s annuity payments only until he or she reaches FRA, after which the annuity payments would revert to the full benefit level (see fig. 2). Active-duty servicemembers with fewer than 12 years of service as of December 31, 2017 were eligible to enroll in BRS until December 31, 2018. The decision to opt in to BRS or remain in the legacy retirement system was irrevocable. Financial Literacy Education Training Compared to the legacy retirement system, which provided only a DB plan, the BRS’s enhanced DC benefit and reduced DB annuity shifts more of the responsibility for managing servicemembers’ retirement security from DOD to servicemembers. To help ensure that servicemembers have the financial literacy to make sound financial decisions, the NDAA for Fiscal Year 2016 added a requirement for DOD to provide servicemembers ongoing financial literacy training at various career and life stages, including at initial entry, promotions, vesting in the TSP, eligibility for continuation pay, marriage, divorce, and the birth of a first child. GAO’s prior work on financial literacy training compiled testimony from experts from the private sector, federal government agencies, nongovernmental organizations, and academic institutions to: define financial literacy as the ability to use knowledge and skills to manage financial resources effectively for a lifetime of well-being; identify the workplace as a particularly effective venue for providing financial education and helping individuals improve their financial decision making; and summarize the effectiveness of various interventions and how to address the needs of workplace populations traditionally underserved by financial education. DOD Used a Multi- Faceted Approach to Implement BRS Training and Outreach Campaigns and Is Developing Continuing Education on Saving for Retirement DOD Administered BRS Education and Outreach Campaigns for Eligible Servicemembers DOD developed three courses to help servicemembers make informed decisions about whether to opt in to BRS or remain in the legacy retirement system. The BRS Opt-In Course was available as a 2-hour online or in-person course that servicemembers had to attest they had completed before opting into the new retirement system. DOD reported that 91 percent of an estimated 1.7 million eligible servicemembers attested that they had completed the training during the BRS opt-in period. The course included information on (1) the importance of saving for retirement, (2) the differences between the legacy retirement system and BRS, (3) factors for servicemembers to consider in choosing between the two retirement systems, and (4) tools and resources for servicemembers to consult when making their opt-in decision. DOD developed two additional BRS trainings for key military personnel in an effort to expand the network of in-person resources available to servicemembers eligible to opt into BRS. One course provided installation-level financial management professionals—Personal Financial Managers (PFMs) and Personal Financial Counselors (PFCs)—with more detailed information to reinforce the BRS Opt-In Course curriculum for servicemembers and answer their specific questions about BRS. The other course provided optional training to military supervisors regardless of their eligibility to opt into BRS. DOD officials said it was important to educate military supervisors on BRS since many junior servicemembers discuss personal financial information with their direct supervisors. DOD officials said that the agency released both of these trainings in advance of the BRS Opt-In Course so that PFMs and supervisors would have time to understand the new system and prepare for questions from servicemembers. DOD also developed the BRS New Accession Course for servicemembers who entered the military on or after January 1, 2018 and who are automatically enrolled in BRS. (See fig. 3.) Servicemembers take this course when entering service as part of their mandatory basic training (“boot camp”) or at the first school they attend after basic training. This course explains BRS’s key components, identifies the tools and resources available to help servicemembers save for retirement, and encourages servicemembers to actively manage their TSP accounts. DOD officials said that the New Accession Course is very similar in content to the BRS Opt-In Course but without comparisons to the legacy retirement system. The course facilitator leads servicemembers through a series of short videos on BRS, asks questions at the end of each of the course sections, and is available to answer servicemembers’ questions throughout the course. DOD publicized BRS by creating a central website that links to outreach material in a variety of media formats, including videos available on YouTube, social media content, an interactive online comparison calculator, webinars, and external websites such as Military OneSource and https://www.tsp.gov. For example, DOD’s central BRS website links to its BRS Fact or Fiction video series, which addressed various BRS misconceptions through 20 brief videos. In the video series, DOD introduced the #BlendedRetirement hashtag, then distributed supplementary BRS infographics with this hashtag to link back to additional resources on social media sites. DOD officials said they also are developing a mobile app to provide servicemembers easy access to financial readiness information through tools like calculators and games. Additionally, DOD’s interactive online BRS calculator allowed servicemembers to enter personal financial information, such as their military grade, estimated date of military separation or retirement, and TSP contribution percentage, so those who were eligible to opt into BRS could compare how their retirement savings outcomes might differ under BRS and under the legacy retirement system. DOD’s Office of Financial Readiness also trained financial counselors across the service branches to supplement the information in its BRS trainings as well as to provide servicemembers in-person financial literacy education. DOD officials said that the agency employs at least one PFM at most military installations or uses PFCs, who are government contractors. DOD officials said that PFMs and PFCs travel as needed to provide support at multiple installations. One PFM we interviewed estimated that PFMs provide as many as 10 group presentations per week on retirement issues that they tailor to fit their audiences’ needs. Another said one-on-one counseling sessions allowed servicemembers to share their personal financial situations, receive information germane to their unique circumstances, and explore available tools and resources. DOD officials said that, as outlined in federal statute, the role of PFMs and PFCs is to educate servicemembers about financial options available to them and not to provide financial advice. In addition to the centralized trainings and resources DOD created, the service branches used their internal communication systems for BRS outreach campaigns and created additional training tailored to the needs of their servicemembers (see fig. 4). For example, according to Navy officials, during the final 6 months of the BRS opt-in period, the Navy posted approximately 80 Facebook and Twitter posts to its accounts, with many of these reminding servicemembers of their opt-in choice. The posts linked to additional resources and advertised outreach like the Navy’s Facebook Live event, which utilized social media to provide servicemembers online access to financial experts who could answer their retirement-related questions. Military supervisors also said that most of the service branches sent targeted communications to supervisors to remind eligible servicemembers at regular meetings to complete the BRS Opt-In Course. The service branches also created supplemental BRS trainings tailored to meet their servicemembers’ needs. For example, the Marine Corps developed a classroom-based BRS training that included specific instructions on how to use the Marines’ data systems to make BRS decisions, as well as statistics on the average percentage of Marines that complete 20 years of service. DOD Is Developing Continuing Financial Literacy Education for Servicemembers on BRS and on Saving for Retirement With all incoming servicemembers automatically enrolled in BRS as of January 1, 2018, DOD officials said the agency has shifted its continuing financial literacy training from the opt-in decision to saving for retirement. As with the BRS training, the military provides continuing financial literacy education through both DOD and the service branches. DOD’s Office of Financial Readiness provides policy, education, advocacy, and program oversight to promote servicemembers’ financial readiness. While DOD developed the BRS trainings and conducted outreach, DOD officials said that the service branches have the primary responsibility for developing and providing servicemembers continuing financial literacy education, including on saving for retirement, based on their own resources and their servicemembers’ needs. The service branches use a variety of formats (see fig. 5). DOD is also developing a plan to provide continuing financial literacy education to servicemembers at various career and life stages. DOD officials said the agency plans to improve the consistency of the continuing financial literacy education provided by the service branches and consolidate it so it is delivered at the career and life stages specified by the NDAA for Fiscal Year 2016. DOD’s Office of Financial Readiness released guidance in August 2019 to provide the service branches a common set of learning objectives for financial literacy education aligned with these specific career and life stages. DOD officials told us that the service branches are responsible for delivering the continuing financial literacy education to servicemembers at these stages according to their schedules and resources. DOD Training Reflected Many Financial Literacy Effective Practices, but Servicemembers’ Challenges Can Inform Future Training Efforts BRS Training Met Many Financial Literacy Effective Practices, but DOD Did Not Use Course Assessments to Improve Content We found that DOD’s Blended Retirement System (BRS) trainings met many established financial literacy training effective practices (see sidebar on next page and table 1). However, lack of assessments of some courses affected DOD’s ability to measure how well the courses helped participants and to make any needed changes. Financial education experts have found that financial literacy trainings that meet effective practices can improve employees’ overall financial wellness. These experts identified the workplace as a particularly effective venue for providing financial education and helping individuals improve their financial decision making because employers have the potential to reach large numbers of adults in a cost-effective manner at a place where they make important financial decisions. Effective Financial Literacy Training Practices Information is unbiased: Employers’ financial literacy education programs should provide financial information that avoids even the appearance of conflicts of interest. Links to one-on-one financial help: Programs should provide access to one-on- one financial coaches who can help employees understand and take action on their priorities. Leverages trusted messengers: Programs should use trusted coworkers and other peers to provide or facilitate assistance on financial matters. Assesses employees’ financial literacy to provide assistance and help set priorities: Programs should periodically assess employees’ financial situations and goals to pinpoint how best to provide assistance and help employees set priorities. Enables employees to take action directly from the course: Programs should provide employees the means, for example, through direct links or forms provided in the course, to convert knowledge to financial action. According to DOD officials, servicemembers will make more financial decisions that may impact their ability to successfully save for retirement under BRS than under the legacy retirement system, which makes providing effective financial literacy training to servicemembers particularly important. We found that all of DOD’s BRS trainings met the applicable financial literacy effective practices of presenting unbiased information, directing servicemembers to options for one-on-one financial help, and employing trusted messengers—such as military peers and Personal Financial Managers (PFMs)—to deliver the course information. For example, each of the applicable BRS trainings encouraged servicemembers to work with PFMs to understand how their personal financial circumstances impact saving for retirement. While the BRS trainings met many of the financial literacy effective practices we selected, two of the trainings fell short in assessing servicemembers’ financial literacy, which could allow DOD to better pinpoint how to provide assistance and help servicemembers set priorities. Servicemembers were required to pass a test to complete the BRS Opt-In Course; DOD data show that only 32 percent of servicemembers passed on their first attempt. However, DOD did not revise course material to provide additional information in topic areas where post-test results indicated servicemembers may have needed further training. DOD officials said that the agency consciously avoided making significant changes to its BRS trainings to ensure consistency and course stability throughout the opt-in enrollment period. DOD officials also told us that they were not surprised by the initial low pass rate because they designed the test to be difficult so that servicemembers could demonstrate mastery of the material. DOD’s New Accession Course does not assess individual servicemembers’ understanding of the material, which is information DOD would need to improve its training to provide assistance and help servicemembers set priorities. The course includes a series of knowledge checks, but because the questions are administered to the group as a whole, DOD cannot assess individual servicemembers’ understanding and use this information to revise the course material or to provide servicemembers with additional assistance. DOD officials told us that the agency views the course as successful because it gets students to engage in discussion regarding the basics of BRS and financial readiness. DOD does not have a plan to assess individual servicemembers’ understanding of course material going forward. While servicemember engagement is important, it is not an assessment of their understanding of course material. Servicemembers who do not understand BRS concepts may not save enough for a secure retirement under BRS. Additionally, the BRS Opt-In Course did not meet the financial literacy training effective practice of enabling servicemembers to act on course information directly from the training. For example, the BRS Opt-In Course suggested servicemembers contact PFMs and PFCs if they had further questions about BRS, but the course did not provide direct links for servicemembers to do so. Further, the course did not include forms for servicemembers to enroll in and make contributions to TSP accounts. This standard is considered an effective practice for financial literacy training because research has found that employees who can directly convert their knowledge to immediate action have improved overall financial wellness. DOD addressed this issue in its most recently released training, the BRS New Accession Course, which enables servicemembers to make immediate decisions, such as assigning their initial TSP contribution rates, by providing servicemembers the relevant form within the training. The NDAA for Fiscal Year 2016 included a requirement for DOD to add questions on servicemembers’ financial literacy to its annual survey and use the results as a benchmark to evaluate and update the continuing financial literacy training DOD will provide to servicemembers in the future. The NDAA for Fiscal Year 2016 also requires DOD to develop ongoing financial literacy training for servicemembers to take at key career and life stages. DOD has the opportunity to ensure that individual knowledge assessments are included in the guidance it provides the service branches on the key objectives that must be met in these trainings. DOD Can Learn from Servicemembers’ Challenges Taking the BRS Opt-In Course to Improve its Ongoing Training Military personnel cited multiple challenges described by servicemembers in taking the BRS Opt-In Course and seeking financial literacy support. In our interviews at five military installations, military supervisors and financial counselors said they believed servicemembers had difficulty (1) understanding the training due to their low financial literacy; (2) taking, and relating to, optional financial literacy training due to mission and short-term life goals; and (3) setting up online access to their TSP accounts. Servicemembers’ Financial Literacy Many military supervisors and Personal Financial Managers (PFMs) we interviewed said that many servicemembers with whom they interacted misunderstood key BRS concepts and lacked the basic knowledge to make sound financial decisions related to BRS even after completing the mandatory BRS Opt-In Course. Providing basic financial education to junior enlisted servicemembers, who can be as young as 17 years old, may be especially challenging due to their limited life and work experience. These servicemembers score the lowest on measures of financial literacy, according to the 2017 Status of Forces Survey, an annual survey of a sample of servicemembers that covers key issues of military life. Some servicemembers said that the training platforms (e.g., computer- based and large group training), while efficient in providing mandatory training to a large group of servicemembers, were not ideal for a group with very limited baseline financial literacy. For example, several military supervisors said some servicemembers advanced through the computer- based BRS Opt-In Course as quickly as possible, and may not have understood the content. One military supervisor said it may be hard for servicemembers to identify the most critical elements in the computer- based training because they could not interact with the material or ask clarifying or personal questions. For example, one group of military supervisors said the current training addresses what TSP is, but there is a need for more training to answer servicemembers’ questions about how to manage and optimize their accounts for retirement savings. In response, DOD officials said that while these topics were not covered in depth in the BRS trainings, servicemembers have access to additional resources, such as PFMs and the TSP website for help with personal questions about managing their savings under BRS. Large group trainings, which could have hundreds of servicemembers in attendance, also may have discouraged servicemembers from asking clarifying questions due to the number of participants. DOD officials acknowledged that servicemembers may need more one-on-one help when making personal financial decisions, which is why the agency trained PFMs and PFCs to address servicemembers’ BRS and financial literacy questions and provide additional support. Some military supervisors said the servicemembers who they directed to optional one- on-one financial counseling sessions asked the PFMs detailed questions their supervisors were not able to answer, ran their own numbers and received personalized information to help them make decisions, and often took action during the session. DOD officials said one challenge to getting servicemembers to seek out more personalized one-on-one financial help is the perception that servicemembers seek PFMs primarily after facing financial hardship. These officials said they are working to shift the military culture so servicemembers seek out PFMs for financial planning purposes similar to how civilians use financial counselors. Balancing Financial Literacy Education with Competing Priorities Military supervisors and PFMs told us that servicemembers had difficulty seeking out financial literacy support because of demanding operational schedules and a focus on short-term life and mission goals. This was especially true for junior servicemembers, who may be uncomfortable requesting time away from their mission duties. Further, some military supervisors said junior servicemembers tended not to recognize the importance of saving for retirement when faced with other, more immediate, financial priorities, such as purchasing a car. One group of military supervisors said that since most junior servicemembers do not seek out retirement advice, they try to find opportunities to weave the topic into other discussions, for example, about how taking out a car loan can impact a junior servicemember’s saving for retirement. Setting Up TSP Online Account Access Servicemembers can manage their TSP accounts online by viewing current plan information and making or changing contribution allocations; however, setting up an online account depends on servicemembers having a stable mailing address. The Federal Retirement Thrift Investment Board (FRTIB), which administers the TSP, mails participants a time-sensitive TSP password required to access their TSP accounts online. Some military supervisors said that servicemembers reported difficulty receiving their initial TSP password because they relocate often and may lack a permanent mailing address. FRTIB officials acknowledged that this fraud prevention measure might make it more difficult for participants to access their TSP accounts, but noted that they must balance security with ease of use and have not yet found any viable options to address this issue. Federal government internal controls standards state that entities should use appropriate methods to communicate so that information is readily available when needed. Additional Information Explaining BRS Lump-Sum Payment Options Needed for Servicemembers to Make Informed Choices BRS Offers a Time- Limited, Partial Lump-Sum Payment Using a Single Discount Rate for All Servicemembers Under the Blended Retirement System (BRS), military retirees with 20 or more years of service may choose, when they retire, to convert part of their monthly annuity into a lump sum payment, in exchange for a temporarily lower monthly benefit. The lump-sum payment is partial in two ways: 1) servicemembers may convert either 25 or 50 percent of their annuity payments to a lump-sum payment, and 2) the lump-sum conversion only applies to annuity payments payable prior to the servicemember’s Social Security full retirement age (FRA)—age 67 for those born in 1960 or later. After the service member reaches FRA, the annuity payments revert to the full monthly pension. (See fig. 6.) In its final report, the Military Compensation and Retirement Modernization Commission recommended that the new military retirement system should offer a lump-sum payment option to increase flexibility for retiring servicemembers and remain fiscally sustainable. Since many servicemembers retire from the military at a younger age than most civilians in the workplace, DOD officials said that some military retirees might prefer a lump-sum payment to start a business or buy a house. Personal Discount Rates Personal discount rates can be derived from individuals’ behavior when faced with intertemporal monetary choices. In contrast, more traditional approaches to pension discount rates are based on financial market data or expectations rather than on individual preferences or behavior. In theory, personal discount rates reflect individuals’ valuation of money received today versus in the future. However, behavioral economic research has shown that people do not always make rational choices related to foregoing current benefits for future payoff. given stream of converted pension payments. The NDAA for Fiscal Year 2016 directed the Secretary of Defense to choose a discount rate for BRS lump sums that (1) uses average personal discount rates that take into consideration “applicable and reputable studies of personal discount rates for military personnel and past actuarial experience in the calculation of personal discount rates,” and (2) is in accordance with generally accepted actuarial principles and practices. Researchers have sought to quantify personal discount rates by studying personal choices in a variety of contexts involving the tradeoff of payoffs at different times (see sidebar). Two such studies involved military personnel being offered lump-sum payments in lieu of annuity payments. According to the Institute for Defense Analyses (IDA), the studies computed an estimated average personal discount rate for servicemembers who were presented with the offer, based on the choices by servicemembers to either elect the lump-sum payment or the annuity. DOD officials told us that, to comply with the requirements of the NDAA for Fiscal Year 2016, they considered several factors to set the discount rate for BRS lump-sum calculations. DOD officials said they first contracted with a research organization to estimate a range of personal discount rates based on past studies. They said they then adjusted that range based on differences between the specific features of past lump- sum offers and those of BRS lump sums. They also considered how a lump-sum offer could impact the retention of military personnel, since DOD relies on a percentage of experienced servicemembers to continue serving beyond 20 years. DOD officials told us they wanted to reduce the likelihood a lump-sum payment would lead more people to retire earlier than they would otherwise. Finally, even though past studies had found higher personal discount rates (resulting in smaller lump-sum amounts) for enlisted servicemembers than officers, DOD officials told us it would go against core values of military compensation if the agency did not apply the same discount rate to all lump-sum payments, regardless of the servicemember’s rank. Considering all of these factors, DOD devised a formula for setting what it termed the “Government Discount Rate” (GDR) that would be used in calculating BRS lump-sum amounts. DOD constructed the GDR by starting with a market index of high-quality corporate bond rates and then adding an adjustment factor so that the GDR fell within the range of observed personal discount rates. According to DOD, this current method for setting this rate will be reexamined at least every 4 years. The GDR for 2019 is 6.81 percent, which is a “real” interest rate that does not include an inflation component. To compare the GDR to more common nominal interest rates, an inflation adjustment must be added. For example, if inflation were assumed to be 2.4 percent per year, a GDR of 6.81 percent would be approximately equivalent to a nominal discount rate of 9.37 percent. BRS Lump Sums Are Calculated Using a Higher Discount Rate than Private-Sector Pension Plans, Leading to Smaller Lump-Sum Payments by Comparison The method used to determine BRS lump-sum payment amounts is likely to result in a discount rate that is higher—based on recent interest rates, roughly double— than that used to calculate minimum lump-sum distributions from private-sector pension plans, when all other factors are equal. The discount rates for determining minimum lump-sum amounts for private-sector pension plans that offer them are governed by ERISA. The Internal Revenue Service (IRS) publishes the discount rates applicable to minimum lump-sum determinations each month, based on ERISA provisions. For 2018, these rates generally fell in the range of 2.5 to 4.9 percent, on a nominal basis, compared to the GDR, which was about 9 percent, on a nominal basis (depending on assumed inflation). We found, based on recent interest rates, holding age and monthly annuity amounts constant, the higher discount rate applied to BRS lump- sum calculations would significantly reduce servicemembers’ lump-sum payment amounts. Additionally, we found that the percentage difference would be the largest at younger retirement ages, since the difference in discount rates would have an impact over a longer period of time. For a servicemember retiring at age 40, for example, we found BRS lump-sum payments to be about 40 percent smaller, based on recent interest rates, than if calculated following the requirements under ERISA. (See fig. 7.) For more information on ERISA and our methodology for calculating lump-sum payments, as well as sensitivity testing and factors that can affect this comparison at different points in time, please see appendix I. DOD officials told us that the discount rate used for BRS lump-sum payments was different than the rate used in private-sector pension plans for some key reasons. DOD officials said the NDAA for Fiscal Year 2016 required that the BRS discount rate be based on average personal discount rates, which is a different approach to discount rates than that used under ERISA. DOD officials also said the agency relies on maintaining a certain percentage of servicemembers with 20 or more years of service and did not want the offer of a lump-sum offer to entice too large a percentage of servicemembers to leave military service. However, knowledgeable stakeholders expressed some concerns with the higher discount rate used to determine BRS lump-sum payment amounts. For example, the DOD Board of Actuaries stated that a relatively high discount rate, and the lower lump-sum payments that would result, could be perceived as taking advantage of servicemembers. Additionally, the American Academy of Actuaries said those who accept lump-sum payments using higher discount rates are likely to either not understand the financial value of their annuity benefits or have an immediate financial need. On the other hand, stakeholders we interviewed noted that BRS’s lump-sum feature was intended to provide options to servicemembers, which was a central component of implementing BRS. Servicemembers Could Benefit From More Information on Lump-Sum Distributions Although current active-duty servicemembers eligible to choose a lump- sum payment are not scheduled to retire until 2026, at the earliest, DOD can take certain steps to help them better understand the tradeoffs associated with the lump-sum option. Decisions about lump-sum options are complicated, and stakeholders knowledgeable about financial literacy have pointed out the importance of providing sufficient information about the tradeoffs involved for those making such decisions. In a 2015 report, we identified key information to help individuals in the private sector make an informed decision when considering a lump-sum payment versus an annuity. (See table 2.) Without this key information, service personnel will be unable to prudently weigh the advantages and disadvantages of the lump-sum option in their retirement decisions. DOD officials said they posted a training video on the BRS lump-sum option to the BRS website in July 2019. Servicemembers also have access to other descriptive material on the BRS website, such as a fact sheet on the BRS lump sum, and the BRS calculator to estimate their lump-sum payment with some assumptions about future pay. Conclusions The shift from the legacy retirement system to BRS marks a significant change in retirement benefits for an estimated 1.7 million military servicemembers. While more servicemembers will receive retirement benefits under BRS than under the legacy retirement system, BRS will require servicemembers to more actively and continuously manage their retirement decisions throughout their military career and in retirement. As an employer, DOD is well positioned to provide financial literacy training and support to servicemembers as they make retirement decisions. DOD has designed a multi-faceted approach to provide resources over time and in a variety of formats, increasing the likelihood that servicemembers will be able to find guidance when they need it. DOD completed a large undertaking in educating servicemembers about the choice they faced in deciding whether to opt into BRS, but this was only the first step in educating servicemembers about how to maximize and manage their retirement savings under BRS. In educating servicemembers about saving for retirement, DOD would benefit from applying the financial literacy training effective practices identified by experts, especially periodically assessing employees’ financial understanding and using these assessments to revise and tailor ongoing training. Given that young servicemembers are often stationed in multiple locations for short amounts of time and that BRS places increased responsibility on servicemembers to save for retirement through TSP contributions, it is important that servicemembers receive the necessary information to access their TSP accounts online in a timely manner. The current TSP password process has limited some servicemembers’ ability to manage their accounts. It is important for FRTIB to expeditiously address this issue. Of additional concern is how DOD will ensure that servicemembers understand the tradeoffs associated with BRS’s lump-sum feature. BRS lump-sum payments are calculated using a higher discount rate than private-sector pension plans, which results in lower lump-sum payments, by comparison. While the BRS lump sum is limited, and the full annuity amount would resume at servicemembers’ Social Security full retirement age, the reduced annuity paid until then could still have a significant impact on some servicemembers’ financial security. A fundamental element of BRS is the greater responsibility and choice placed on individuals. To work well, such a system requires that sufficient, clear, and accurate information be provided so that servicemembers can make the prudent choices best suited to their personal financial situations. Consistent with this principle, DOD should ensure that the information and tools that it provides to eligible servicemembers about the lump sum clearly lay out the tradeoffs of this decision and allows those eligible to make a well-informed prudent choice that best meets their individual financial circumstances. Recommendations for Executive Action The Secretary of Defense should evaluate the results of its financial literacy training assessments to determine where gaps in servicemembers’ financial knowledge exist and revise future trainings to address these gaps. (Recommendation 1) The Secretary of Defense should provide servicemembers disclosures that explain key pieces of information about the lump-sum payment, including some measure of its relative value, the potential positive and negative financial ramifications of choosing the lump-sum payment option, and a description of how it was calculated. (Recommendation 2) The Executive Director of the Federal Retirement Thrift Investment Board should work with the Secretary of Defense to explore alternative options (including online resources) for servicemembers to receive their initial Thrift Savings Plan password so that servicemembers can access and manage their online accounts without added delays. (Recommendation 3) Agency Comments We provided a draft of this report to the Secretary of Defense and the Executive Director of the Federal Retirement Thrift Investment Board for review and comment. In its letter, which is reproduced in appendix II, DOD concurred with the report’s recommendations and offered comments on some of our findings. For recommendation 1, regarding the evaluation of its financial literacy training assessments, DOD stated that in 2017 it added questions to its annual Status of Forces Survey to assess the military population’s understanding of basic financial concepts. While these survey results will allow DOD to respond to identified gaps in servicemembers’ financial literacy, Status of Forces survey results have taken years to compile in the past. Assessing servicemembers’ financial literacy as part of mandatory trainings will allow DOD to more promptly identify gaps in servicemembers’ knowledge and adjust trainings to address those gaps. For recommendation 2, regarding the provision of information on the BRS’s lump-sum payment options, DOD stated that it has developed a training course, published information to help educate servicemembers on the BRS’s lump-sum option, and included a lump-sum section in its BRS calculator. While we are encouraged by DOD’s efforts to develop various tools for educating servicemembers on the BRS’s lump-sum option, in this report we identified additional information that is important to include in lump sum disclosures. In its letter, DOD expressed concern that the title of our report focused only on one aspect of our findings. We believe that the title accurately reflects our report’s key findings, conclusions, and recommendations. DOD also said that the agency did not intend for the BRS Opt-In Course to be financial literacy training, and thus were concerned that we evaluated this training based on the effective practice identified in prior GAO work of assessing employees’ financial literacy to provide assistance and help set priorities. However, we believe that our use of this effective practice to evaluate the BRS Opt-in Course is consistent with our prior findings that employers are well-suited to provide financial education and help individuals improve their financial decision making. We compared the BRS Opt-In Course to this effective practice because the course provided DOD an opportunity to assess whether servicemembers understood key aspects of BRS, undoubtedly a key aspect of servicemembers’ financial well-being. In addition, DOD stated that the agency viewed servicemembers’ initial low pass-rate of the BRS Opt-In Course as a positive result because they designed the course to be rigorous and it forced servicemembers to retake the parts of the training where they were failing to comprehend the course material. DOD also stated that revising the training during the 2017 training period was not practical because it would have resulted in some servicemembers receiving disparate training formats and materials. We understand DOD’s concerns; however as DOD continues to develop additional financial literacy training we encourage the agency to consider that low pass rates on post-training tests often indicate a gap in knowledge and a possible need to revise the training. In its final comment, DOD agreed with us that there is a lack of reliable data for comparing the BRS lump-sum feature with those provisions offered by state and local government pension plans. DOD also stated that the BRS lump-sum feature was unique and therefore not comparable to private-sector pension plans governed by ERISA. Although there are differences between BRS and ERISA, the BRS and ERISA lump-sum provisions are the only defined benefit lump sum conversion provisions that are specified under federal law. Further, the lump-sum provisions for both reflect a participant choice that can have important consequences for a participant’s financial security. Our recommendation is premised on the principle that regardless of which particular features a pension plan offers, participants need clear, complete, and accurate information to make prudent decisions regarding their retirement security. The FRTIB also provided comments, reproduced in appendix III, and generally agreed with the report’s findings and conclusions. The FRTIB also concurred with our recommendation regarding the provision of TSP passwords to military personnel and said that they will continue to explore avenues to address how servicemembers receive their initial TSP password while continuing to emphasize the need for security. DOD and FRTIB provided technical comments, which we incorporated into the report as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution of this report until 30 days from the report date. We are sending copies of this report to the Secretary of Defense, the Executive Director of the Federal Retirement Thrift Investment Board, the Director of the Consumer Financial Protection Bureau, and other interested parties. This report is also available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Charles Jeszeck at (202) 512-7215 or jeszeckc@gao.gov or Frank Todisco at (202) 512-2700 or todiscof@gao.gov. Mr. Todisco meets the qualification standards of the American Academy of Actuaries to address the actuarial issues contained in this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology This appendix discusses in detail our methodology for addressing (1) what actions the Department of Defense (DOD) has taken to help servicemembers understand the Blended Retirement System (BRS) and, more generally, educate servicemembers on saving for retirement; (2) what DOD can learn from financial literacy training effective practices and the implementation of BRS training to continue supporting servicemembers in saving for retirement; and (3) how lump-sum payment amounts are determined under BRS and how they compare to the methods used for private-sector pension plans that offer them. To answer all of these questions, we interviewed officials at DOD, the Federal Retirement Thrift Investment Board (FRTIB), the Consumer Financial Protection Bureau (CFPB), and other organizational stakeholders knowledgeable about the military and retirement. We also reviewed relevant agency documents and federal laws and regulations. To understand how DOD helped servicemembers understand BRS, we reviewed DOD’s centralized training and outreach material. We also conducted group interviews with senior officers and enlisted servicemembers on military installations to learn about some of the informal training and mentorship provided by military leaders. We used the following criteria to select military installations to visit: 1. Sufficient number of BRS-eligible personnel available to participate 2. High number of active-duty servicemembers stationed at the 3. Availability of a Personal Financial Manager (PFM) on the installation 5. Mix of single service versus joint bases 6. Proximity to an urban center 7. Primary mission of the installation is operational (versus training) We selected five military installations to visit: Camp Pendleton (Marine Corps), Fort Sam Houston (Army), Naval Base San Diego (Navy), and Randolph Air Force Base and Scott Air Force Base (Air Force). At each installation, we met with separate groups of 8 to 12 senior enlisted servicemembers and senior officers. These senior servicemembers supervise junior servicemembers who, as a group, were most likely to have had to make a decision on whether to opt into BRS. We also met with the groups’ installation-level financial management professionals— Personal Financial Managers (PFM), Personal Financial Counselors (PFC), or Command Financial Specialists (CFS)—who provide servicemembers additional financial literacy training and one-on-one financial counseling. We asked questions of all group interview participants related to: 1. Information provided to servicemembers about BRS 2. Common needs of servicemembers in making decisions about BRS 3. Common questions servicemembers had about BRS 4. Challenges experienced in providing training and/or support 5. Anticipated future needs for training and/or support These interviews provided insights into senior officers and enlisted servicemembers’ experiences facilitating the rollout of BRS training to junior servicemembers, but did not yield information that was generalizable to all senior officers and enlisted servicemembers. We also reviewed and compared DOD’s financial literacy trainings to financial literacy training effective practices. To identify financial literacy effective practices, we reviewed published articles and reports on the topic. Our review included a March 17, 2015 forum GAO convened with 20 financial literacy leaders and experts focusing on financial education in the workplace, and the subsequent report, Financial Literacy: The Role of the Workplace, GAO-15-639SP (Washington, D.C.: July 2015). The report provided the best single compilation of financial literacy effective practices from a diverse set of experts from the private, non-profit, governmental, and academic sectors. The report summarizes forum participants’ discussions across seven topic areas. Of these seven, we selected two that were most germane to DOD’s BRS training: (1) Employers should address the needs of traditionally underserved workplace populations, and (2) Effective practices can include automatic enrollment in retirement plans, financial health checks, and personalization. Across these two topic areas, we selected the five financial literacy training effective practices that were most relevant to the type of trainings DOD developed for BRS. Specifically, we determined if BRS trainings (1) contain unbiased information, (2) contain links to one- on-one financial help, (3) leverage trusted messengers, (4) assess participants’ financial literacy so DOD can provide assistance and help set priorities, and (5) enable participants to take action directly from the course. To understand how BRS lump-sum payments are determined, we interviewed DOD officials to learn about the issues they considered when designing BRS’s lump-sum feature, how DOD determines the discount rate it uses for lump-sum payments, and how the BRS discount rate used to calculate lump sums relates to personal discount rates. To understand discount rate issues applicable to lump-sum payments in other pension plans, we interviewed stakeholders knowledgeable about other pension plans, consulted with our internal actuarial experts, and reviewed relevant prior work. We also consulted with actuaries at DOD to clarify our technical understanding of the calculation of lump-sum amounts under BRS. We created a lump-sum payment calculator to run simulations of various lump-sum calculations—including those used in private-sector pension plans—to show the effect that varying certain calculation methods and assumptions can have on the value of the lump-sum payment. We calculated and compared illustrative lump-sum amounts under BRS to what those lump-sum amounts would have been under federal laws and regulations applicable to private-sector pension plans. We did not do a similar comparison to public-sector pension plans because of a lack of reliable, generalizable data on the prevalence of lump sums offered by the many state and local government plans and the applicable discount rates used. Some lump-sum options under state and local government plans do not require a discount rate at all because they return employee contributions with interest or are a deferred retirement option provision (DROP) rather than lump sums that involve discounting future promised payments. Different state or local governments might set their own rules regarding any lump sums. In contrast, the lump-sum provisions applicable to both BRS and private-sector pension plans under the Employee Retirement Income Security Act of 1974, as amended (ERISA) are in federal law. The following section provides additional technical detail regarding the methods used to determine the lump-sum discount rate (the Government Discount Rate, or GDR) under BRS; the methods used to determine discount rates for determining minimum lump-sum amounts under ERISA; a discussion of key differences between BRS and ERISA approaches; and the methods and assumptions we used to compare BRS lump-sum amounts to minimum lump sums under ERISA, along with a discussion of how the comparison could vary over time. Comparison of Lump-Sum Amounts under BRS and Private-Sector Pension Plans DOD’s construction of the GDR begins with a 7-year average of estimated high-quality corporate bond real interest rates for maturities of about 23 years, and then adds an add-on factor to bring the discount rate up to a level consistent with applicable studies of personal discount rates, subject to possible adjustments for DOD concerns about retention of servicemembers. DOD officials told us that the 23-year maturity was intended to reflect the average time between a servicemember’s retirement from the military until Social Security full retirement age (FRA). The 7-year averaging is for the purpose of smoothing out short-term fluctuations in interest rates. The add-on for 2018 and 2019 is 4.28 percentage points. The GDR for 2019 is 6.81 percent, which is a “real” discount rate that does not include an inflation component. Interest rates are often regarded, economically, as consisting of two components: a portion to cover expected inflation (the inflation component), plus a portion to provide a return in excess of inflation (the “real” return component). For example, if inflation expectations are 2.50 percent per year, and the interest rate on a bond is 4.50 percent, then the bond is expected to provide a real return (in excess of inflation) of approximately 1.95 percent ( x 100). In this case, 4.50 percent would be referred to as the nominal interest rate and 1.95 percent would be referred to as the real interest rate. In order to convert the GDR into an equivalent nominal discount rate (for comparison to ERISA discount rates), an inflation assumption is needed. We used an inflation assumption of 2.40 percent per year, which is the inflation assumption used by the Congressional Budget Office (CBO) in its 2019 long-term budget outlook. As a result, with this inflation assumption, the nominal discount rate equivalent to the GDR of 6.81 percent is 9.37 percent ( x 100). Military pensions (both under legacy and BRS) are increased each year to fully keep up with inflation. The lump-sum equivalent of such a benefit could be calculated in one of two ways, which mathematically would produce the same result: (1) applying the nominal discount rate (in this example, 9.37 percent) to the projected increasing series of monthly annuity benefits, or (2) applying the real discount rate (in this example, 6.81 percent) to a fixed (not inflation indexed) monthly annuity. For determining minimum lump sums under ERISA, the discount rate is actually a combination of three “segment” rates that reflect bond yields at different maturities: a short-term rate to discount future payments due in the next 5 years, a medium-term rate to discount future payments due between 5 and 20 years out, and a long-term rate to discount future payments due beyond 20 years. These are nominal rates. These rates are published monthly by the Internal Revenue Service (IRS) and are based on an average of high-quality corporate bond rates for the month. Private-sector pension plan sponsors have some flexibility in selecting a method for determining which monthly averages would be used to calculate lump sums offered in a particular plan year. As a result, for a lump sum payable in a particular month, the applicable ERISA segment rates could be those for a month up to 16 months prior to the month of the lump-sum payment, depending on the provisions of the plan. Minimum lump sums under ERISA also include a “mortality discount,” which means that the lump sum is reduced to reflect the fact that for any future scheduled pension payment, there is a probability that the retiree will no longer be alive to receive it. We included this mortality discount in our ERISA calculations. DOD decided not to include a mortality discount in the BRS lump-sum methodology. DOD officials told us that mortality rates from age 44 to age 67 are relatively small, such that the impact of including mortality would be overwhelmed by minor changes in the discount rate. As a result, for simplicity, they decided not to include a mortality discount. Not including a mortality discount has the effect of making the BRS lump sum somewhat more generous than it would be if it included a mortality discount. Thus, key differences in the determination of lump-sum amounts under BRS and for ERISA minimums include the following: The development of the GDR starts with corporate bond rates for a 23-year maturity, whereas the ERISA segment rates are based on corporate bond rates for many maturities that are summarized into three segment rates for three different ranges of maturities. Thus, the comparison at any point in time will be affected by the shape of the yield curve. The development of the GDR starts with a 7-year average of corporate bond rates, whereas the ERISA segment rates are based on more current corporate bond rates. Thus, the comparison at any point in time will be affected by movements in interest rates in the prior 7 years. The GDR includes an add-on, currently 4.28 percentage points, to bring the GDR in line with applicable studies of personal discount rates. According to DOD, the add-on also takes into account considerations of retention of military personnel. Thus, the comparison at any point in time will be affected by any changes DOD makes to the magnitude of the GDR add-on. The determination of the minimum lump sum under ERISA includes a mortality discount; the determination of lump sums under BRS does not. The GDR applies over an entire calendar year, whereas the segment rates change month to month, and the segment rates applicable to a particular month’s lump sum could be the published rates for up to 16 months prior, depending on the plan provisions. For our comparison, we assumed a lump sum payable in June 2019. As noted earlier, the applicable GDR for 2019 is 6.81 percent, and the nominal equivalent rate, based on our inflation assumption of 2.40 percent, is 9.37 percent. For the ERISA minimum lump sum, we used the May 2019 segment rates published by IRS, which are 2.72 percent for the first 5 years’ scheduled payments, 3.76 percent for the next 15 years’ payments, and 4.33 percent for the scheduled payments beyond 20 years. We also included the mortality discount in the ERISA calculation. As noted in the body of this report, the result was that the BRS lump sum was 42 percent smaller than it would have been under ERISA rules for an age-40 retirement, and 32 percent smaller for an age-50 retirement. We also looked at the range of ERISA segment rates over the 16-month period from February 2018 through May 2019 to determine the range of potential results depending on which month’s ERISA rates might apply for a particular plan. The BRS lump sum ranged from 38 percent smaller to 42 percent smaller than on an ERISA basis for an age-40 retirement and from 28 percent smaller to 32 percent smaller for an age-50 retirement. We also calculated sensitivities from varying the inflation assumption. As noted earlier, we used an inflation assumption of 2.4 percent, the inflation assumption used by the CBO in its 2019 long-term budget outlook. If instead we used an inflation assumption of 2.0 percent (and the May 2019 ERISA segment rates), the BRS lump sum would have been 39 percent smaller than on an ERISA basis for an age-40 retirement, and 30 percent smaller for an age-50 retirement. The other key differences, noted earlier, in the determination of lump-sum amounts under BRS and for ERISA minimums could also affect the comparison at any point in time. However, we believe the comparisons presented in this report are a reasonable representation of the general magnitude of the differences in lump-sum amounts under BRS compared to the minimum amount required under ERISA. We conducted this performance audit from March 2018 to September 2019 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. Appendix II: Comments from the Department of Defense Appendix III: Comments from the Federal Retirement Thrift Investment Board Appendix IV: GAO Contacts and Staff Acknowledgments GAO Contacts Staff Acknowledgments In addition to the contacts named above, Mark M. Glickman (Assistant Director), Anjali Tekchandani (Analyst-in-Charge), Cynthia Nelson, and Stephen C. Yoder made key contributions to this report. Also contributing to this report were Vincent Balloon, Alicia Cackley, Virginia Chanley, Sheila R. McCoy, Mimi Nguyen, Stacy Ouellette, Joseph Silvestri, Adam Wendel, and Seyda Wentworth.

DOD's new retirement system, BRS, provides automatic and matching DOD contributions to servicemembers' individual Thrift Savings Plan accounts but reduces the retirement annuity paid to those who serve at least 20 years. BRS also offers servicemembers the option of taking part of their retirement annuity as a lump-sum payment. GAO was asked to describe DOD's financial education efforts under BRS. This report examines (1) actions DOD has taken to help servicemembers understand BRS and saving for retirement, (2) what DOD can learn from financial literacy training effective practices and its implementation of BRS training to continue supporting servicemembers in saving for retirement, and (3) how BRS lump-sum payment amounts are determined. GAO reviewed DOD's efforts to educate servicemembers on retirement decisions, conducted group interviews with senior officers and enlisted servicemembers at five military installations on facilitating the rollout of BRS training to junior servicemembers, and created a lump-sum payment calculator to compare different calculation methods and assumptions on the value of the lump-sum payment. In 2016, the Department of Defense (DOD), along with the military service branches, began a multi-year effort to provide training to help servicemembers make informed decisions about saving for retirement through DOD's new retirement system, the Blended Retirement System (BRS). DOD provided computer-based training to help military supervisors, financial counselors, and eligible servicemembers understand the new retirement system, implemented in 2018, and its impact on saving for retirement. DOD trained financial counselors to provide servicemembers in-person, one-on-one financial counseling and classroom courses on BRS and related topics. In addition, DOD prepared ongoing financial literacy training that servicemembers will take upon reaching specific career and life stages. BRS trainings met many of the effective practices for financial literacy training identified in prior GAO work, but some DOD trainings do not incorporate the practice of assessing servicemembers' financial literacy. DOD could use such assessments to modify course material to bolster training in areas where servicemembers' comprehension was weaker. Without assessing whether its financial literacy training is effectively conveying course information, DOD may be missing opportunities to better support servicemembers' retirement decisions. Servicemembers also reported challenges in taking the Opt-In Course for BRS that may inform ongoing and future DOD training. Examples of Servicemembers' Financial Literacy Challenges on Retirement DOD determines BRS lump-sum payment amounts at retirement by applying an interest rate (or discount rate) to calculate the present value of annuity payments servicemembers forego by taking a lump sum. The BRS discount rate exceeds the rate used by private-sector pension plans, resulting in a lower lump sum than if private-sector rates applied. DOD can take certain steps to help servicemembers understand how to compare the BRS lump-sum payment option with the full annuity option. Without this information, servicemembers may not make informed decisions and potentially risk their retirement savings.

GAO_GAO-20-273

Background The Vast and Constantly Evolving Biological Threats Cultivating a strong biological defense requires an understanding of a multitude of biological threats. The nature of these threats can be intentional, naturally occurring, or accidental and can be exacerbated by changes in behavior and environment. The vast and evolving biological threat landscape includes threats of biological warfare, bioterrorism, infectious disease threats to humans and animals, crop failure, and safety and security lapses at facilities that house biological threat agents. The use of biological weapons or their proliferation by state or non-state actors presents a significant challenge to our national security, our population, our agriculture, the economy, and the environment. Despite ratification of the Biological Weapons Convention in 1975 and the end of the Cold War decades later, the threat of biological warfare persists today. For example, the State Department reported in 2019 that China, Iran, North Korea, Russia, and Syria continue to engage in dual-use or biological weapons-specific activities. Additionally, the biotechnology revolution presents opportunities to advance the life sciences, yet that same technology in the wrong hands could be used to catastrophic effect. For example, synthetic biology may lead to advances in public health, such as the development of biosensors that can permanently reside in the body to detect and treat abnormalities such as cancer. However, if used to create and combine agents to create biological weapons, synthetic biology poses a significant threat. Finally, non-state actors such as terrorist organizations, domestic militia groups, and “lone wolves” have both the interest and, in some cases, the limited capacity to develop biological weapons. Biological threats can be unpredictable, as humans, animals, and plants are vulnerable to a variety of naturally occurring infectious disease and pest threats. Urbanization, habitat encroachment, and increased and faster travel, coupled with weak health systems, increase the risk of infectious diseases to spread rapidly across the globe. Pandemic influenza presents a constant threat to global public health and exemplifies the susceptibility of humans to diseases with animal origins. For example, in 2009 when an H1N1 influenza virus emerged with a new combination of genes from swine, avian, and human influenza viruses, it demonstrated how the genetic compositions of some viruses naturally change, meaning most people have little or no immunity to the new virus. In 2009, this led to a global pandemic with a novel H1N1 influenza virus (see fig.1). Other examples of zoonotic disease threats—infectious diseases that are transmissible from animals to humans—include Ebola, Zika, and Eastern Equine Encephalitis. Biological threats may also arise from changes in human behaviors. Habitat loss and human encroachment on rural and wildlife environments are bringing populations of humans and animals into closer and more frequent contact. These changing relationships with animals increase the risk of disease transmission among people, pets, livestock, and wildlife. Other changes in human behavior—such as vaccine hesitancy, mass migration, and conflict—put stress on health care systems around the world. In an ever increasing interconnected world, building biological defenses globally can help maintain health security domestically, because a disease threat anywhere is a disease threat everywhere. Biodefense capabilities are also needed to address changes in the environment which have the potential to negatively affect human health and the agriculture industry. As we reported in October 2015, climate change may contribute to the spread of vector-borne diseases that are transmitted to humans by animals, including invertebrate animals such as mosquitoes and ticks. Additionally, extreme climate conditions, such as sustained drought and heat waves can affect crops and livestock, and excess precipitation can also increase flooding events and erosion, and decrease soil quality. Losses of livestock and crops from the biological threats of disease, pests, or extreme climate conditions could have devastating effects on trade and the national economy. Finally, in many countries around the world, pathogens are stored in laboratories that lack appropriate biosecurity measures where they could be diverted by actors who wish to do harm. Advances in science and technology bring revolutionary cures and progress, but they also have the potential to facilitate intentional misuse. As we reported in 2016, some laboratories do not have appropriate biocontainment or biosafety protocols. These shortfalls could lead to outbreaks through laboratory acquired infections or pathogens accidently being released into the environment. GAO’s Prior Work on Biodefense-Related Challenges and Enterprise Risk Management We have previously reported on a wide range of biodefense-related efforts carried out by multiple federal departments and agencies. Since 2009, we have identified broad, cross-cutting issues in leadership, coordination, and collaboration that arise from fragmentation throughout the complex interagency, intergovernmental, and intersectoral biodefense enterprise. For example, our past work has identified a number of key challenges related to the nation’s ability to detect and respond to biological incidents that transcend what any one agency can address on its own. They include: (1) assessing enterprise-wide threats, (2) determining optimal biodetection technologies, (3) building and maintaining emerging infectious disease surveillance, (4) establishing situational awareness and data integration, and (5) enhancing biological laboratory safety and security. (Additional detail on these challenges and our related reports is presented in appendix II.) The complexity and fragmentation of roles and responsibilities across numerous federal and nonfederal entities presents challenges to ensuring efficiency and effectiveness across the entire biodefense enterprise. We called for a national biodefense strategy and focused leadership because addressing these issues is a difficult and complex challenge that crosses mission areas, federal departments, and sectors. Additionally, we have reported on enterprise risk management principles that can support enterprise-wide decision-making under complex and uncertain conditions. Enterprise risk management is a strategy for helping policymakers make decisions about assessing risks, allocating resources, and taking actions under conditions of uncertainty. While often applied at an agency level, we have also recognized that the size and complexity of certain issues, such as homeland security, involves multiple partners which can add another degree of difficulty to enterprise risk management. For certain areas, like biodefense, where activities cut across multiple federal and nonfederal entities, applying enterprise risk management principles becomes more challenging, but equally important to help ensure the responsible parties can make decisions that help to ensure effectiveness and maximize opportunities to better manage risk. Enterprise risk management in the larger interagency and intergovernmental context does not replace what each agency needs to do to pursue its own core missions. Rather, it allows agency decision makers to consider their missions and the alternatives they have to meet them from an enterprise-wide perspective. In this manner, decision makers can consider the risk-reduction contributions their actions make to the larger enterprise—for example by selecting alternatives that meet their immediate needs and provide collateral benefits to some other part of the enterprise—as one of many factors in individual agency decision- making. National Biodefense Strategy and National Security Presidential Memorandum-14 On September 18, 2018, the White House released the National Biodefense Strategy and characterized it as a new direction to protect the nation against biological threats and that its implementation would promote a more efficient, coordinated, and accountable biodefense enterprise. The Strategy’s five high-level goals are to help enable the efficient assessment, prevention, preparation, response, and recovery from natural, accidental, or deliberate biological threats. When the National Biodefense Strategy was released, the White House issued NSPM-14: Presidential Memorandum on the Support for National Biodefense. According to the Strategy, NSPM-14 “creates a dedicated mechanism, housed within the U.S. Department of Health and Human Services, to coordinate federal biodefense activities and assess the effectiveness with which the National Biodefense Strategy’s goals and objectives are being met.” NSPM-14 details a governance structure and implementation process to achieve the Strategy’s goals. The governance structure includes the creation of a Biodefense Steering Committee chaired by the Secretary of HHS, and includes seven other agency heads as members: the Attorney General, the Secretaries from the Departments of State and VA, DOD, USDA, and DHS, and the Administrator of the EPA. Additionally, NSPM- 14 required the formation of a Biodefense Coordination Team to assist the Biodefense Steering Committee in carrying out its responsibilities. Administratively located within HHS, the Biodefense Coordination Team consists of staff from multiple agencies with biodefense responsibilities and is designed to assist the Biodefense Steering Committee in monitoring and coordinating implementation of the Strategy (see fig.2). The Biodefense Coordination Team may convene working groups and maintain awareness of biodefense activities across the biodefense enterprise and has responsibility for establishing policies, processes, and procedures to govern its activities, subject to the approval from the Biodefense Steering Committee. NSPM-14 also establishes that the Assistant to the President for National Security Affairs will serve as the lead for policy coordination and review, providing strategic input and policy integration for federal biodefense efforts. NSPM-14 also outlines an implementation process, which sets requirements and deadlines for the interagency group to achieve the Strategy’s goals and also requires the heads of agencies identified by the Biodefense Steering Committee as having responsibilities pertaining to biodefense to review the Strategy every 2 years, and revise as appropriate. Strategy-Related Efforts Are Designed to Support an Enterprise-Wide Approach, but Implementation Challenges Could Limit Long-term Success The National Biodefense Strategy and associated plans bring together all the key elements of federal biodefense capabilities, which presents an opportunity to identify gaps and consider enterprise-wide risk and resources for investment trade-off decisions. However, challenges with planning to manage change, limited guidance and methods for analyzing capabilities, and lack of clarity about decision-making processes, roles, and responsibilities while adapting to a new enterprise-wide approach could limit the success of the Strategy’s implementation. The Strategy and Associated Plans Create a Framework to Assess Enterprise-Wide National Biodefense Capabilities for the First Time The National Biodefense Strategy and its associated plans bring together the efforts of federal agencies with significant biodefense roles, responsibilities, and resources to address intentional, accidental, and naturally-occurring threats. The Strategy and plans also provide processes for collecting and analyzing comprehensive information across the enterprise, an important step toward the kind of enterprise-wide strategic decision-making we have called for. For example, our prior work identified the need for a strategy to help ensure efficiency and effectiveness across the entire biodefense enterprise by connecting strategic approaches and investment decisions across disparate but interrelated functions within the biodefense enterprise. These functions are (1) understanding and defining threats, (2) taking action to prevent and protect against attacks and significant national and international infectious disease outbreaks, (3) employing new and existing techniques and technologies to more quickly detect biological events, and (4) preparing to respond and recover. Consistent with characteristics of national strategies and leading practices for interagency collaboration, the National Biodefense Strategy clearly articulates the purpose of the Strategy and the scope of the problem, as well as high-level goals and objectives to guide implementation. As shown in Figure 3, the Strategy’s five high-level goals comprise a new framework that incorporates the distinct biodefense functional areas and includes the different sources of biological threat—accidental, intentional, and naturally occurring. It is within this framework that national biodefense capabilities will be assessed across the enterprise. According to the Strategy, its aim is to bring together a single, coordinated effort to orchestrate activities across the United States Government to protect the American people from biological threats. The Strategy defines the term “biothreat” broadly to include all sources of major catastrophic risk, including naturally occurring biological threats, the accidental release of pathogens, and the deliberate use of biological weapons. Officials from three of the eight participating agencies that we interviewed noted that this is the first time that the federal government has identified activities across the whole biodefense enterprise and assessed resources and gaps to address multiple sources of threat regardless of source (naturally occurring, accidental, or intentional). The Strategy also established common terminology, giving the agencies a shared basis for identifying biodefense-related programs and activities, which is consistent with our national strategy criteria and our leading collaboration practices. Developing common terminology can help to bridge organizational cultures when multiple agencies with varying missions work together for a common purpose. The Strategy also contains goals, objectives, and over 240 separate activities that cover the range of actions that comprise national biodefense capabilities, which provides a high-level framework to begin to guide agencies toward a shared vision for outcomes. NSPM-14 Established Processes to Help Agencies Identify Gaps and Set Budget Priorities While the Strategy outlined high-level goals and objectives to help define priorities, NSPM-14 established a structure and process by which the federal agencies can assess enterprise-wide biodefense capabilities and needs, and subsequently develop guidance to help inform agency budget submissions. NSPM-14 lays out, in broad strokes, a process to identify biodefense efforts and assess how current resources support the Strategy, how existing programs and resources could better align with the Strategy, and how additional resources, if available, could be applied to support the goals of the Strategy. As shown in figure 4, this process begins through a data call with participating agencies documenting all biodefense programs, projects, and activities within their purview in a biodefense memorandum. As part of this process, NSPM-14 calls for the Biodefense Coordination Team, in coordination with NSC staff through the NSPM-4 process, to develop and collectively agree on metrics, milestones, and end-states and roles and responsibilities. For each of the objectives within the Strategy where agencies have roles and responsibilities, HHS directed participating agencies, as part of a data call, to identify any resource, authority, policy, science and technology, or coordination gaps against those end states and propose solutions where needed. As outlined in NSPM-14, the Biodefense Coordination Team is then to use the information submitted by the individual agencies to identify gaps, shortfalls, redundancies, and challenges across the enterprise. Finally, NSPM-14 directs officials with biodefense responsibilities to create joint policy guidance in coordination with the Assistant to the President for National Security Affairs through the NSPM-4 process—to be updated on an annual basis—that can help guide individual agency budget submissions. The process outlined in NSPM-14 is intended to lead to a cross- government assessment of federal biodefense capabilities and is consistent with our past calls for a strategy that can guide investment across the whole enterprise and with leading practices for interagency collaboration and enterprise risk management. We have previously reported that defining shared outcomes—and processes by which to achieve them—and developing mechanisms to monitor and evaluate results can reinforce accountability for collaborative efforts. Working together to develop a set of draft metrics, milestones, and end-states requires interagency participants to establish a shared vision for outcomes, and metrics and milestones serve as accountability mechanisms. NSPM-14 describes how agencies will consider the agreed upon joint policy guidance developed by agencies with biodefense responsibilities and the White House when developing their budgets. Specifically, according to NSPM-14, these agencies shall include in their respective annual budget requests to OMB information on the programs within the budget requests that support the implementation of the Strategy and conform to budget formulation requirements established by OMB, including specified funding levels. Establishing goals, objectives, and desired end states that cut across the federal government also create a foundation for effective enterprise risk management. As we have previously reported, a shared understanding of the scope of the risks enables leaders across the enterprise to align agency goals and objectives and consider their own missions and purposes within a more expansive and comprehensive understanding of threats and opportunities. In our interviews, officials from participating agencies stated that the NSPM-14 processes constitute a new approach to identifying gaps and setting budget priorities for biodefense, and that they viewed the approach as generally well designed. Specifically, officials from six of the eight participating agencies said that the process for identifying gaps was somewhat well-designed. Officials from the other two participating agencies said that this process was very well-designed. Agency officials provided several reasons for optimism about the Strategy and the processes outlined in NSPM-14, including that: They provide a holistic picture of current biodefense programs and activities, which creates government-wide visibility so that gaps can be identified. They create a forum to discuss potential gaps and biodefense responsibilities, which has not existed previously. They contain a strong overarching architecture to map existing efforts, identify gaps, and inform future revisions (as necessary). Additionally, agency officials said that the assessment and joint policy guidance development process outlined in NSPM-14 offered some promise for helping agencies identify the resources necessary to achieve the Strategy’s goals, which is consistent with our national strategy criteria. Specifically, officials from five of the eight agencies said the process is somewhat well-designed to accomplish these goals. Officials from the other three agencies said the process is very well-designed to ensure the appropriate identification of resources and investments necessary to achieve the goals outlined in the Strategy. For example, officials from three agencies said it would help the implementation of the Strategy succeed where previous efforts failed because it is designed to allow the Strategy’s priorities to drive budget decisions. However, officials from all of the agencies we interviewed, even those with the most optimistic views on the leadership and governance structure design, tempered their responses with the caveat that implementation is in such early stages that it remains to be seen how effective these structures will actually be once tested. Implementation Challenges Could Hinder Enterprise-Wide Biodefense Efforts Although the Strategy and associated plans establish the foundation for enterprise risk management, in particular by bringing together all of the functional biodefense areas across different sources of threat, we and biodefense agency officials identified multiple challenges that could affect the Strategy’s implementation. These include challenges individual agencies faced during the initial data collection process as well as a lack of planning and guidance to support an enterprise-wide approach. In our analyses and interviews, we found that parts of the process in the first year were underdeveloped, raising questions about (1) the plans to support change management practices and ensure that early- implementation limitations do not become institutionalized in future years’ efforts; (2) guidance and methods for meaningfully analyzing the data; and (3) the clarity of decision-making processes, roles, and responsibilities. Challenges with Adapting to New Processes May Have Led to Incomplete Data Collection During our interviews, agency officials reported challenges they faced in the first-year’s data collection effort with (1) staffing and organizational resources within individual agencies, (2) quantifying biodefense activities, and (3) technology glitches. These challenges may have led to incomplete data collection, but are not wholly unexpected given they occurred in the context of adapting to cultural change that this kind of enterprise-wide approach to managing risk represents, while implementing new processes and procedures. We have previously reported that leaders of successful transformations seek to learn from best practices and create a set of systems and processes that are tailored to the specific needs and circumstances of the new organization. However, the agencies involved in implementing the Strategy do not have a plan that includes change management practices that can help prevent these challenges from being carried forward into future efforts, and help reinforce enterprise-wide approaches, among other things. Staffing and organizational resources. During our interviews, one challenge that arose involved having the personnel and expertise needed to complete the initial effort to document biodefense programs, projects, and activities. For example, officials from one agency told us that this data collection effort was especially challenging because policy and program managers were responsible for determining both programmatic and budgetary information, which exceeded their expertise. This agency ultimately had to bring in non-biodefense personnel—including from the comptroller’s office—to identify programs and resources to complete the information request. Officials from three of the eight agencies stated that staffing and organizational resource limitations also posed a challenge to the data collection process. For example, officials from one agency said that the agency does not have full-time staff assigned to the effort. Instead, it was seen as a collateral duty competing with regular priorities, which reduced the time devoted to identifying the necessary information. Quantifying biodefense activities. Officials we interviewed also highlighted the challenge of quantifying biodefense-related activities. Specifically, officials from four agencies noted that agencies without specific biodefense line items in their budgets have had difficulty fully quantifying how much their agency invests in biodefense-related activities. To help agencies attempt to capture and quantify this information in a consistent way, the Biodefense Coordination Team developed guidance to assist agencies in estimating the percentage of their chemical-biological-radiological-nuclear (CBRN) defense, all- hazards preparedness, and agriculture programs and activities, among others, that are specifically related to biodefense. Nevertheless, officials from two agencies said that distinguishing the biodefense-specific activities within their CBRN defense or all-hazards activities and budgets was inherently challenging, which in turn required officials to invest additional staff and time into the effort. Technology glitches. Officials we interviewed also cited challenges with the technology used to collect data. For example, officials from two agencies said that they had experienced glitches with the OMB Max Information System, which the Biodefense Coordination Team guidance directed them to use for the data collection effort. They stated that the technology issues prevented them from entering biodefense budget numbers in a timely manner. Officials noted that an integrated platform dedicated to biodefense enterprise needs would enhance their collaboration, which is consistent with our work on interagency collaboration that states technology is one means of establishing compatible processes for working across interagency boundaries. HHS officials are aware of the technology challenges and said they are collecting feedback and identifying ways to improve the data collection and analytical tool for future data collection efforts. These challenges with resources, identification of budget activities, and technology occurred in the context of the individual agencies and officials adapting to new procedures and a broader cultural shift from how they have approached their biodefense missions in the past. Officials told us that because of the learning involved the first time through the process and the 2018 government shutdown, coupled with the tight time frames set forth in NSPM-14, agencies may not have submitted complete or detailed information about their biodefense programs. For example, officials at one large agency told us they treated the first year as a learning experience and that in the coming years, when agencies have sufficient time to respond to the data call, the quality of the data submitted should improve. Some officials we interviewed voiced concern that this first-year effort could set a poor precedent for these activities in future years if the challenges are not acknowledged and addressed. For example, an official noted that committing to the first-year’s results as the “baseline” for future years of the Strategy’s implementation could compound or institutionalize the issues encountered in the first year. Officials cautioned against a “garbage in, garbage out” situation, meaning the output of any analysis would only be as good as the quality of the data fed into that analysis. As agency officials described their data collection efforts, it was clear to them that the focus was on meeting the time frames established in NSPM-14 to identify existing biodefense efforts in this first year and that not all processes had been fully developed prior to the data collection effort. OMB staff acknowledged that there were challenges in the first year’s data collection effort, and said data quality would likely improve in future years as agencies adjust their internal structures to suit the demands of the NSPM-14 process. Officials from HHS and OMB staff stressed that this process will be iterative, with the first year being primarily about outlining the existing biodefense landscape. Our prior work on organizational transformations states that incorporating change management practices improves the likelihood of successful reforms and notes that it is important to recognize agency cultural factors that can either help or inhibit reform efforts. We have also reported that identifying cultural features of the originating components, prior to, or early on, in the transformation process, can help leadership gain a better understanding of their beliefs and values. Incorporating this type of change management practice can help educate agencies to better understand the varying missions and how those missions support the broader enterprise-wide effort. We have also noted the importance of communication and obtaining feedback from participants to help promote ownership for the transformation. This type of approach to managing risk across a multi-agency, multi-sectoral enterprise like biodefense is complex and novel. During our interviews, agency officials recognized a need for change management practices to support this effort in future years. Agency officials we interviewed noted that the process for the identification of biodefense resources and activities across the federal government outlined by NSPM-14 could be “transformational” for the biodefense enterprise and approached the data collection process in good faith, but said that it will take time to get right. The biodefense agencies are currently assessing the activities and challenges of the first year of implementation, and they plan to develop an after action report on lessons learned. HHS has conducted a survey and interviews to collect information and the material is being analyzed, but the lessons learned document is not yet final. HHS has not worked with the other biodefense agencies, however, to undertake an intentional effort to manage key cultural aspects of the enterprise-wide approach—such as communication and education mechanisms to help bridge organizational cultures, promote ownership of the transformation, and emphasize awareness of joint national security responsibilities. Further, HHS has not worked with the other biodefense agencies to establish feedback and monitoring mechanisms or processes, that can help identify implementation challenges and develop solutions to address those challenges, particularly early implementation issues that might threaten the efficacy of the effort if they are institutionalized going forward. A systematically developed plan for managing change could help ensure effective planning to sustain and advance transformation in the early years. Such a plan could address (1) institutionalizing learning and feedback mechanisms that allow for corrective action and ensure that issues that arise in early implementation—for example, incomplete or unreliable data—do not become entrenched in a way that plagues the future years’ efforts; and (2) establishing a communication and education strategy to reinforce collaborative behaviors, enterprise-wide approaches, and to emphasize accountability for shared national security missions, outcomes, and procedures. The Strategy Implementation Efforts Lack Clear Methods Guidance, and Lack Plans to Help Ensure the Ability to Perform Meaningful Analysis We found a lack of clear procedures and planning to help ensure that the Biodefense Coordination Team is prepared to analyze the data, once it has been collected, in a way that that leads to recognition of meaningful opportunities to leverage resources in efforts to maintain and advance national biodefence capabilities. In particular, HHS (1) has not documented guidance and methods for analyzing the data, including but not limited to methods and guidance for how to account for the contribution of nonfederal capabilities; and (2) does not have a resource plan for staffing and sustaining ongoing efforts. Methods and guidance for analyzing data. We found that the processes for the Biodefense Coordination Team to analyze the results of all the individual agency data submissions and identify priorities to guide resource allocation were not agreed upon or documented prior to the agency efforts and continue to lack specificity and transparency. At the time of our interviews, agency officials were in the midst of compiling and assigning budget numbers to their programs, projects, and activities. Officials we spoke with expressed uncertainty about how the information would be used. For example, officials from four agencies said they were uncertain about fundamental elements of the implementation process, including how information gathered will be used to identify gaps and set priorities. The overarching purpose of the analysis described in NSPM-14 is identification of gaps, shortfalls, and redundancies to support the goals and objectives of the Strategy. However, NSPM-14 does not specifically articulate what is meant by these terms. In response to our question about how the analysis was to be conducted, the Office of the Assistant Secretary for Preparedness and Response—the HHS office responsible for leading the Biodefense Coordination Team—described a general process that reflects the high-level description laid out in NSPM-14. HHS officials also stated that the Biodefense Coordination Team had consulted with experts in budget, planning, and evaluation while developing the methodology. However, HHS has not documented specific guidance and methodologies to help ensure transparency and accountability across the interagency and consistency in the Biodefense Coordination Team’s analysis. Additionally, the initial effort to collect information on all programs, projects, and activities focused on existing federal activities did not include a complete assessment of biodefense capabilities at the nonfederal level. Processes for soliciting nonfederal capabilities that contribute to the biodefense enterprise and are necessary to support the Strategy’s implementation are not articulated in NSPM-14. Moreover, the guidance document that agencies used for the data call stated that the Biodefense Coordination Team—in coordination with National Security Council and OMB staff—was to, among other things, use the information provided by the agencies to analyze the extent to which current U.S. Government resources support the goals and objectives of the Strategy. Officials from two agencies also said that not gathering information from the private sector and other existing biodefense working groups was a limitation in the information gathering process for this first year. Officials said these entities provide valuable subject matter expertise and including input from them in the future could help identify gaps across the biodefense enterprise. Some agencies included information about their work to support nonfederal stakeholders in their data collection effort, for example, by listing their grant programs or cooperative agreements. In addition, during our interviews, officials from all eight agencies described efforts to involve nonfederal partners when developing the Strategy and many described outreach efforts to obtain information since the Strategy’s release. For example, HHS issued a notice in the Federal Register and the Biodefense Coordination Team held a summit related to the implementation of the National Biodefense Strategy to engage nonfederal stakeholders. However, the Biodefense Coordination Team was not explicitly required to analyze nonfederal resources and there was no guidance that would help ensure agencies consistently and systematically included the contributions of nonfederal capabilities. In 2011, we reported that few of the resources required to support national biosurveillance capabilities are wholly owned by the federal government. Effective response to significant national biological incidents also relies heavily on nonfederal resources and capabilities. Because nonfederal entities own many of the resources and capabilities needed to achieve the goals and objectives outlined in the Strategy, assessing the baseline and identifying investment needs for a national biodefense capability necessarily involves assessing nonfederal entities’ ability to support a national capability. Officials from one of the agencies initially tasked with developing the biodefense strategy said the Biodefense Coordination Team needs to develop engagement structures with nonfederal partners, because currently, there is not a system in place to get everyone’s views or learn of what is going on outside the federal government. Our enterprise risk management work calls for agencies to identify and assess risks to be able to select among risk reduction alternatives. Enterprise risk management requires good information and analysis to enable officials to make informed trade off decisions across alternatives. Although the NSPM-14 process is designed to enable this kind of assessment and selection, it will not be as effective without complete information at the risk identification stage. Effective enterprise risk management implementation starts with agencies establishing a customized program that fits their specific organizational mission, culture, operating environment, and business processes. In our guide for designing evaluations, we called for plans to analyze data in ways that allow for valid conclusions to be drawn. Although the NSPM-14 guidance provides a high-level process that serves as a solid foundation for an effort as complex as managing risk across the entire biodefense enterprise, it does not provide the kind of specific guidance that can help all the involved agencies ensure they are operating off a common set of procedures that fits the particular needs of this effort. Furthermore, an analysis that cannot consistently account for the contribution of nonfederal capabilities does not reflect the true enterprise operating environment and limits the selection of alternatives available for managing risk. Clear and specific documentation of methodologies and procedures for analysis—including guidance on the methods to account for nonfederal capabilities—would provide better guidance for agencies that submit information for the assessment, assurance of more complete information to assess the state of national capabilities, and better overall transparency, accountability, and consistency. Staffing, supporting, and sustaining ongoing efforts. Officials we interviewed expressed concern about the resources that the Biodefense Coordination Team had available to it, both in the first year and on an ongoing basis. According to officials from five of the eight agencies, in order for the team to be most successful, it would need to be staffed by detailees from the participating agencies. However, officials we spoke with told us that not all agencies were able to provide a full-time detailee to help support the office. Without a dedicated liaison to the Biodefense Coordination Team, agencies may have less access to information and more limited influence over the iterative process. We have previously reported that agencies need to identify how interagency groups will be funded and staffed. HHS, which serves a leadership role on the Biodefense Steering Committee, identified in its fiscal year 2020 budget request $5 million for the resources necessary to help carry out its administrative functions for implementing the National Biodefense Strategy. However, HHS appropriations for fiscal year 2020 did not include the $5 million HHS requested. In addition, in our work on leading practices for agency reform efforts we stated that having a dedicated implementation team that has the capacity—including staffing and resources—can help ensure successful transformation. However, officials from multiple agencies reported that the initial planning for the staffing and responsibilities for the Biodefense Coordination Team had not been finalized. Without a plan to help ensure resources and mitigate resource challenges for ongoing efforts, the Biodefense Coordination Team risks not having the capacity it needs to conduct meaningful analysis, which would undermine the vision created by the Strategy and NSPM-14. Processes and Roles and Responsibilities for Making Joint Decisions Lack Clarity and Are Not Fully Developed The governing bodies overseeing the National Biodefense Strategy’s implementation—the Biodefense Steering Committee and Biodefense Coordination Team—did not clearly document key components of the assessment process and roles and responsibilities for joint decision- making in the first year of NSPM-14 implementation. This raises questions about how these bodies will move from an effort to catalog all existing activities to decision-making that accounts for enterprise-wide needs and opportunities. For example, officials from multiple agencies were not certain how the group would make joint decisions regarding priority setting and the allocation of resources, how the group would assign new biodefense responsibilities if gaps were identified, and to what extent the Biodefense Steering Committee could enforce budgetary priorities, if at all. Process for leveraging or directing resources. We found a lack of shared understanding and agreement about how the interagency process would work to align resources toward any identified gaps and reconfigure resources for any identified redundancies or inefficiencies. To address needs for new appropriations, NSPM-14 lays out a process to identify the need for additional resources to support the goals of the Strategy and how agencies will consider the joint policy guidance in their budget requests to Congress, but this coordination process also remains ambiguous and untested. OMB staff said the 2022 budget cycle would be the first year that agencies consider the joint policy guidance to inform their budget submissions, as envisioned by the Strategy and NSPM-14 process, as that guidance is still being developed. Officials from four agencies expressed reluctance to redirect resources away from their core missions to better support any enterprise-wide identified needs. When asked about the process outlined in NSPM-14, officials from only one of the eight agencies we interviewed said that the governing bodies were well-positioned to assign new responsibilities in response to identified gaps. Further, officials we interviewed noted that new responsibilities or activities may be difficult to implement without additional appropriations or authorities approved by Congress, or they would compete with an agency’s other priorities. When discussing their understanding of the process for prioritization and determining which agencies require what resources to help implement the Strategy, officials from four agencies referenced the NSPM-4 process (within the White House) to help guide this process. NSPM-14 also references NSPM-4, as noted above, and states the Biodefense Steering Committee seeks to reach consensus on decisions, and should any disagreements arise, the issue will be addressed through the NSPM-4 process. Through this process, the Assistant to the President for National Security Affairs serves as the lead for policy coordination and review to provide strategic input and facilitate policy integration for federal biodefense efforts. When we asked HHS officials for more specific decision-making guidance, they continued to cite the existing processes and directives for interagency decision-making. However, we found that neither of these Presidential memorandums detailed specific decision-making principles or steps for reaching consensus or even for raising decision points about how to best leverage or direct resources across the enterprise in response to gaps and inefficiencies. Similarly, agency officials we interviewed were not clear how this process would work, how decisions would be made, or how agencies would agree to take on new responsibilities to bridge gaps to achieve the Strategy’s goals. Roles and responsibilities. Similarly, the governing bodies have not fully defined the roles and responsibilities for making enterprise-wide decisions that affect individual agency budgets and for enforcing enterprise-wide budget priorities. NSPM-14 directs the heads of agencies to monitor, evaluate, and hold accountable their agencies for implementation of the Strategy, and describes how agencies will develop their budgets with consideration of the agreed upon joint policy guidance developed by the agencies and the White House. However, as with other parts of the NSPM-14 implementation process, the details regarding specific roles and responsibilities for directing and enforcing budget decisions lack detail and specificity. Additionally, officials from four agencies stated that the charter for the Biodefense Coordination Team has not been finalized, further delaying the articulation of roles and responsibilities and the ability to establish a shared agenda and common operating picture. As a result, some officials remain skeptical of the effectiveness of any decisions made. For example, officials from four agencies said the Biodefense Steering Committee does not have the authority to decide how individual agencies in the broader biodefense enterprise should allocate resources or prioritize programs. Officials we spoke with also provided examples of how this part of the implementation process requires attention and will from stakeholders outside the Biodefense Steering Committee, including the National Security Council staff, OMB, and the Congress. For example, officials from two agencies said turnover within the National Security Council staff had contributed to a lack of consistent leadership from the White House, which created a “lapse in momentum” and disrupted the implementation process. Additionally, officials said that key parts of the implementation process, such as the finalization of metrics, milestones and end states, as well as agreement on the federal agency roles and responsibilities for the biodefense activities articulated in the Strategy, had not been approved by the National Security Council staff. As of January 2020, these documents had not received National Security Council staff approval as the process for the development of metrics, milestones and end states is considered ongoing, which could lead to inefficiencies and delay effective implementation of the Strategy’s goals. Finally, officials we interviewed also discussed Congress’s key role as part of the regular federal budget process in determining agency appropriations. For example, officials from two agencies said it will be hard to predict whether the budget component expressed in NSPM-14 to assess and prioritize biodefense programs and activities will achieve its intended outcome. Some agency officials also believed the process to use joint policy guidance to inform annual budget submissions would not be entirely dissimilar to the annual budgetary process, as agencies will continue to submit their proposed budgets and wait for Congress to make appropriation decisions. However, we have previously reported that sustained congressional attention helps ensure that agencies continue to achieve progress resolving complex issues. We previously reported that determining the sources and types of resources needed and where those resources should be targeted are key decisions that effective national strategies should support. We also reported that effective national strategies should help clarify implementing organizations’ relationships in terms of leading, supporting, and partnering—in the context of the Strategy, that includes how enterprise- wide decisions about leveraging or directing resources to fill gaps and reduce inefficiency will be made and by whom. These could include gaps in policy, programming, or funding. Similarly, our previous work has found that articulating and agreeing to a process for making and enforcing decisions can improve the clarity surrounding a shared outcome, and that articulating these agreements in formal documents can strengthen agency commitment to working collaboratively and provide the overall framework for accountability and oversight. Moreover, a key aspect of enterprise risk management is creating a foundation that will enable participants to consider and prioritize alternatives. This prioritization can be based on a number of factors, such as the degree of risk reduction alternatives afford and the cost and difficulty to implement them. However, to do this at the enterprise level, the interagency participants need to agree on processes, roles, and responsibilities for enterprise-wide decision-making. This is particularly important in the context of enhancing efficiency and effectiveness in a broad mission space like biodefense where there is a wide array of threats and the threat landscape continually evolves. Uncertainty around the mechanisms to identify enterprise-wide priorities along with the lack of clearly documented and agreed upon processes, roles, and responsibilities for joint decision-making jeopardize the Strategy’s ability to enhance efficiency and effectiveness of the nation’s biodefense capabilities. In the absence of clearly articulated and agreed upon processes and procedures for joint decision-making to leverage or direct resources across agency boundaries in order to enhance efficiencies, agencies run the risk of continuing to work in stovepiped mission spaces and collecting information that does not serve its intended purpose. Full development and documentation of the processes, roles, and responsibilities for leveraging or directing resources across the enterprise in response to identified gaps and inefficiencies would enhance transparency and clarity for future year’s efforts and help establish a common operating picture that enables trade-offs across agency missions. Conclusions The National Biodefense Strategy, released in September 2018, and the establishment of interagency governance and budgeting mechanisms to help implement the Strategy constitute a promising new approach to establishing a transformational enterprise-wide endeavor that meaningfully enhances the effectiveness and efficiency of government- wide biodefense efforts. These efforts include establishing a framework to collect and compare biodefense programs, projects, and activities across the federal government, which could facilitate enterprise-wide decision- making and budget tradeoff decisions to help ensure the most efficient use of the nation’s biodefense resources. However, these efforts represent a start to a process and a cultural shift that may take years to fully develop. During the first year of implementation, agencies have faced numerous challenges that must be overcome to ensure long-term implementation success. While agencies remain optimistic about the potential benefits of this new approach, it is imperative that additional steps be taken to ensure the challenges experienced early on are not institutionalized and that there is an intentional communication, education, and feedback effort to reinforce collaborative behaviors and enterprise-wide accountability for national security missions. A plan that includes change management practices to help bridge agency cultures and missions, such as efforts to reinforce collaborative behaviors and enterprise-wide approaches, can help ensure agencies continue to refine their interagency efforts and adapt to changes and respond effectively to challenges along the way. In addition, without clear methods and guidance that articulate how all relevant information should be analyzed, including ensuring nonfederal roles, responsibilities, and resources are accounted for in the assessment, the Biodefense Coordination Team’s ability to effectively use the information to support enterprise risk management will be limited. Moreover, without a plan to help ensure resources for sustaining ongoing institutional support, the Biodefense Coordination Team risks not having the capacity it needs to conduct meaningful analysis and decision making processes. Finally, without the development and documentation of the processes, roles, and responsibilities for joint decision making regarding the identification of priorities and for raising decisions about resource alignment across agencies, it will be difficult to sustain an enterprise-wide approach to managing risk across the biodefense enterprise. These actions could help guide agencies towards a common operating picture and shared understanding of the efforts needed beyond their individual missions. The intersection of human, animal, plant, and environmental health, as well as the nexus to the national security and economic sectors, represent challenges that no single agency can address alone. The National Biodefense Strategy was written to help link these efforts and additional planning and guidance would help enable the agencies to achieve the Strategy’s goals. Recommendations for Executive Action We are making the following four recommendations to the Secretary of HHS: The Secretary of HHS should direct the Biodefense Coordination Team to establish a plan that includes change management practices—such as strategies for feedback, communication, and education—to reinforce collaborative behaviors and enterprise-wide approaches and to help prevent early implementation challenges from becoming institutionalized. (Recommendation 1) The Secretary of HHS should direct the Biodefense Coordination Team to clearly document guidance and methods for analyzing the data collected from the agencies, including ensuring that nonfederal resources and capabilities are accounted for in the analysis. (Recommendation 2) The Secretary of HHS should direct the Biodefense Coordination Team to establish a resource plan to staff, support, and sustain its ongoing efforts. (Recommendation 3) The Secretary of HHS should direct the Biodefense Coordination Team to clearly document agreed upon processes, roles, and responsibilities for making and enforcing enterprise-wide decisions. (Recommendation 4) Agency Comments We provided a draft of this report to HHS, USDA, DOD, DHS, State, VA, Justice, EPA, the National Security Council staff, and OMB for review and comment. In its written comments, which are reproduced in appendix III, HHS concurred with our four recommendations and provided additional information on the steps the agency has taken or plans to take to address our recommendations. To address recommendation 1 for the Biodefense Coordination Team to establish a plan that includes change management practices, HHS reported that it had implemented change management practices to include strategies for feedback, communication, and education. Specifically, the letter describes plans to institutionalize an after-action survey following the interagency data collection effort each year and a communications and outreach plan that was informed by multiple sources of stakeholder input. In technical comments, officials also described meetings across different components of the participating agencies that the Biodefense Coordination Team has held to help bridge organizational cultures and promote ownership. These actions, if implemented effectively, are important steps toward addressing the intent of our recommendation. At the same time, it is important to recognize the extent to which the enterprise-wide approach—making resource decisions in the context not only of each agency’s separate mission and authorities, but also to further a shared national security mission—represents a cultural shift. In technical comments, HHS officials acknowledged that opportunities exist to continue to enhance cultural aspects of the enterprise-wide approach and noted that the participation of all the agencies will be important. In addition VA, State, and EPA—in technical comments and written responses—commented on the ability of the Biodefense Steering Committee and Biodefense Coordination Team to drive enterprise-wide decision-making. They noted challenges like the limitations in these bodies’ authority to direct action and the difficulty of achieving consensus across so many actors. (See Department of Veterans Affairs’ letter reproduced in appendix IV.) HHS also concurred with recommendation 2 about clear documentation of guidance and methods for analyzing the data collected from the agencies, including ensuring that nonfederal resources and capabilities are accounted for in the analysis. However, in its written response, HHS reiterated the assessment steps it already described during our review, but it did not provide additional documentation containing more concrete and detailed methods for the analysis. HHS noted the Biodefense Coordination Team’s limited responsibilities to address nonfederal resources in the annual assessment, as described in NSPM-14. HHS also expressed in its technical comments that NSPM-14 does not charge the Biodefense Coordination Team with analyzing or accounting for nonfederal capabilities in any formal or specific way. We recognize the challenges involved with assessing nonfederal capabilities, but disagree with HHS’s characterization of the Biodefense Coordination Team’s responsibilities. According to NSPM-14, the foundation for the United States Government’s role in the biodefense enterprise is the National Biodefense Strategy and its implementation plan. The memorandum further states that agency biodefense activities shall be conducted consistent with the National Defense Authorization Act for Fiscal Year 2017 (NDAA), which provides that the strategy is to include an articulation of related whole-of-government activities required to support the strategy. We have previously reported that parts of the biodefense enterprise, such as the resources that support surveillance capabilities, are heavily reliant on nonfederal resources. Moreover, the National Biodefense Strategy states that it is broader than a federal government strategy, rather a call to action for various nonfederal entities. Therefore, to fully address our recommendation, we continue to believe that NSPM-14 notwithstanding, HHS should develop and document clear guidance for the data collection and analytical methods that will support the NDAA’s call for articulation of the capabilities that support national biodefense and recommendations for strengthening those capabilities. Regarding recommendation 3 for the Biodefense Coordination Team to establish a resource plan to staff, support, and sustain its ongoing efforts, HHS concurred, and said it requested $5 million in no-year funding in its fiscal year 2020 budget request to support the administrative management of the National Biodefense Strategy. However, as we reported, the HHS appropriations for fiscal year 2020 did not include the $5 million HHS requested and officials from multiple agencies reported that the initial planning for the staffing and responsibilities for the Biodefense Coordination Team had not been finalized. To fully address our recommendations, HHS will need to establish a resource plan that would describe how the Biodefense Coordination Team plans to staff, support, and sustain its efforts. Finally, HHS concurred with recommendation 4, for the Biodefense Coordination Team to clearly document agreed upon processes, roles, and responsibilities for making and enforcing enterprise-wide decisions. In its response, HHS points to the authority NSPM-14 gives the Biodefense Coordination Team to establish governance, policies, and procedures, subject to the approval of the Biodefense Steering Committee. HHS stated that the Biodefense Coordination Team had developed charters and guidance to govern its activities, but said that these documents were still pending the approval of the Biodefense Steering Committee. We will continue to evaluate these actions to determine the extent to which they fully address our recommendation. To fully address our recommendation, HHS in partnership with other participating federal agencies should agree upon and document clear guidance, roles, and responsibilities for addressing shared national security concerns with interagency resources and solutions that transcend the mission and capabilities of the individual agencies. Irrespective of NSPM-14, clarifying decision making processes should help the agencies identify the recommendations for improved capabilities, authorities, command structures, and interagency coordination called for by the NDAA and make incremental progress over time toward implementing those recommendations. We are sending copies of this report to the appropriate congressional committees; the Secretaries of the Departments of Health and Human Services, Agriculture, Defense, Homeland Security, State, and Veterans Affairs; the Attorney General; the Administrator of the Environmental Protection Agency; and the Director of the Office of Management and Budget. In addition, the report is available at no charge on the GAO website at https://www.gao.gov. If you or your staff have any questions about this report, please contact Chris Currie at (404) 679-1875 or CurrieC@gao.gov, and Mary Denigan- Macauley at (202) 512-7114 or DeniganMacauleyM@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix III. Appendix I: Analysis of the National Biodefense Strategy and Its Associated Plans against Elements Listed in Statute The National Defense Authorization Act for Fiscal Year 2017 (NDAA) articulated eight elements to include in the required National Biodefense Strategy (Strategy). The NDAA also included a provision that we review the Strategy. As part of our analysis, we assessed the extent to which the Strategy and its associated plans incorporated the elements listed in the NDAA. On March 14, 2019, we briefed the committees of concern (as identified in the NDAA) on our findings, which we present here. To determine the extent to which the National Biodefense Strategy incorporated the elements established in the NDAA, three analysts and an attorney independently evaluated the Strategy and NSPM-14 against each NDAA element, recording scores on separate matrices. The reviewers used the following descriptors to assess the extent to which the Strategy included an element: Great Extent – explicitly cites all elements, even if specificity and detail is lacking and thus could be improved upon; Some Extent – explicitly cites some, but not all, elements; No Extent – does not explicitly cite or discuss any elements, or any implicit references are either too vague or general. The analysts and attorney then convened as a panel to reconcile any differences in scoring to reach consensus. We also interviewed officials from the agencies which comprise the Biodefense Steering Committee to gain contextual information regarding the Strategy’s development as well to help identify any challenges that agencies faced in addressing any of the statutory elements during the development process. As of the date of our briefing in March 2019, the National Biodefense Strategy and associated plans generally addressed most of the elements in the NDAA, and agencies continued to develop additional key components. Specifically, for five of the eight NDAA elements, the Strategy and associated plans addressed the major parts of the elements with few or no omissions. For the other three NDAA elements, some parts were still under development. As of March 2019, the National Biodefense Strategy and Associated Plans Generally Addressed Five of Eight Elements in the NDAA We found in March 2019 that the National Biodefense Strategy and its associated plans generally addressed five out of eight elements listed in the NDAA, even if some of these elements lack specificity and detail. For example, where we determined the Strategy and associated plans included an element to a great extent, we recognize that these documents reflect the intent of the required element, even if improvement could be made in future revisions. Figure 5 identifies the eight elements required by the NDAA and our assessment on the extent to which those elements were included in the Strategy and associated plans. Specifically, the Strategy and related documents include a description of biological threats and the capabilities necessary to address threats, as well as recommendations for improving current biodefense capabilities, authorities, structures and interagency coordination. Description of biological threats. The NDAA provides that one element to be addressed in the strategy is a description of various biological threats. The Strategy includes a description of biological threats, as well as additional contextual information about those threats and their place within the overall threat environment. For example, the Strategy describes biological warfare, bioterrorism, naturally occurring infectious diseases, and accidental exposures as significant threats. Articulation of necessary capabilities. One element listed in the NDAA is an articulation of related or required interagency capabilities and whole- of-Government activities required to support the Strategy’s priorities. The Strategy provides a list of five goals, with associated objectives and activities that articulate the capabilities necessary to fulfill the aims of the Strategy, such as the need to improve interagency capabilities. For example, one such activity describes the need to improve state, local, tribal, territorial, private sector, federal, regional, and international surveillance systems and networks to contain, control and respond to biological incidents. Another activity involves strengthening the ability to detect zoonotic diseases and incorporating forecasting into intelligence collection by federal agencies. This articulation of necessary capabilities addresses the NDAA element to a great extent, even though we noted that additional steps to include nonfederal capabilities in the annual assessment of programs, projects, and activities would enhance implementation efforts. Recommendations for improving current biodefense capabilities. Another element listed in the NDAA is to identify recommendations for strengthening and improving current biodefense capabilities, authorities, and command structures. The Strategy contains descriptions of activities necessary to improve upon current biodefense efforts and to help agencies establish new means to fulfill the goals of the Strategy. NSPM- 14 establishes a new governance structure (command structure) to help implement the Strategy and also includes a mechanism for continual revision of the Strategy, including recommendations for strengthening biodefense activities, based on identified needs. Recommendations for interagency coordination. The NDAA also provided that the Strategy include recommendations for improving and formalizing interagency coordination and support mechanisms with respect to a strong national biodefense. The Strategy and associated plans address this element by establishing collaborative interagency structures—the Biodefense Steering Committee and the Biodefense Coordination Team—intended to work continually on improving biodefense. NSPM-14 also identifies a focal point for coordination among agencies—the Secretary of HHS. Other matters identified by agencies. The final element is to include any other matters deemed necessary by the secretaries of Defense, Health and Human Services, Homeland Security, and Agriculture. According to officials from all eight agencies, the agencies originally tasked with authoring the Strategy opened the process up to all agencies with a stake in the biodefense enterprise because they recognized those four agencies could not develop a comprehensive biodefense strategy if all partners were not included. Officials from all of the agencies on the Biodefense Steering Committee cited the inclusive nature of the drafting process as contributing to a conceptually robust Strategy. Additionally, NSPM-14 includes a requirement for the development of metrics, milestones, and end states for implementing the Strategy, and officials from all eight agencies we interviewed said the interagency group drafted them and officials from 6 of the 8 agencies said they are under review by the National Security Council staff. Agencies Continued to Implement Key Elements of the Strategy and Associated Plans As of March 2019, three of 8 elements listed in the NDAA were only included to some extent because agencies implicitly addressed the element through their work, or have started addressing parts of the elements but not yet completed them. The main body of the report discusses some of the ongoing challenges related to the Strategy’s implementation. Inventory and assessment of doctrine. To some extent, the Strategy addresses the element related to an inventory and assessment of all existing strategies, plans, policies, laws, and interagency agreements related to biodefense. The agencies implicitly addressed this element by incorporating existing doctrine in the process of drafting the Strategy. For example, officials at a majority of the 8 agencies said that agencies deliberately wrote the Strategy in a way that reflects their ongoing priorities in the area of biodefense or takes into account existing agency policies or strategies. The Strategy and NSPM-14 explicitly reference some existing executive orders, presidential directives, and international treaties related to biodefense, though it excludes reference to many relevant agency-level strategies, plans, policies, laws, and interagency agreements. For example, the Strategy reinforces obligations under the Convention on the Prohibition of the Development, Production, and Stockpiling of Bacteriological and Toxin Weapons and on their Destruction (Biological Weapons Convention) (1975), but does not mention the HHS’s National Health Security Strategy, which informs a number of HHS programs that contribute to the biodefense enterprise. According to HHS officials, an inventory of doctrine was completed and submitted to Congress along with the transmittal of the Strategy, when it was released. However, not all officials we spoke to believe this work is fully completed, and officials from several agencies said they are currently evaluating their internal policies and strategies to determine how they align with the new Strategy. Catalogue of current activities. The NDAA also included an element related to a description of the current programs, projects, or activities of the United States Government with respect to biodefense. While the Strategy itself does not include a catalogue of such activities, the NSPM- 14 process requires agencies to create this catalogue, and efforts to do so are described in the body of this report. NSPM-14 requires the Chair of the Biodefense Steering Committee to send written requests for information to agencies with biodefense responsibilities, including 17 agencies mentioned in the NSPM. According to HHS officials agencies completed this collection of information in June 2019. NSPM-14 directs the Biodefense Coordination Team to use the information gathered to produce an overall assessment of federal biodefense programs and coordinate the assessment with National Security Council staff and OMB prior to its finalization and approval by the Biodefense Steering Committee. Under NSPM-14, this process will occur annually as part of the budget cycle. We characterized this element as included to some extent because efforts to complete it were underway at the time of our briefing in March 2019. Additionally, as we describe in the body of the report, we identified areas of this process to be clarified for future years’ efforts. Agency roles and responsibilities. The Strategy and associated plans did not include a description of the roles and responsibilities of the Executive Agencies, including internal and external coordination procedures, in identifying and sharing information, as described in the NDAA. The Strategy’s implementation plan includes over 240 activities, but it does not assign roles and responsibilities for performing those activities. However, NSPM-14 includes a requirement to establish these roles and responsibilities, and officials from all of the 8 agencies said agencies drafted a document assigning roles and responsibilities to each agency. This document was submitted for review to the National Security Council staff. Agency officials also discussed their engagement with nonfederal partners on the Strategy, as they play a vital role in the Strategy’s implementation. However, as we describe in the body of the report, more can be done to articulate the nonfederal role in implementing the Strategy. Additionally, NSPM-14 describes a governance structure and initial responsibilities for executive agencies, such as identification of a senior-level official as the focal point for all federal biodefense efforts. However, as described in the body of this report, additional clarity is needed on specific roles and responsibilities regarding decision-making and leadership. Therefore, we consider this element addressed to some extent. As of October 2019, the agencies took additional steps to address the elements listed in the NDAA. For example, the data collection of the programs, projects, and activities was complete, and the assessment of those data submissions was in draft form. Additionally, the agencies drafted metrics, milestones, and end states, as well as roles and responsibilities for the over 240 activities outlined in the Strategy’s Implementation Plan. However, both of these documents had not received final approval from the National Security Council staff, and the charter outlining roles and responsibilities for the Biodefense Coordination Team had not been finalized. Appendix II: Descriptions of Long-standing Biodefense Challenges Previously Reported Since 2009, we have identified broad, cross-cutting issues in leadership, coordination, and collaboration that arise from fragmentation throughout the complex interagency, intergovernmental, and intersectoral biodefense enterprise. The biodefense enterprise is the whole combination of systems at every level of government and the private sector that contribute to protecting the nation and its citizens. It is composed of a complex collection of federal, state, local, tribal, territorial, and private resources, programs, and initiatives designed for different purposes and dedicated to mitigating both natural and intentional risk. In June 2019, we testified before the Subcommittee on National Security, Committee on Oversight and Reform, House of Representatives on our past work, which has identified a number of key challenges related to the nation’s ability to detect and respond to biological incidents that transcend what any one agency can address on its own. They include: (1) enterprise-wide threat determination, (2) biodetection technologies, (3) emerging infectious disease surveillance, (4) situational awareness and data integration, and (5) biological laboratory safety and security. Agencies have taken steps to address many of the recommendations we and others have made in these areas, and we continue to monitor ongoing efforts. Enterprise-Wide Threat Determination Needed to Help Leverage Resources and Inform Resource Tradeoffs. We reported in October 2017 that opportunities remain to enhance threat awareness across the entire biodefense enterprise, leverage shared resources, and inform budgetary tradeoffs among various threats and agency programs. Key biodefense agencies, including DHS, DOD, HHS, USDA, and EPA carry out activities within their own mission spaces to better understand threats and help make decisions about biodefense investments. Additionally, federal agencies in our October 2017 review had mechanisms to support specific federal activities and individual programs, or in response to specific biological incidents after they begin to unfold. However, there was no existing mechanism that could leverage threat awareness information to direct resources and set budgetary priorities across all agencies for biodefense. Without a mechanism that is able to assess the relative risk from biological threats across all sources and domains, we found that the nation may be limited in its ability to prioritize resources, defenses, and countermeasures against the most pressing threats. In June 2019, we said implementation of the National Biodefense Strategy offers the potential for the nation to progress toward more integrated and enterprise-wide threat awareness and to use that information to identify opportunities to leverage resources, but this will take time and entails a change in the way participating agencies have traditionally operated. Challenges Determining Optimal Biodetection Technology Solutions. We have previously reported on the challenges of determining and then implementing technologies capable of identifying biological threats in the environment. Since 2012 we have reported that DHS has faced challenges in clearly justifying the need for the BioWatch program and its ability to reliably fulfill its primary task of detecting aerosolized biological attacks. According to DHS officials, DHS is in the early stages of Biodefense 21 (BD21), a multi-year acquisition effort. DHS plans to develop requirements based on collected environmental data and input from first responders, public health officials, and other partners determine what the replacement to BioWatch needs to be. As part of the early acquisition cycle for BD21, DHS is currently conducting a technology demonstration for trigger and sensor technology; therefore we cannot yet determine how it will be implemented in the future or what decisions DHS will ultimately make regarding the existing BioWatch system. Additionally, in August 2017 we reported that from a homeland security and public health perspective, threats of bioterrorism, such as anthrax attacks, and high-profile disease outbreaks, such as Ebola and emerging viruses like dengue, chikungunya, and Zika, highlight the continued need for diagnostic tests that provide early detection and warning about biological threats to humans. One option being explored is multiplex point-of-care technologies which can simultaneously test (in minutes to a few hours) for more than one type of human infectious disease pathogen from a single patient sample (such as blood, urine, or sputum) in one run at or near the site of a patient. These technologies may be used for diagnosing different diseases, including more common diseases such as influenza, emerging infectious diseases, or diseases caused by weaponized biological agents. Advances in biological detection technologies present opportunities to provide early detection and warning of catastrophic biological incidents, and in June 2019 we said the agencies responsible for implementing the National Biodefense Strategy will need to engage on this issue in a way that helps to drive informed investment tradeoff decisions about technology alternatives. We also recognized that the National Biodefense Strategy and its interagency governing leadership offer the potential for the nation to better define the role of detection technologies in a layered national biodefense capability to help those that pursue these technologies better articulate the mission needs and align requirements and concepts of operation accordingly. Challenges Building and Maintaining Emerging Infectious Disease Surveillance. We have reported that establishing and sustaining biosurveillance capabilities can be difficult for a myriad of reasons. For example, maintaining expertise in a rapidly changing field is difficult, as is the challenge of accurately recognizing the signs and symptoms of rare or emerging diseases. We reported in October 2011 that funding targeted for specific diseases does not allow for focus on a broad range of causes of morbidity and mortality, and federal officials have said that the disease- specific nature of funding is a challenge to states’ ability to invest in core biosurveillance capabilities. According to federal, state, and local officials, early detection of potentially serious disease indications nearly always occurs first at the local level, making the personnel, training, systems, and equipment that support detection at the state and local level a cornerstone of our nation’s biodefense posture. In May 2018, we reported that officials from HHS told us that their grant awards funded by annual appropriations are intended to establish and strengthen emergency preparedness and capacity building, but may not fully support the need for surge capacity that states and other jurisdictions require to respond to an infectious disease threat. Further, we reported in May 2018 that although the awards funded by supplemental appropriations have allowed state and local public health departments, laboratories, and hospitals to surge during a threat—for example, the H1N1influenza and Zika virus outbreaks—most of the 10 non-federal stakeholders we interviewed, as well as HHS officials said that the timing of these awards can result in challenges to carrying out preparedness and response activities during infectious disease threats. In June 2019, we reported that how and to what extent implementation of the National Biodefense Strategy is able to efficiently leverage and effectively sustain capacity across both nonfederal and federal stakeholders will affect how prepared the nation is to more quickly gear up for whatever challenges emerge when outbreaks of previously non- endemic diseases threaten the nation. We also noted that the Strategy and its interagency governance structure offer the opportunity to design new approaches to identifying and building a core set of surveillance and response capabilities for emerging infectious diseases. Ongoing Challenges to Fulfill Enhanced Situational Awareness and Data Integration Requirements. Our prior work has identified challenges at DHS and HHS related to the sharing, collecting, and integration of data from various federal and nonfederal agencies for their public health situational awareness and data integration efforts. We have reported that DHS’s National Biosurveillance Integration Center (NBIC), which was created to integrate data across the federal government with the aim of enhancing detection and situational awareness of biological incidents, has suffered from long-standing issues related to its clarity of purpose. Since 2009, we have reported that NBIC was not fully equipped to carry out its mission because it lacked key resources—data and personnel— from its partner agencies, which may have been at least partially the result of collaboration challenges it faced. In September 2015, we reported that despite implementing our prior recommendations and NBIC’s efforts to collaborate with interagency partners to create and issue a strategic plan that would clarify its mission and efforts, a variety of challenges remained. In October 2019, officials acknowledged that situational awareness and data integration are still very challenging problems to solve, but overall the relationships between NBIC and partner agencies are improving. Similarly, in 2017, we reported on long-standing challenges faced by HHS—such as planning and implementation shortfalls—to create a public health situational awareness network, not unlike that envisioned for DHS. In June 2019 we observed that because the National Biodefense Strategy identified biosurveillance data integration among several information sharing activities that need to be enhanced, its implementation offers the potential for the nation to better define what kind of integrated situational awareness is possible, what it will take to effectively and efficiently achieve it, and what value it has. Continued Oversight Needed to Enhance Biological Safety and Security. We—along with congressional committees—have, for many years, identified challenges and areas for improvement related to the safety, security, and oversight of high-containment laboratories. For example, in response to reported lapses in laboratory safety at HHS and DOD in 2014 and 2015, we examined how federal departments oversee their high-containment laboratories and found that most of the 8 departments and 15 agencies that we reviewed had policies that were not comprehensive or were not up to date. Additionally, we found that while the departments and agencies we reviewed primarily used inspections to oversee their high-containment laboratories, some of them were not routinely reporting inspection results, laboratory incidents, and other oversight activities to senior officials. In October 2017, we found that the Federal Select Agent Program—jointly managed by HHS and USDA—oversees laboratories’ handling of certain hazardous pathogens known as select agents and toxins, but the program does not fully meet all key elements of effective oversight. For example, the Federal Select Agent Program was not independent from all laboratories it oversees, and it had not assessed risks posed by its current structure or the effectiveness of its mechanisms to reduce organizational conflicts of interest. In June 2019, we said the National Biodefense Strategy highlights the need for continuous improvement of biosafety and biosecurity for laboratories and other facilities, creating an opportunity for interagency partners to develop additional oversight or other practices to mitigate the risk of bioincidents at high containment laboratories. Appendix III: Comments from the Department of Health and Human Services Appendix IV: Comments from the Department of Veterans Affairs Appendix V: GAO Contact and Staff Acknowledgments GAO Contact Chris P. Currie at (404) 679-1875 or CurrieC@gao.gov Mary Denigan-Macauley at (202) 512-7114 or DeniganMacauleyM@gao.gov. Staff Acknowledgments In addition to the contacts named above, Kathryn Godfrey (Assistant Director); Nick Bartine and Susanna Kuebler (Analysts-in-Charge); Jeff Cirillo; Michele Fejfar; Eric Hauswirth; Tracey King; Jan Montgomery; Matt Ray; and Adam Vogt made key contributions to this report.

GAO has reported on the inherent fragmented nature of the federal and nonfederal resources needed to protect the nation from potentially catastrophic biological threats. GAO called for a strategic approach to help the federal government better leverage resources and manage risk The White House issued the National Biodefense Strategy and the Presidential Memorandum on the Support for National Biodefense to promote a more efficient and coordinated biodefense enterprise. The National Defense Authorization Act for Fiscal Year 2017 included a provision that GAO review the strategy. This report addresses the extent to which the Strategy and implementation efforts are designed to enhance national biodefense capabilities and any implementation challenges that exist. GAO analyzed the Strategy, plans, and NSPM-14, and compared them to selected characteristics of GAO's work on effective national strategies, enterprise risk management, organizational transformation, and interagency coordination. GAO interviewed officials from the eight federal agencies that comprised the Biodefense Steering Committee to learn about early implementation. Issued in September 2018, the National Biodefense Strategy (Strategy) and implementation plan, along with National Security Presidential Memorandum-14 (NSPM-14), are designed to enhance national biodefense capabilities. NSPM-14 established a governance structure composed of relevant federal agencies and chaired by the Secretary of Health and Human Services (HHS) to guide implementation. It also required federal agencies with biodefense responsibilities to collect and assess data on their biodefense activities to, among other things, identify gaps. The Strategy defined the scope of the biodefense enterprise (which includes partners at all levels of government and the private sector) and brought all of the biological threats—intentional, accidental, and naturally-occurring—together, establishing an overarching vision, goals, and objectives. There are a number of challenges, however, that could limit long-term implementation success. Among other things, there was no documented methodology or guidance for how data are to be analyzed to help the enterprise identify gaps and opportunities to leverage resources, including no guidance on how nonfederal capabilities are to be accounted for in the analysis. Many of the resources that compose national capbilities are not federal, so enterprise-wide assessment efforts should account for nonfederal capabilities. Agency officials were also unsure how decisions would be made, especially if addressing gaps or opportunties to leverage resources involved redirecting resources across agency boundaries. Although HHS officials pointed to existing processes and directives for interagency decision making, GAO found there are no clear, detailed processes, roles, and responsibilities for joint decision-making, including how agencies will identify opportunities to leverage resources or who will make and enforce those decisions. As a result, questions remain about how this first-year effort to catalogue all existing activities will result in a decision-making approach that involves jointly defining and managing risk at the enterprise level. Without clearly documented methods, guidance, processes, and roles and responsibilities for enterprise-wide decision-making, the effort runs the risk of failing to move away from traditional mission stovepipes toward a strategic enterprise-wide approach that meaningfuly enhances national capabilities.

GAO_GAO-20-161

Background This section provides an overview of the Hanford Site, including DOE’s progress cleaning up the site, and DOE’s requirements and organizational structure for managing and overseeing cleanup and S&M activities at the site. Overview of Hanford Site and Cleanup Progress Located in southeastern Washington State, the Hanford Site is one of the most contaminated nuclear waste sites in North America. The site covers 586 square miles upriver from the cities of Richland, Pasco, and Kennewick. The Columbia River flows through about 50 miles of the site. The River Corridor and Central Plateau represent the two main geographic areas for cleanup work. See Figure 1 for a map of the Hanford Site. DOE’s primary goal for cleaning up Hanford is to protect the Columbia River from contamination now and in the future and to restore groundwater. Since cleanup began in 1989, DOE has made progress towards these goals, including remediating 1,342 of 2,032 waste sites, demolishing 889 of 1,715 excess facilities, removing 18.5 million tons of contaminated soil and debris from areas along the Columbia River, and treating 20 billion gallons of contaminated groundwater. DOE’s most recent schedule estimate for completing cleanup of the Hanford Site is 2078, although final decisions for many cleanup actions have not yet been made. RL’s current overarching set of near-term cleanup goals and priorities—outlined in its 2020 Vision—include initiating the transfer of radioactive sludge from the K basin, cleaning up highly contaminated soils underneath the 324 building, and completing demolition of the Plutonium Finishing Plant, which is among Hanford’s most contaminated nuclear facilities. Hanford Contaminated Excess Facilities Selected for Our Review Table 1 includes a list and summary descriptions for each of the contaminated excess facilities we selected for our review. A more detailed discussion of the scope for our review is presented in appendix I. DOE Requirements for Surveillance and Maintenance of Hanford’s Contaminated Excess Facilities The objectives for conducting S&M of contaminated excess facilities are to ensure adequate containment of any contaminants left in place; provide physical safety and access controls; and maintain the facility in a manner that will minimize risk to human health and the environment. S&M requirements are derived primarily from nuclear facility safety regulations and DOE orders concerning occupational safety, environmental protection, security, and emergency response planning. DOE orders also require that nuclear facility maintenance plans address aging degradation and obsolescence and that surveillance inspections be conducted to detect malfunction and deterioration and determine whether the structural integrity of contaminated excess facilities is threatened. Under the TPA Action Plan, DOE has established an S&M plan for each of the key excess facilities. The S&M plan identifies the facility and associated structures covered by the plan and the specific inspection activities and frequencies to be conducted. For the other excess facilities, S&M requirements are established through provisions of the cleanup contract which require that the contractor perform the S&M activities necessary to maintain them in a safe and compliant condition. Due to the wide variation in types of contaminated excess facilities and associated hazards and risks, RL uses a graded approach that allows for differences from facility to facility regarding the frequency and extent of inspections and associated structural integrity engineering evaluations. Structural integrity engineering evaluations are conducted to determine the adequacy, structural integrity, and soundness of structures and their components. Inspections are conducted using a procedural checklist comprising a list of functional areas from the facility’s inspection plans or procedures, which personnel performing inspections are to evaluate. Inspection checklists can include, among other things, structural integrity (an integral part of excess facility inspections), animal and water intrusion, electrical hazards, and ground subsidence. The S&M plans for contaminated excess facilities require interior walk-through inspections generally on an annual basis but that can vary depending on the facility. Typically, these inspections follow a designated path intended to represent conditions that might be present in areas of the facility that are not visually inspected. In addition, a qualified structural engineer conducts an inspection of the roof integrity—recognized as the most likely risk of failure for the contaminated excess facilities—and other associated structures at those facilities. The frequency, extent of future inspections, and recommendations resulting from these periodic inspections are to be documented by the structural engineer. DOE Framework for Oversight of Hanford Cleanup and S&M of Contaminated Excess Facilities The program offices at DOE headquarters, RL, and Hanford contractors have overlapping roles and responsibilities for managing and overseeing the cleanup and S&M of Hanford excess facilities. These include: Office of Environmental Management: DOE established EM in 1989 to address the environmental legacy of 50 years of nuclear weapons production and government-sponsored nuclear energy research across the country. EM is responsible for the cleanup of large amounts of radioactive wastes, spent nuclear fuel and nuclear material, contaminated soil and groundwater, and the decommissioning and demolition of contaminated excess facilities at various sites. EM offices involved with oversight of contaminated excess facilities cleanup and S&M activities include: Field Operations Oversight/Chief of Nuclear Safety Office. This office has responsibility for strengthening federal oversight of EM’s cleanup mission, including maintaining operational awareness of field office sites’ operations oversight and implementation of nuclear safety requirements, including requirements for S&M. The Standards and Quality Assurance Office. This office assists with headquarters review of deactivation and decommissioning project planning documents, configuration management and controls, and S&M programs. Office of Enterprise Assessments. This independent office, which reports directly to the Office of the Secretary, is responsible for implementing DOE’s Independent Oversight Program for safety and security in accordance with various DOE policies and orders. Through this program, the office conducts appraisals of the adequacy of DOE policy and requirements and the effectiveness of DOE and contractor line management performance in safety and security. The Office of Environment, Safety, and Health Assessments. This office is responsible for conducting assessments to provide information on programs and performance in protecting DOE workers, the public, and environment from hazards present at DOE sites and operations. It also conducts special reviews and studies of safety and emergency management topics and activities where warranted based on circumstances or performance or as directed by DOE management. Hanford Site. RL is responsible for managing and overseeing non- tank waste cleanup activities at Hanford—including S&M of excess facilities—in the Central Plateau area and for completion of some remaining cleanup work in the River Corridor. RL management and oversight includes verification that work is performed in a safe, secure, and quality manner that protects the public, the worker, and the environment and complies with contractual requirements. Project and Facilities Division. This division is responsible for managing and overseeing the cleanup and S&M of Hanford’s excess facilities. Operations Oversight Division. This division has primary responsibility for day-to-day oversight to ensure cleanup work is performed in compliance with requirements for safety, quality assurance, and quality control. This includes ensuring that S&M activities follow approved plans and procedures and that the contractor corrects any deficiencies identified during facility inspections. Site Stewardship Division. This division manages the Long Term Stewardship Program that includes overseeing S&M of the six cocooned reactors. Cleanup Contractor. Private firms under contract to DOE perform the cleanup and S&M work at Hanford. Central Plateau Cleanup. Since 2008, cleanup and S&M of most of the contaminated excess facilities discussed in this report have been performed under the Plateau Remediation Contract by C2HM HILL Plateau Remediation Company. The S&M activities for excess facilities, including how often and what parts of the facility are inspected, are determined by the contractor as necessary to meet contract requirements. Mission Support. Mission Support Alliance is the contractor for the Long Term Stewardship Program and is responsible for ongoing S&M activities for the six cocooned reactors; these activities are expected to last for at least 75 years. DOE Did Not Assess the Programmatic Causes or Fully Implement Key Recommendations Following the PUREX Tunnel Collapse DOE has taken some actions to evaluate the causes of the PUREX tunnel 1 collapse, but has not determined the programmatic causes that contributed to the tunnel collapse, such as by completing an accident investigation or a root cause analysis. In addition, DOE headquarters’ recommendations to improve S&M of contaminated excess facilities and the availability of information on the condition of at-risk areas within these facilities have not been fully implemented. DOE Did Not Conduct a Root Cause Analysis of the Tunnel Collapse RL has taken some actions to evaluate the physical causes that contributed to the PUREX Tunnel 1 collapse, but has not determined the programmatic causes that led to the collapse, such as by completing an accident investigation or a root cause analysis, among other things. Specifically, after the collapse, RL took several actions to comply with a 2017 Washington State Department of Ecology Administrative Order. In this order, the Washington State Department of Ecology determined that RL and the Hanford cleanup contractor were not operating and maintaining the PUREX Tunnel 1 to achieve compliance with the site’s hazardous waste permit and failed, among other things, to keep the operation of the tunnel undisturbed until closure of the facility. The Administrative Order required RL to take several corrective actions to address violations outlined in the Administrative Order, including determining the cause of the PUREX Tunnel 1 collapse. To fulfill the 2017 Administrative Order corrective action, the cleanup contractor performed an engineering evaluation to determine the structural conditions that led to the collapse of PUREX Tunnel 1. However, the contractor noted in the evaluation that due to the risks of exposure to high radiation levels and urgency to seal the collapsed area, there was insufficient information available to determine the causes of the collapse. Instead, the evaluation identified three potential causes of the collapse, with the most likely cause being deterioration and decay of the tunnel’s timber structure. The state accepted these findings from the engineering evaluation as satisfying the requirements in the Administrative Order corrective action that RL identify the causes of the collapse. Notably, the 2017 structural engineering evaluation of Tunnel 1 conducted after the tunnel collapse did not include a root cause analysis to determine the underlying programmatic causes that contributed to DOE not performing previously recommended structural assessments or detecting through regular S&M activity the imminent collapse of PUREX Tunnel 1 collapse. DOE had been aware of concerns with the structural integrity of Tunnel 1 since the 1970s. These concerns lead to the completion of structural assessments in the late 1970s, early 1980’s, and in 1991, when it was recommended that the tunnel be reassessed again in 10 years. Due to elevated risk of contamination and radiation exposure to inspectors, subsequent structural integrity assessments were completed using existing information from prior evaluations, including testing of tunnel structural material, instead of collecting updated information through physical inspections to determine if the PUREX tunnels were structurally sound for continued use, according to RL officials. Figure 2 illustrates the timeline of events related to the tunnels, showing that while the structural integrity of Tunnel 1 was raised several times over the last 40 years and it was recommended in 1991 to assess the tunnel again by 2001, an assessment did not occur until after the May 2017 PUREX Tunnel 1 collapse as part of the corrective actions required by the state. DOE’s order on accident investigations contains requirements to initiate an investigation into both the individual and organizational (programmatic) root and contributing causes of events resulting in, but not limited to, a fatality of an employee or member of the public or serious injury requiring hospitalization; loss of control of radioactive material or environmental release of hazardous material; or at least $2.5 million in damage to property or in costs for cleaning, decontaminating, renovating, replacing or rehabilitating. According to RL officials, RL did not initiate such an investigation into programmatic causes because management concluded that the PUREX Tunnel 1 collapse did not reach these threshold requirements. However, according to RL officials’ written responses to our questions about incident, the costs of responding to the PUREX Tunnel 1 collapse and stabilizing the tunnel exceeded $10 million. DOE Order 232.2A, Occurrence Reporting and Processing of Operations Information, also requires the investigation, categorization, and analysis of reportable occurrences by facility representatives and contractors using a graded approach in accordance with locally approved procedures for implementing the requirements of this order. For an occurrence such as the May 2017 PUREX tunnel collapse, which constituted noncompliance with regulatory requirements that created the potential for actual harm, DOE’s order and related guidance indicates that a causal analysis should have been performed to identify the root causes, including the programmatic causal factor or factors that, if corrected, would prevent similar future occurrences. According to the cleanup contractor’s condition report on the PUREX tunnel collapse, the contractor initially classified the incident as a significant event because it was categorized as an operational emergency and significant by default. According to this report, under the contractor’s reporting procedures, such a classification requires the performance of a root cause analysis to determine the causes and corrective actions with the intent of preventing recurrence. The contractor’s condition report related to the incident notes that RL waived the performance of a root cause analysis in favor of a less rigorous apparent cause analysis to determine the structural factors that led to the collapse of PUREX Tunnel 1. According to a written explanation provided to us by RL management, while the tunnel collapse was due to structural degradation, RL’s first priority was stabilizing the tunnel to mitigate the potential for further collapse, and a programmatic root cause analysis to determine the cause was not warranted. In this written response, RL did not provide any explanation for why a programmatic root cause analysis was not warranted. In an email, RL’s Operations and Oversight Division facility representative granted the cleanup contractor’s request for a waiver from conducting a root cause analysis and concurred with their assertion that an apparent cause analysis was more appropriate. Based on this direction, a root cause analysis was not performed. A root cause analysis, performed by either DOE headquarters or RL in accordance with the requirements of DOE’s orders on accident investigations and occurrence reporting, would have included an assessment of the underlying programmatic factors that contributed to the collapse of PUREX Tunnel 1. For example, a root cause analysis would determine why PUREX facility inspections that only include visual observations of the surface areas around the tunnels were insufficient in identifying the likelihood of the imminent collapse of PUREX Tunnel 1; why a recommendation made in 1991 for an engineering evaluation to be completed by 2001 to determine if the tunnel was still structurally sound for continued use was not completed; or why RL did not make stabilization or cleanup of the tunnel a higher priority. By conducting a root cause analysis to determine any programmatic weaknesses that contributed to the collapse of PUREX Tunnel 1, and taking action to address any identified weaknesses, DOE would have greater assurance that another, similar event will not take place at Hanford. DOE Has Not Fully Implemented 2017 Extent of Condition Review Recommendations In June 2017, shortly after the PUREX Tunnel 1 collapse, EM initiated an Extent of Condition Review to investigate program weaknesses and risks in regard to contaminated excess facilities at three DOE sites, including Hanford. Although EM’s 2017 Extent of Condition Review concluded that, overall, the S&M processes for excess facilities were adequate in mitigating risks, EM’s review identified some weaknesses and made four recommendations to improve the S&M of contaminated excess facilities and availability of information on these facilities’ condition. Specifically, two of these four recommendations addressed weaknesses in inspections of facilities and improving information about the condition of excess facilities: A comprehensive review should be conducted to identify high-risk areas within excess facilities where inspections have not been conducted for over 5 years. The results of the review should be used to inform the risk management process used to prioritize actions and projects. For excess facilities for which limited areas may be used for ongoing operations or storage of nuclear materials, the S&M of the unused areas should be reviewed to assure long-term integrity and stability that is comparable to facilities that are excess. RL has not fully implemented these two recommendations. RL has taken some actions, including commissioning an engineering team to evaluate the structural integrity of some facilities similar to the PUREX tunnels that may pose a future threat of collapse. However, this evaluation of the structural integrity of Hanford’s contaminated excess facilities was not comprehensive and did not include an evaluation of the structural integrity of all excess facilities of concern that may be at risk of structural failure. For instance, the scope of the evaluation was focused on 27 underground waste storage structures in the Central Plateau, such as cribs, tanks and trenches, which were constructed prior to PUREX Tunnel 1. In addition, this evaluation was largely based on old data and did not include any physical or non-physical inspection and testing to verify if a facility or part of a facility needed to be stabilized or prioritized for cleanup, according to RL officials. In addition, although recommended in EM’s 2017 Extent of Condition Review, to date, RL has not taken action to direct the cleanup contractor to carry out comprehensive inspections at all contaminated excess facilities, and there are areas of some facilities that still have not been entered, either physically or by remote means, to conduct internal inspections. RL officials told us that they generally agree that inspections of aging facilities should include evaluations of their structural integrity. According to these officials, there have been ongoing discussions about such inspections, including how often and in what areas to conduct them. Officials said these decisions would need to be determined on a case-by- case basis depending on the safety consequences of potential incidents. They also stated that RL has prioritized removing hazards to reduce potential threats to human health and the environment to reduce future surveillance and maintenance costs and preparing the canyon areas and other facilities for final cleanup. According to EM headquarters officials, the 2017 Extent of Condition Review recommendations were intended to be considered as opportunities for improvement which site management could incorporate as deemed appropriate. EM officials explained that there is no requirement for sites to take action to implement the review recommendations or track their progress. However, by not taking actions to implement the Extent of Condition Review recommendations, RL will continue to lack information about the condition of high-risk areas within contaminated excess facilities where inspections have not been conducted for several years and will miss opportunities to identify and address any deteriorating conditions that could lead to the collapse of another contaminated excess facility. Most Contaminated Excess Facilities Are Inspected as Required, but Some Inspections Are Not Comprehensive The Hanford contractor is generally conducting surveillance inspections of most contaminated excess facilities as required. However, EM’s 2017 Extent of Condition Review and our review found that the cleanup contractor did not conduct comprehensive inspections at all contaminated excess facilities and that there are areas of some facilities that personnel infrequently or never enter, physically or by remote means, to conduct interior inspections. In addition, although EM’s 2017 Extent of Condition Review team noted that they observed examples where appropriate S&M activities were taking place at contaminated excess facilities, the team also acknowledged that such activities do not assure the EM sites’ S&M programs are adequate to prevent mishaps, as evidenced by the collapse of PUREX tunnel. Further, DOE headquarters offices responsible for the evaluation of DOE site activities have not conducted any specific assessments or audits focusing on management and oversight of Hanford S&M activities since 2013. DOE Conducts Inspections of Most Contaminated Excess Facilities, but Some Facilities Are Not Comprehensively or Regularly Inspected According to EM’s 2017 Extent of Condition Review and our review of inspection reports at selected facilities, routine surveillance inspections of Hanford’s contaminated excess facilities are being conducted and the EM review concluded that Hanford’s surveillance inspections were generally adequate. However, this same EM review, as well as our review, identified weaknesses in Hanford’s inspection program. DOE orders require sites to clearly address aging degradation and obsolescence and to conduct surveillance inspections at contaminated excess facilities to detect malfunction and deterioration and determine whether the structural integrity of contaminated excess facilities is threatened. Once DOE determines that a facility is excess to mission needs, the disposition phase of a contaminated excess facility’s life cycle usually includes deactivation, decommissioning, and S&M activities, followed by decontamination and demolition. According to RL officials, a graded approach—taking into account the risks posed at each contaminated excess facility— can be used to tailor S&M activities, including the frequency of facility inspections. In addition, S&M plans and procedures are prepared by DOE and implemented by the contractor, who determines the frequencies and areas of contaminated excess facilities included in surveillance inspections. EM’s 2017 Extent of Condition Review found that at three EM sites, including Hanford, contaminated excess facilities surveillance inspections were adequate and overall ensured that the S&M programs were mitigating risks. Additionally, the review found that the sites were giving appropriate attention to roof integrity through the S&M process. Roof structural integrity is a key concern at contaminated excess facilities, as the roof serves as protection against spread of contamination and represents the most likely failure risk and safety risk for workers. Further, in our review of selected contaminated excess facilities, we found that the Hanford cleanup contractor has conducted annual surveillance inspections of most of these facilities and has taken action to ensure the structural integrity of some contaminated excess facilities. For example, RL’s responses to our questionnaire indicated that for 16 of the 18 contaminated excess facilities we selected for our review, the contractor conducts interior inspections of structural integrity on a periodic basis. In addition, we found that between 2008 and 2018, the contractor annually inspected three of the four contaminated excess facilities we selected for our in-depth reviews. However, RL responses to our questionnaire revealed concerns with completeness of structural integrity evaluations and the structural integrity of some facilities. For five of 18 facilities, RL officials identified structural integrity or degradation which could lead to the potential release of hazardous or nuclear materials, such as the May 2017 partial collapse of PUREX Tunnel 1, as a concern. RL responses also indicated that engineering analyses to evaluate structural integrity had been conducted for 13 of the 18 facilities; however, at 10 of these facilities some areas were not included in the evaluation due to concerns about worker safety from radiological or other hazards. Further, EM’s 2017 Extent of Condition Review, other recent DOE reports, and our review of inspection reports for selected contaminated excess facilities found several instances in which the cleanup contractor did not conduct comprehensive surveillance inspections at all excess contaminated facilities, including infrequently or never entering portions of some facilities, either physically or by remote means, to conduct interior structural integrity evaluations. REDOX. According to the 2015 Canyon Risk Mitigation Plan, the REDOX canyon is not accessed during routine S&M activities. This report also notes that the canyon deck area is expected to be highly contaminated, is not inspected, has not been entered in more than 50 years, and structural conditions are unknown. The canyon deck is located in the central portion of the canyon building and is isolated from other areas of the facility by thick reinforced concrete walls and floors. It is located above the facility process cells that were used to extract plutonium. According to RL officials, these process cells and other parts of the main canyon building are not accessed during routine walkthrough inspections due to high levels of radioactive contamination. Furthermore, in the contractor’s 2016 annual inspection of the REDOX facility complex, the contractor did not evaluate three annexes of the canyon facility for structural integrity, according to RL’s response to our questionnaire. According to RL officials, the contractor did not carry out these evaluations of the annexes because RL plans to complete their final cleanup in the near term. However, according to a 2016 DOE planning document, the schedule for conducting the cleanup of the annexes is unknown, and RL officials told us it may be several more years before cleanup begins. Because these annexes are not inspected for structural integrity, RL and the cleanup contractor may not have sufficient information regarding their condition for planning purposes, such as assessing if immediate maintenance is required to stabilize a structure or prioritizing an annex for immediate cleanup. In addition, according to a 2012 DOE report, because the canyon was not deactivated after shutdown in the 1960s, information is very limited and there is a significant level of uncertainty about the conditions inside the building. According to the EM’s 2017 Extent of Condition Review, despite ongoing S&M activities, if facility deterioration continues and is left unaddressed, the condition of the facility could present a threat to human health and the environment, as well as increase the costs of S&M in the near term. PUREX. According to EM’s 2017 Extent of Condition Review, parts of the main PUREX facility are not physically inspected, including the canyon deck. The canyon deck is in the central portion of the main canyon building and is isolated from the surrounding areas of the facility by thick, reinforced concrete walls and floors and has not been entered in more than 10 years, according to the Hanford cleanup contractor’s 2015 Canyon Risk Mitigation Plan report. According to this report, conditions within this space are unknown, and high contamination levels are expected. Due to lack of information and concerns about this area, the 2015 Canyon Risk Mitigation Plan recommended—for data-gathering and planning purposes— inspecting this area either physically or remotely, if physical entry is not possible due to high levels of radiation. This report also stated that future cleanup work could not be initiated in this area without sufficient information related to the condition of the canyon deck. In addition, a 2019 engineering evaluation of the facility determined that degradation may not be fully addressed by S&M activities and the risk of release of hazardous substances will increase as degradation continues or goes undetected. Figure 3 shows the main PUREX plant and auxiliary facilities. 216-Z-9 Crib. According to the EM’s 2017 Extent of Condition Review, due to the highly contaminated nature of 216-Z-9 Crib, inspections of this facility are limited to external surveillance of the roof and looking down the facility stairwell to the trench area of the crib. However, a 2006 inspection of the interior of the crib utilized a remote controlled device to inspect and determine that the structural integrity of the facility’s roof was suspect. This inspection recommended that the roof be inspected for structural integrity every 5 years; however RL did not direct the contractor to inspect the facility until 2016. Furthermore, according to RL officials, when the facility was inspected in 2016 and then again in 2018, the inspections did not include an engineering evaluation or use of non-physical engineering or robotic tools to inspect the structural integrity of the roof, as was done in 2006, to determine if the facility was safe for continued use. Despite the lack of an engineering evaluation or interior inspection of the roof, the 2016 and 2018 inspection reports gave the facility a passing grade for structural integrity—raising questions about both the basis and reliability of this assessment. RL officials told us they did not instruct the contractor to conduct such an evaluation because recent visual surveillance inspections of the outside of the crib roof did not indicate that structural failure was imminent. However, in its January 2019 structural integrity assessment of contaminated excess facilities at risk of collapse, the contractor reported that this facility was among 11 facilities needing further evaluation. Plutonium Finishing Plant 241-Z-361 Settling Tank. According to RL’s response to our January 2019 questionnaire, the interior of the Plutonium Finishing Plant 241-Z-361 Settling Tank is not inspected. RL’s response noted that although there are concerns regarding the structural integrity of the facility, the facility is safe for continued use. However, RL’s response is not consistent with prior studies on the condition of the tank. To support the questionnaire response, RL referred to the 2018 Documented Safety Analysis and a 1997 Structural Integrity Assessment for Plutonium Finishing Plant 241-Z- 361 Settling Tank. The 2018 Documented Safety Analysis concludes that the tank is in a structurally degraded condition but is not considered at risk of imminent failure. However, the 1997 Structural Integrity Assessment that DOE used to support the conclusion in its Documented Safety Analysis determined it was not possible to accurately assess the condition of concrete in the facility and there were uncertainties associated with the strength of its structural steel. The 1997 report also concluded that deteriorating conditions of the facility could lead to the leakage of radioactive waste material, further accelerating the degradation through corrosion and conditions that could result in the collapse of the tank. Notably, a subsequent 1999 video inspection revealed cracking in the interior roof, dissolving of the interior steel liner, and deterioration of the concrete sidewall of the tank. Despite these documented concerns about the structural integrity of the facility, RL officials that we spoke with could not provide a specific reason for why the interior of this facility has not been inspected. Most recently, a structural integrity initial assessment performed for the contractor in January 2019 identified the Plutonium Finishing Plant 241-Z-361 Settling Tank as the top priority among 11 contaminated excess facilities needing further evaluation to determine if the facility is structurally sound for continued use. This report stated that the facility is currently in a structurally degraded condition, with severe deterioration of the construction materials supporting the structure. 224B Concentration Facility. This facility is contaminated from past operations and parts of the facility are not physically inspected, according to the 2015 Canyon Risk Mitigation report. In addition, according to a 2015 RL briefing report, the facility’s roof is aging and will likely require replacement within 5 years. According to RL officials, the roof of this facility has not been replaced, and according to RL’s response to our questionnaire, no significant maintenance or structural work has been conducted since 2008 and none is needed or planned based upon the current condition of the facility. However, RL’s response to our questionnaire indicates that RL has not conducted a structural integrity engineering evaluation of the facility to support this conclusion. According to RL officials, they are currently in the process of developing a plan to complete decommissioning and decontamination of the facility. Under the TPA, the plan is to be submitted by the end of September 2020. However, RL officials told us that even with regulatory approval of the plan, DOE likely will use additional funding to pursue other near-term cleanup priorities rather than clean up the 224B Concentration Facility. According to EM’s 2017 Extent of Condition Review, other recent DOE reports, and our review of inspection reports for selected contaminated excess facilities, gaps in S&M activities are, in some cases, due to access challenges at the facilities. According to the EM 2017 Extent of Condition Review, not all facility areas are inspected regularly due to difficulty of access or elevated risk of contamination or exposure, or because those areas are in such a degraded condition they are not safe to enter. However, the contractor has demonstrated the capability to use engineering or robotic evaluations to inspect or determine the structural integrity of the facility, or parts of the facility, and verify whether it needs to be stabilized or prioritized for cleanup. For example, such analyses were done at the PUREX tunnels and at the 216-Z-9 Crib, as noted above. Despite this capability, RL management has not directed the cleanup contractor to perform such inspections for some of Hanford’s contaminated excess facilities or parts of facilities. According to RL officials, decisions on regularity and types of inspections and structural evaluations will depend on the known risks associated with the facility. Without directing the contractor to routinely conduct comprehensive inspections to gather crucial information on the condition of contaminated excess facilities, RL cannot ensure that it is meeting all of DOE’s S&M requirements—such as addressing aging degradation and obsolescence of facilities—and preventing other potential events similar to the PUREX tunnel collapse. DOE Headquarters Has Conducted Some Assessments of RL Cleanup Work but Has Not Conducted Oversight Reviews of S&M Activities at Hanford DOE headquarters offices have conducted some assessments of RL cleanup work but have not conducted any assessments or audits focused on RL’s oversight of the cleanup contractor’s S&M activities since 2013. EM’s Field Operations Oversight/Chief of Nuclear Safety Office and DOE’s Office of Enterprise Assessments are required to conduct independent oversight to the extent necessary to evaluate the effectiveness of DOE field office oversight of contractor activities, including activities needed to maintain contaminated excess facilities in a safe and compliant condition pending their final cleanup. We reviewed 21 DOE HQ oversight reports on RL activity from the past 5 years and determined that none of these assessments or audits focused on RL’s management and oversight of the contractor’s S&M activities for contaminated excess facilities. We spoke with DOE officials from two headquarters offices responsible for independent oversight of DOE field offices—the EM Field Operations Oversight/Chief of Nuclear Safety Office and the Office of Enterprise Assessments. Officials with both headquarters offices confirmed that neither office has conducted a specific assessment or audit focusing on RL’s management and oversight of S&M activities for contaminated excess facilities in the last 5 years. Officials with the Office of Enterprise Assessments told us that, given the limited resources available to conduct oversight, they have to prioritize and be selective about the reviews they plan to conduct in a given year, and conducting an in-depth assessment of RL’s oversight of Hanford S&M activity has not been a priority with that office. In December 2018, the office considered whether to conduct a formal assessment of RL oversight of Hanford S&M activity, but decided that such an assessment was not needed. However, the projected overall time in S&M mode underscores the importance that S&M be adequate to maintain facility safety during the final stages of cleanup operations through a seamless transition to the final disposition of the facility to protect human health and the environment. We found that S&M requirements for selected contaminated excess facilities will continue for decades. Specifically, our review of 18 contaminated facilities at Hanford found that many of these facilities were determined to be excess between the 1960s and the late 1980s and transitioned into S&M status at that time. Notably, our review of these facilities shows that several of them do not have planned cleanup completion dates and for those with cleanup completion dates, cleanup is scheduled to be completed between 1 and 6 decades in the future. Table 2 shows the dates for when the 18 contaminated excess facilities transitioned into S&M mode and how long RL will need to continue S&M activities until cleanup is completed. As S&M of Hanford’s contaminated excess facilities is expected to continue for many decades, conducting an effective S&M program is essential to minimize the risks of potential releases of contamination that could harm the environment or human health before cleanup is completed. Notably, RL has not established final cleanup dates for several of the 18 contaminated excess facilities included in our review. DOE, however, has not conducted independent reviews of S&M oversight activity necessary to determine whether weaknesses exist in RL’s management and oversight of the Hanford Site contractor’s S&M activities for these facilities. Without prioritizing and conducting periodic assessments or audits focused on RL’s management and oversight of the Hanford Site contractor’s S&M activities for contaminated excess facilities, DOE does not have assurance that RL is overseeing S&M activity in a way that ensures contaminated excess facilities are being inspected and maintained in a safe and compliant condition pending final cleanup. DOE Seeks to Balance Risks with Other Factors to Establish Hanford Site Cleanup Priorities RL seeks to balance risks with other factors, such as legally enforceable milestones, available budget, and stakeholder interests, to prioritize cleanup activities that support achieving its overarching Hanford Site cleanup goals, according to RL officials and planning documents. While EM has overall responsibility for managing DOE’s cleanup program, including deactivation and demolition of excess facilities, it has delegated prioritization of cleanup activities to the sites through the annual budget process. As part of the process, EM requests sites develop and submit a site-specific Integrated Priority List to EM management. The Integrated Priority List is based on a number of site-specific factors, including regulatory commitments, agreements with EPA and states, and risks to worker safety and the environment. According to RL officials, EM does not provide specific written guidance for the sites to follow in developing their priority lists, other than a list of seven general factors. RL officials told us that more specific guidance is not necessary because site management needs the flexibility in setting and adjusting cleanup priorities to reflect changes in site conditions and other evolving circumstances as they arise. Since 2017, RL and the Hanford cleanup contractor have been using a new site-wide risk-informed tool, known as the Project Evaluation Matrix, to help inform decisions on which cleanup priorities to include in the Integrated Priority List. The matrix is used to produce a prioritized listing of the stabilization, waste removal, and other activities that need to be completed as part of the deactivation and decommissioning of the contaminated excess facilities and their associated buildings, structures, and waste sites. RL and cleanup contractor officials described the matrix as a broad, overarching tool to aid in establishing a qualitative basis by which they can determine and agree on cleanup priorities that are planned to be executed within the next 1 to 5 years. Neither the Washington State Department of Ecology nor the Environmental Protection Agency is directly involved in the development of the rankings in the matrix. The contractor’s guidance document explains that the risk evaluation process used to develop the matrix rankings involves a number of steps. It starts with the data collection phase, during which RL and the contractor collect information on site conditions from a variety of sources, such as historical records, safety assessments, subject matter experts, and S&M activities. This information is then used to develop relative ranking scores for the various cleanup and S&M activities using weighted scores for three criteria: (1) risk reduction; (2) mortgage reduction/cost avoidance; and (3) TPA milestones/regulatory drivers. The initial scores also take into consideration other factors such as potential consequences of failure and overall project lifecycle costs. After developing an initial risk ranking of cleanup projects and activities, the contractor works with RL management to evaluate the initial results and make adjustments as necessary to reflect comments, changes in conditions, or new work scope. The risk rankings are then updated and used by RL to inform decisions on which projects to prioritize in its Integrated Priority List budget submission to EM. As funding decisions are made and cleanup work proceeds, risks are reassessed and the process starts again. RL officials explained that planned cleanup priorities established in the Integrated Priority List can be adjusted as necessary to reflect information learned through S&M activities and changes in site conditions. For example, routine annual S&M inspections at one facility identified concerns with the integrity of the roof. Based on these concerns, a structural analysis was performed by the cleanup contractor, and RL adjusted its priorities for fiscal year 2016 to include replacing the facility’s roof. Similarly, RL may also modify its planned cleanup priorities to reflect changes in site conditions, such as completing cleanup of a facility or taking actions to stabilize a facility pending its final disposition. For example, based on structural evaluations completed after the partial collapse of Tunnel 1 in May 2017, RL elevated interim stabilization of both PUREX tunnels as among its top priorities in fiscal years 2018-2019. The ability of RL management to establish and adjust cleanup priorities depends on the availability of quality information on site conditions that is reliable, complete, and current. One source of information for this process is annual and routine S&M activities for Hanford’s contaminated excess facilities. These activities, such as facility inspections, structural integrity evaluations, and radiological monitoring, help provide management with updated information on potential changes in site conditions that may lead to an adjustment in previously planned priorities. As discussed above, however, both EM’s 2017 Extent of Condition Review and our review found that parts of certain contaminated excess facilities that may be at risk for structural deterioration—such as the REDOX annexes—are not included in the routine surveillance inspections and have not been inspected within the past 5 years, or longer. We also identified instances where structural integrity evaluations for some facilities, such as for the 216-Z-9 crib and the Plutonium Finishing Plant 241-Z-361 Settling Tank, appear to have relied on outdated information and reached determinations seemingly inconsistent with the contractor’s more recent analyses and conclusions. By conducting comprehensive surveillance inspections of Hanford’s contaminated excess facilities, DOE would have greater assurance that RL and the contractor’s process for identifying cleanup priorities reflects the current status of the potential human health and environmental risks present at such facilities. Conclusions At Hanford, RL has made progress in cleaning up approximately 800 excess facilities, and six major plutonium production reactors are now cocooned and waiting final dispositioning. Despite efforts to mitigate risks and cleanup excess facilities, significant vulnerabilities remain at Hanford due to, among other things, the degrading state of hundreds of contaminated excess facilities still requiring cleanup. Given the pivotal role of the S&M program in ensuring that aging and degrading contaminated excess facilities do not collapse or fail to contain radioactive or hazardous material, it is important that this program is functioning effectively and that any weaknesses are addressed in a timely manner. The partial collapse of PUREX Tunnel 1 was a clear signal that there are flaws in the S&M program at Hanford. By conducting a root cause analysis to determine any programmatic weaknesses that contributed to the causes of the PUREX Tunnel 1 collapse, and taking action to address any identified weaknesses, DOE will have greater assurance that another, similar event will not occur at Hanford. Additionally, the PUREX Tunnel 1 event demonstrates that RL and the cleanup contractor need complete and updated information regarding the condition of aging contaminated excess facilities to determine if facilities should be stabilized to prevent structural failure or prioritized for cleanup. This information can only be acquired by routinely completing comprehensive surveillance inspections, to include, if necessary, engineering evaluations including the use of remote controlled probes. Without directing the contractor to conduct routine and comprehensive inspections to gather crucial information on the condition of contaminated excess facilities, RL cannot ensure that it is meeting all of DOE’s S&M requirements—such as addressing aging degradation and obsolescence of facilities—and preventing other potential events similar to the PUREX tunnel collapse. Furthermore, because DOE headquarters offices have not prioritized and conducted any assessments or audits focused on RL’s oversight of the cleanup contractor’s S&M activities within the past 5 years or since the PUREX Tunnel 1 collapse, they are missing an opportunity to identify and address any Hanford S&M program weaknesses that may have led to the collapse. Recommendations for Executive Action We are making the following three recommendations to DOE: The Assistant Secretary of DOE’s Office of Environmental Management should direct RL to conduct a root cause analysis to identify any programmatic causes that may have led to the collapse of PUREX Tunnel 1. (Recommendation 1) The Assistant Secretary of DOE’s Office of Environmental Management, while ensuring the protection of DOE workers, the public, and the environment, should ensure that RL directs the Hanford Site cleanup contractor to explore using robotic or other means to routinely complete comprehensive surveillance inspections of contaminated excess facilities to identify aging degradation and obsolescence of facilities and take timely action as warranted. (Recommendation 2) The Secretary of Energy should ensure DOE headquarters offices responsible for the oversight of EM sites’ field offices conduct an assessment of RL’s management and oversight of the Hanford Site contractor’s surveillance and maintenance activity for contaminated excess facilities. Based on the results of this assessment, DOE headquarters offices should consider whether such assessments should be conducted on a periodic basis. (Recommendation 3) Agency Comments We provided a draft of this report to the Secretary of the Department of Energy. In its written comments, reproduced in appendix III, DOE agreed with the report’s findings and concurred with our recommendations. In addition, DOE described ongoing and planned actions to address our recommendations by December 31, 2020. 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 to the appropriate congressional committees; the Secretary of Energy; the Director, Office of Management and Budget; and other interested parties. In addition, the report will be available at no charge on the GAO website at www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or trimbled@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 major contributions to this report are listed in appendix IV. Appendix I: Objectives, Scope, and Methodology This report reviews issues related to the cleanup, inspection and maintenance of Hanford’s contaminated excess facilities, such as the Plutonium Uranium Extraction Plant (PUREX), and how the Department of Energy (DOE) and the Richland Operations Office (RL) prioritizes and schedules cleanup and ensures that the Hanford Site contractor inspects and maintains these facilities. The objectives of our review were to (1) examine actions DOE has taken to evaluate the causes of the PUREX Tunnel Collapse, 2) examine the extent to which DOE ensures that the contractor’s surveillance and maintenance of Hanford’s contaminated excess facilities meet DOE requirements, and (3) describe how DOE determines the priority ranking and schedule for cleanup of Hanford’s excess facilities. To examine actions DOE has taken to address the PUREX Tunnel Collapse and the extent to which DOE ensures that the contractor’s surveillance and maintenance (S&M) of Hanford’s contaminated excess facilities meets DOE requirements, we reviewed DOE orders, policies, RL procedures, and documents that describe DOE’s S&M requirements. We also obtained and reviewed DOE evaluation reports and assessments of S&M activities and operations at Hanford facilities; these include the Office of Environmental Management’s (EM) 2017 Extent of Condition Review for Excess Facilities and historic S&M assessment reports on PUREX tunnel structural stability. To describe how DOE determines the priority ranking and schedule for Hanford cleanup work of Hanford’s contaminated excess facilities, we reviewed federal environmental regulations, legal agreements, planning documents from DOE and the Hanford cleanup contractor, DOE directives and guidance, and reports by the Consortium for Risk Evaluation with Stakeholder Participation and others on ways to consider risk in making cleanup decisions. These include, but are not limited to, the Tri-Party Agreement (TPA) and associated Action Plan; EM’s Fiscal Year 2020 budget request; RL’s 2015 Vision and 2020Vision, which include high-level cleanup priorities and goals; the Hanford cleanup contractor’s Project Evaluation Matrix and its associated guideline; and RL’s Integrated Priority List. For all objectives, we also interviewed DOE officials with RL, the DOE Office of Inspector General at Hanford, and DOE headquarters offices, including the Office of Enterprise Assessments and EM’s Office of Safety, Security, and Quality Assurance. In addition, we interviewed Hanford cleanup contractors, officials from the Washington State Department of Ecology, and officials from the Defense Nuclear Facilities Safety Board. Due to the large number of Hanford contaminated excess facilities requiring cleanup (approximately 800), we focused our review on 18 contaminated excess facilities. These contaminated excess facilities represent the majority of the excess facilities cleanup effort and include some of the most challenging of the non-tank waste cleanup efforts remaining at Hanford, according to DOE officials. We chose key excess contaminated facilities as identified in the TPA because, among other things, DOE and its regulators identify these facilities in Section 8 of the agreement as presenting sufficient potential environmental concern that coordination of the decommissioning process with cleanup activities under the agreement was deemed necessary. We also selected the five other contaminated excess facilities because DOE identified them as having 1) high risks to the environment, workers, and public safety, 2) high annual S&M costs, and 3) high disposition costs. See Table 1 in the report for summary descriptions of each facility we selected. To gather information about RL’s planning on S&M activities at Hanford and estimated costs for fiscal year 2019, we administered a questionnaire to RL facility representatives responsible for overseeing the cleanup contractor’s implementation of S&M for contaminated excess facilities. For each facility, the representatives were asked whether there was an S&M plan for the facility, when it was developed, and when it was most recently updated. We also asked about the type and frequencies of facility inspections, whether the facility included areas where structural integrity was a concern, if any structural integrity evaluations had been conducted, and whether any significance corrective or preventative maintenance had been performed. We also asked them to explain the facility representative’s role in overseeing that the contractor was conducting S&M activities in accordance with the applicable plan and DOE requirements. A copy of the complete questionnaire is included in appendix II. We conducted two pretests of the questionnaire with RL officials in November and December 2018, and we revised it in response to their comments. During this process, we sought to ensure that (1) the questionnaire questions were clear and unambiguous, (2) terminology was used correctly, (3) the questionnaire did not place an undue burden on respondents, and (4) respondents had sufficient information to answer the questions. For the questionnaire we identified an initial set of 21 contaminated excess facilities based on the following criteria: (1) whether they were a key facility identified by DOE and its regulators in Section 8 of the Tri- Party Agreement Action Plan and (2) whether we considered them to be a contaminated excess facility that poses high risks to the environment, workers, and public safety; (3) whether it has potentially high annual surveillance and maintenance costs; and (4) whether it has high final disposition costs based on information we gathered from DOE. After further correspondence with RL officials, we agreed that three of the contaminated excess facilities on our list could be deleted because they were not in S&M mode, as cleanup was completed for one facility, one was undergoing active cleanup, and the other was in operational status. We sent the questionnaire by email in a password-protected Word document to which respondents could return electronically after marking checkboxes or entering responses into open-answer boxes. We sent the questionnaire with a cover letter to DOE officials on January 10, 2019, with a request to complete and return it by January 31, 2019. By February 25, 2019, we received completed questionnaires for each of the 18 selected contaminated excess facilities. In addition, to provide further context for all objectives, we conducted in- depth reviews regarding S&M of selected Hanford facilities. For these reviews, we selected four high-risk facilities: PUREX, REDOX, the 224B Concentration Facility, and the 216–Z-9 Crib. We used a judgmental (non-probability) sample to select four contaminated excess facilities for in-depth review. These facilities have been identified by DOE, the DOE Office of Inspector General, or the Consortium for Risk Evaluation with Stakeholder Participation as contaminated excess facilities with concerns regarding high risks to the environment, workers, and public safety and risk of potential release of radioactive material and other hazardous materials due to aging degradation and weakening structural integrity. In addition, these contaminated excess facilities are moderate- to high-risk priority facilities for cleanup, according to the contractor’s June 2018 Project Evaluation Matrix, but not scheduled to start cleanup for at least 5 years. For these reviews, we examined DOE documents, including inspection records dating back to the start of fiscal year 2008 through the end of fiscal year 2018 to determine if inspections were occurring, and interviewed RL officials. We conducted this performance audit from March 2018 to January 2020 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. Appendix II: Questionnaire Appendix III: Comments from the Department of Energy Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the individual named above, Ned Woodward, Assistant Director; Tara Congdon; Justin Fisher; Richard Johnson; Michael Meleady; Peter Ruedel; Sara Sullivan; and Roxanne Sun made key contributions to this report.

DOE's Hanford site in Washington State contains thousands of contaminated excess facilities and waste sites that remain to be cleaned up. In May 2017, a partial roof collapse at a waste storage tunnel facility for one of the former plutonium nuclear processing plants raised questions about the S&M of Hanford's excess facilities and how RL prioritizes cleanup of these facilities. GAO was asked to review DOE's cleanup of Hanford's contaminated excess facilities, including how DOE ensures that the Hanford Site contractor inspects and maintains facilities. This report examines, among other things, (1) DOE's actions to evaluate the causes of the PUREX tunnel collapse, and (2) the extent to which DOE ensures that S&M of Hanford's contaminate excess facilities meet DOE requirements. GAO reviewed DOE documents, administered a questionnaire to collect S&M information about 18 selected facilities representing the majority of the Hanford facilities cleanup effort, conducted in-depth reviews of selected Hanford facilities, and interviewed DOE and Hanford cleanup contractor officials. The Department of Energy (DOE) has taken some actions to evaluate the physical causes that contributed to the May 2017 partial collapse of the Plutonium Uranium Extraction (PUREX) Tunnel 1, but has not determined the programmatic causes that led to the collapse, such as by completing an accident investigation or a root cause analysis, among other things. For example, although an engineering evaluation of the tunnels was completed at the request of the State of Washington, Richland Operations Office (RL) officials told GAO an accident investigation was not initiated because the event did not meet threshold requirements in a DOE order that includes, among other things, damages or costs exceeding $2.5 million. However, GAO's analysis shows that the costs of responding to the event and stabilizing the tunnel were about $10 million. At the contractor's request, RL also waived performance of a root cause analysis, which DOE guidance states is typically required for such a significant event, and agreed to a less rigorous analysis of the potential physical causes of the event. By conducting a root cause analysis to determine any programmatic weaknesses that contributed to the collapse of PUREX Tunnel 1, and taking action to address any identified weaknesses, DOE will have greater assurance that another, similar event will not take place. According to a DOE report and GAO's review, although the Hanford contractor is generally conducting routine surveillance inspections of contaminated excess facilities, these inspections have weaknesses and GAO found that DOE has not ensured requirements are fully met. Specifically, DOE orders require that processes be in place to ensure that inspections are conducted to detect deterioration and determine whether the structural integrity of facilities is threatened. A December 2017 DOE report and GAO's review found that the surveillance and maintenance (S&M) inspections at several facilities were not comprehensive and that there are areas of some facilities that personnel infrequently or never enter—physically or by remote means—to conduct inspections. For example, parts of the Reduction-Oxidation Facility have not been entered in more than 50 years and structural conditions are unknown. Without conducting comprehensive inspections, RL cannot ensure that it is meeting all of DOE's S&M requirements, such as addressing aging degradation and obsolescence of some facilities, and preventing other potential events similar to the PUREX tunnel collapse. In addition, GAO's review of oversight reports since 2013 by DOE headquarters offices responsible for evaluating field office operations found that none of these assessments focused on RL's management and oversight of the contractor's S&M activities. DOE's Oversight Policy requires DOE to conduct independent oversight to the extent necessary to evaluate the effectiveness of DOE field office oversight of contractor activities. Without conducting periodic assessments or audits focused on RL's management and oversight of the contractor's S&M activities for contaminated excess facilities, DOE does not have assurance that RL is overseeing S&M activity in a way that ensures these facilities are inspected and maintained in a safe and compliant condition pending final cleanup.

CRS_R43744

Introduction Since November 1986, the Commemorative Works Act (CWA) has provided the legal framework for the placement of commemorative works in the District of Columbia. The CWA was enacted to establish a statutory process for ensuring "that future commemorative works in areas administered by the National Park Service (NPS) and the General Services Administration (GSA) in the District of Columbia and its environs (1) are appropriately designed, constructed, and located and (2) reflect a consensus of the lasting significance of the subjects involved." Areas administered by other agencies are not subject to the CWA. Responsibility for overseeing the design, construction, and maintenance of such works was delegated to the Secretary of the Interior or the Administrator of the GSA, the National Capital Planning Commission (NCPC), and the U.S. Commission of Fine Arts (CFA). Additionally, the CWA restricts placement of commemorative works to certain areas of the District of Columbia based on the subject's historic importance. Pursuant to the CWA, locating a commemorative work on federally owned and administered land in the District of Columbia requires the federal government to maintain the memorial unless otherwise stipulated in the enabling legislation. In some cases, however, authorized memorials are ultimately sited on land that falls outside of CWA jurisdiction and outside the boundaries of the District of Columbia and its environs. For example, the Air Force Memorial was authorized by Congress for placement on land owned and administered by either NPS or GSA in the District of Columbia. Memorial organizers, however, chose a site near the Pentagon in Arlington, VA, that is owned and administered by the Department of Defense. Consequently, the Department of Defense, not the NPS or GSA, is responsible for maintenance. This report highlights in-progress works and memorials with lapsed authorizations since the passage of the CWA in 1986. The report provides information—located within text boxes for easy reference—on the statute(s) authorizing the work; the sponsor organization; statutory legislative extensions, if any; and the memorial's location or proposed location, if known. A picture or rendering of each work is also included, when available. Commemorative Works Areas of the District of Columbia The CWA divides areas administered by the NPS and the GSA in the District of Columbia and its environs into three sections for the placement of memorials: the Reserve, Area I, and Area II. For each area, the standards for memorial placement are specified in law, and congressional approval of monument location is required. Reserve The Reserve was created in November 2003, by P.L. 108-126 , to prohibit the addition of future memorials in an area defined as "the great cross-axis of the Mall, which generally extends from the United States Capitol to the Lincoln Memorial, and from the White House to the Jefferson Memorial ." Under the act, this area is considered "a substantially completed work of civic art. " Within this area, "to preserve the integrity of the Mall … the siting of new commemorative works is prohibited. " Area I Created as part of the original CWA in 1986, Area I is reserved for commemorative works of "preeminent historical and lasting significance to the United States. " Area I is roughly bounded by the West Front of the Capitol; Pennsylvania Avenue NW (between 1 st and 15 th Streets NW); Lafayette Square; 17 th Street NW (between H Street and Constitution Avenue); Constitution Avenue NW (between 17 th and 23 rd Streets); the John F. Kennedy Center for the Performing Arts waterfront area; Theodore Roosevelt Island; National Park Service land in Virginia surrounding the George Washington Memorial Parkway; the 14 th Street Bridge area; and Maryland Avenue SW, from Maine Avenue SW, to Independence Avenue SW, at the U.S. Botanic Garden. Area II Also created as part of the original CWA statute, Area II is reserved for "subjects of lasting historical significance to the American people. " Area II encompasses all sections of the District of Columbia and its environs not part of the Reserve or Area I. Factors Potentially Influencing Commemorative Works' Completion Of the 37 commemorative works authorized for placement in the District of Columbia since 1986, 19 (51%) have been completed and dedicated, 12 (32%) are in progress, and 6 (16%) have lapsed authorizations. Several factors may affect a memorial foundation's ability to complete a memorial. These include settling on a desired site location, getting design approval, and raising the funds necessary to design and build a commemorative work. Site Location Choosing a memorial site location is one of the biggest tasks for all authorized sponsor groups. Many groups want locations on or near the National Mall. The creation of the Reserve in 2003, however, makes placement of a future memorial on the National Mall difficult. Subsequently, many sponsor groups attempt to locate sites as close to the National Mall as possible in order to ensure that visitors have easy access to the memorial. For example, the Dwight D. Eisenhower Memorial is to be located on land directly south of the Smithsonian National Air and Space Museum, thus providing a prominent—just off the Mall—location. Likewise, the foundation previously authorized to construct a memorial to honor John Adams and his family's legacy evaluated site locations as close to the National Mall as possible. Design Approval In 1986, as part of the CWA, Congress authorized the NCPC and the CFA to approve memorial designs. The NCPC and the CFA were tasked with carrying out the goals of the CWA, which are (1) to preserve the integrity of the comprehensive design of the L'Enfant and McMillan plans for the Nation's Capital; (2) to ensure the continued public use and enjoyment of open space in the District of Columbia and its environs, and to encourage the location of commemorative works within the urban fabric of the District of Columbia; (3) to preserve, protect, and maintain the limited amount of open space available to residents of, and visitors to, the Nation's Capital; and (4) to ensure that future commemorative works in areas administered by the National Park Service and the Administrator of General Services in the District of Columbia and its environs are … appropriately designed, constructed, and located; and … reflect a consensus of lasting national significance of the subjects involved. In some instances, sponsor groups have difficulty creating a memorial vision that meets the specifications of the NCPC, CFA, and the National Capital Memorial Advisory Commission (NCMAC). In these cases, groups will often have to present multiple designs to these bodies before getting final design approval. For example, the Eisenhower Memorial Commission has presented variations on the design for the Eisenhower Memorial to the NCPC multiple times. In all instances, the NCPC gave feedback to the memorial design team and asked them to continue work to comply with NCPC guidelines for memorial construction. Fundraising Perhaps the most challenging step in the commemorative works process for many sponsor groups is raising the necessary funds to design and build a commemorative work. Although most sponsor groups do not anticipate fundraising difficulties, some groups have experienced challenges. Failure to raise the necessary funds can be used as a reason not to extend a memorial's authorization beyond the initial seven-year period. In some cases, even though the CWA generally prohibits the use of federal funds for memorial design and construction, Congress has authorized appropriations to aid sponsor groups in their fundraising efforts. For example, in 2005, Congress appropriated $10 million to the Secretary of the Interior "for necessary expenses for the Memorial to Martin Luther King, Jr." The appropriation was designated as matching funds, making them available only after being matched by nonfederal contributions. Since the enactment of the Commemorative Works Act in 1986, 37 memorials and monuments have been authorized by statute. On a yearly basis, however, legislation is pending before Congress to consider a wide range of additional commemorative works. Pursuant to the CWA, future commemorative works will continue to be considered according to congressional guidelines. If new commemorative works are authorized or currently authorized commemorative works are completed, this report will be updated accordingly. Authorized Commemorative Works Since the passage of the Commemorative Works Act (CWA) in 1986, Congress has authorized 37 commemorative works to be placed in the District of Columbia or its environs; 32 of these have been sited on land governed by the CWA. Of these works, 12 are in progress and 6 have lapsed authorizations. Table 1 lists commemorative works authorized by Congress since 1986 that are in progress or whose authorization has lapsed. In-Progress Commemorative Works Currently, 12 commemorative works are in various stages of development. These include the following: In-Progress Memorials Dwight D. Eisenhower Memorial; Memorials Being Designed Slaves and Free Black Persons Who Served in the Revolutionary War Memorial; Memorials Being Planned with a Site Location World War II Prayer plaque, World War I Memorial, Korean War Memorial Wall of Remembrance, Second Division Memorial modifications, Desert Storm and Desert Shield Memorial, and Peace Corps Memorial; Memorials Being Planned and Evaluating Site Locations Gold Star Mothers Memorial, John Adams and his Family's Legacy Memorial, Global War on Terrorism Memorial, and Emergency Medical Services Memorial. Memorials Under Construction Currently, one memorial authorized pursuant to the CWA is under construction—the Dwight D. Eisenhower Memorial, which broke ground on November 2, 2017. The most recently dedicated memorial was the Victims of the Ukrainian Manmade Famine of 1932-1933 Memorial. Dwight D. Eisenhower In October 1999, Congress created a federal commission to "consider and formulate plans for ... a permanent memorial to Dwight D. Eisenhower, including its nature, design, construction, and location." In January 2002, Congress amended the initial statute to formally authorize the commission to create a memorial. In remarks during debate on additional amendments to the commission's statute in 2007, Representative Dennis Moore summarized Eisenhower's life and contributions to the United States: I am particularly proud to claim one of the greatest 20 th -century Americans as a fellow Kansan. He ranks as one of the preeminent figures in the global history of the 20 th century. Dwight Eisenhower spent his entire life in public service. His most well-known contributions include serving as Supreme Commander of the Allied Expeditionary Forces in World War II and as 34 th President of the United States, but Eisenhower also served as the first commander of NATO and as President of Columbia University. Dramatic changes occurred in America during his lifetime, many of which he participated in and influenced through his extraordinary leadership as President. Although Ike grew up before automobiles existed, he created the Interstate Highway System and took America into space. He created NASA, the Department of Health, Education, and Welfare, and the Federal Aviation Administration. He added Hawaii and Alaska to the United States and ended the Korean War. President Eisenhower desegregated the District of Columbia and sent federal troops into Little Rock, Arkansas, to enforce school integration. He defused international crises and inaugurated the national security policies that guided the nation for the next three decades, leading to the peaceful end of the Cold War. A career soldier, Eisenhower championed peace, freedom, justice and security, and as President he stressed the interdependence of those goals. He spent a lifetime fulfilling his duty to his country, always remembering to ask what's best for America. The memorial is to be located at Maryland Avenue and Independence Avenue, SW, between the National Air and Space Museum and the Lyndon B. Johnson Department of Education building. It is designed by architect Frank Gehry. On September 20, 2017, the CFA reviewed and approved the final design for the Eisenhower Memorial. On October 5, 2017, NCPC also approved the final memorial design. On November 2, 2017, a groundbreaking ceremony was held for the memorial. Figure 1 shows the final design for the Dwight D. Eisenhower Memorial as approved by NCPC and CFA. The Eisenhower Memorial is currently under construction. Memorials Being Designed World War II D-Day Prayer In June 2014, Congress authorized the placement of a plaque containing President Franklin D. Roosevelt's D-Day prayer at the "area of the World War II Memorial in the District of Columbia.... " During debate on the bill in the 112 th Congress ( H.R. 2070 ), Representative Bill Johnson summarized why he believed the prayer should be added to the World War II Memorial. This legislation directs the Secretary of the Interior to install at the World War II Memorial a suitable plaque or an inscription with the words that President Franklin Roosevelt prayed with the Nation on the morning of the D-day invasion. This prayer, which has been entitled "Let Our Hearts Be Stout,'' gave solace, comfort and strength to our Nation and our brave warriors as we fought against tyranny and oppression. The memorial was built to honor the 16 million who served in the Armed Forces of the United States during World War II and the more than 400,000 who died during the war ... I have no doubt that the prayer should be included among the tributes to the Greatest Generation memorialized on the National Mall, and I strongly urge all of my colleagues to support this legislation. The prayer plaque is to be located at the "Circle of Remembrance" on the northwest side of the World War II Memorial. The NCPC and the CFA both favor an "asymmetrical" design for the prayer plaque. Figure 2 shows the proposed location of the plaque at the Circle of Remembrance. Slaves and Free Black Persons Who Served in the Revolutionary War In December 2012, as part of the National Defense Authorization Act for Fiscal Year 2013, Congress authorized the National Mall Liberty Fund DC to establish a commemorative work "to honor the more than 5,000 courageous slaves and free Black persons who served as soldiers and sailors or provided civilian assistance during the American Revolution." Additionally, P.L. 112-239 repealed a 1986 authorization to the Black Revolutionary War Patriots Foundation to establish a commemorative work for black Revolutionary War veterans. In remarks introducing the 1986 legislation, Representative Mary Rose Oakar summarized the need, from her perspective, for a memorial to black Revolutionary War veterans: Mr. Speaker, as early as 1652 blacks were fighting as members of the Militia in Colonial America, thus beginning their history of achievement and heroism for our country. Yet, history books in American schools have for the most part omitted the contributions of black soldiers since the Revolutionary War, to our most recent conflict in Vietnam. This memorial to these black Americans is a small tribute to their bravery and valor, an important part of the founding of our country. Following its initial authorization in 1986, Congress approved the memorial's location in Area I on land that became part of the Reserve in 2003. Following the site designation, the memorial was reauthorized three times. Pursuant to P.L. 106-442 , the Black Revolutionary War Patriots Foundation's authorization for the memorial expired in 2005. In the Senate report accompanying the 2012 authorization ( S. 883 , 112 th Congress), the Senate Committee on Energy and Natural Resources summarized the importance of reauthorizing the memorial with a new sponsor. In 1986, Congress authorized the Black Revolutionary War Patriots Memorial Foundation to establish the Black Revolutionary War Patriots Memorial to honor the 5,000 courageous slaves and free Black persons who served as soldiers or provided civilian assistance during the American Revolution ( P.L. 99-558 ). In 1987 Congress enacted a second law, P.L. 100-265 , authorizing placement of that memorial within the monumental core area as it was then defined by the Commemorative Works Act. In 1988, the National Park Service, the Commission of Fine Arts, and the National Capital Planning Commission approved a site in Constitution Gardens for the Black Revolutionary War Patriots Memorial and, in 1996, approved the final design. Despite four extensions of the memorial's legislative authorization over 21 years, the Foundation was unable to raise sufficient funds for construction, the authority (and associated site and design approvals) finally lapsed in October 2005, and the Foundation disbanded with numerous outstanding debts and unpaid creditors. S. 883 would authorize another nonprofit organization, the National Mall Liberty Fund D.C., to construct a commemorative work honoring the same individuals as proposed by the Black Revolutionary War Patriots Memorial Foundation, subject to the requirements of the Commemorative Works Act. On September 26, 2014, President Obama signed H.J.Res. 120 to provide the memorial with a location in Area I. The sponsor group publicly expressed interest in three sites: the National Mall at 14 th Street and Independence Avenue, NW; Freedom Plaza; and Virginia Avenue and 19 th Streets, NW, with a strong preference for the National Mall site, which is currently under the jurisdiction of the U.S. Department of Agriculture. In the 114 th Congress (2015-2016), legislation was introduced to designate the Secretary of Agriculture as the officer "responsible for the consideration of the site and design proposals and the submission of such proposals on behalf of the sponsor to the Commission of Fine Arts and the National Capital Planning Commission" in order to apply the CWA to the memorial. No further action was taken on the measure. Figure 3 shows a memorial concept design. World War I Memorial In December 2014, as part of the FY2015 National Defense Authorization Act, Congress re-designated Pershing Park in the District of Columbia as "a World War I Memorial," and authorized the World War I Centennial Commission to "enhance the General Pershing Commemorative Work by constructing ... appropriate sculptural and other commemorative elements, including landscaping, to further honor the service of members of the United States Armed Forces in World War I." Pershing Park is located between E Street and Pennsylvania Avenue and 14 th and 15 th Streets, NW. Currently, the park contains a statue of General John J. Pershing. On January 26, 2016, the World War I Centennial Commission announced the winner of its design competition. Titled "The Weight of Sacrifice," the winning design envisions an "allegorical idea that public space and public freedom are hard won through the great sacrifices of countless individuals in the pursuit of liberty." On February 7, 2019, the commission presented the latest version of its design to the NCPC, and on May 16, 2019, to the CFA. Previously, a ceremonial groundbreaking for the memorial was held on November 9, 2017. Figure 4 shows a revised concept design for the World War I Memorial. Korean War Memorial Wall of Remembrance In October 2016, Congress authorized a wall of remembrance, which "shall include a list of names of members of the Armed Forces of the United States who died in the Korean War" to be added to the Korean War Memorial in the District of Columbia. The wall of remembrance is to be located "at the site of the Korean War Veterans Memorial." During debate on the bill ( H.R. 1475 , 114 th Congress) in the House, Representative Sam Johnson summarized why he believed it was important to add a wall of remembrance to the Korean War Veterans Memorial. My fellow Korean war veterans and I believe that the magnitude of this enormous sacrifice is not yet fully conveyed by the memorial in Washington, DC.... Similar to the Vietnam Veterans Memorial Wall, the Korean War Veterans Memorial Wall of Remembrance would eternally honor the brave Americans who gave their lives in defense of freedom during the Korean War. It would list their names as a visual record of their sacrifice. Figure 5 shows the concept design for the Korean War Memorial Wall of Remembrance. Second Division Memorial Bench Additions On March 23, 2018, as part of the Consolidated Appropriations Act, 2018 ( P.L. 115-141 ), modifications to the Second Division Memorial were authorized. The Second Division Memorial was initially dedicated on July 18, 1936, to commemorate the division's World War I casualties, and "two wings were dedicated on June 20, 1962, with significant battles of World War II inscribed on the west and of the Korean War on the east." P.L. 115-141 authorizes the placement of "additional commemorative elements or engravings on the raised platform or stone work of the existing Second Division Memorial ... to further honor the members of the Second Infantry Division who have given their lives in service to the United States." Figure 6 shows the current design of the Second Division Memorial. Desert Storm and Desert Shield In December 2014, as part of the FY2015 National Defense Authorization Act, Congress authorized the National Desert Storm Memorial Association to establish a National Desert Storm and Desert Shield Memorial in the District of Columbia to "commemorate and honor those who, as a member of the Armed forces, served on active duty in support of Operation Desert Storm or Operation Desert Shield." During debate on the House version of the bill ( H.R. 503 ), Representative Doc Hastings, chair of the House Natural Resources Committee, summarized the need for a memorial: Over 600,000 American servicemen deployed for Operations Desert Storm and Desert Shield and successfully led a coalition of over 30 countries to evict an invading army to secure the independence of Kuwait. This memorial will recognize their success, but it will also serve as a commemoration of those nearly 300 Americans who made the ultimate sacrifice on our behalf. On March 31, 2017, President Trump signed S.J.Res. 1 to provide the memorial with a location in Area I. The memorial will be located at the southwest corner of Constitution Avenue, NW, and 23 rd Street, NW. Figure 7 shows a rendering for the National Desert Storm Veteran's War Memorial. Peace Corps In January 2014, Congress authorized the Peace Corps Memorial Foundation to establish a commemorative work in the District of Columbia to "commemorate the mission of the Peace Corps and the ideals on which the Peace Corps was founded." During House debate on the bill ( S. 230 ), Representative Raúl Grijalva, ranking member of the House Natural Resources Committee, Subcommittee on Public Lands and Environmental Regulations, summarized his understanding of the aims of the Peace Corps Memorial: Last November, we marked the 50 th anniversary of President Kennedy's tragic assassination. Losing President Kennedy left a lasting scar on the American psyche, but his legacy lives on through his words and ideas, including the establishment of the Peace Corps, an institution that has sent over 200,000 Americans to 139 countries in its 52-year history. S. 230 authorizes construction of a memorial to commemorate the mission of the Peace Corps and the values on which it was founded. I cannot think of a better way to celebrate President Kennedy's legacy and the tremendous accomplishments of the Peace Corps. With the passage of S. 230 , we will be sending a worthwhile bill to the President's desk. I am glad we have been able to put our differences aside and pass such a meaningful bill in the first few weeks of the new year. To be located between 1 st Street, NW, Louisiana Avenue, NW, and C Street, NW, in the District of Columbia, the Peace Corps Memorial Foundation presented its design concept to the CFA and NCPC in early 2019. In March 2019, the CFA approved the memorial's concept design with comments to be addressed as the design moves forward toward a final design. In May 2019, the NCPC stated "that the proposed concept design does not adequately embrace the site's strengths or adequately respond to these challenges, particularly as they relate to visual resources, visitor use and experience, or natural resources." Figure 8 shows the concept design for the Peace Corps Memorial as presented to CFA and NCPC. Site Locations to Be Determined John Adams and His Family's Legacy In November 2001, Congress authorized the Adams Memorial Foundation to "establish a commemorative work on Federal land in the District of Columbia and its environs to honor former President John Adams, along with his wife Abigail Adams and former President John Quincy Adams, and the family's legacy of public service." In remarks during debate on the bill ( H.R. 1668 , 107 th Congress), Representative Joel Hefley summarized the importance of the Adams family to American history: Perhaps no American family has contributed as profoundly to public service as the family that gave the Nation its second President, John Adams; his wife, Abigail Adams; and their son, our sixth President, John Quincy Adams, who was also, by the way, a member of this body. The family's legacy was far reaching, continuing with John Quincy Adams's son, Charles Francis Adams, who was also a member of this body and an ambassador to England during the Civil War; and his son, Henry Adams, an eminent writer and scholar, and it goes on and on. In March 2019, as part of the enactment of the John D. Dingell, Jr. Conservation, Management, and Recreation Act, Congress created the Adams Memorial Commission. The Adams Memorial Commission replaces the Adams Memorial Foundation as the memorial's sponsor. Moving forward, the commission will be responsible for all aspects of the memorial's siting, design, and construction. Previously, in December 2013, the Adams Memorial Foundation's authorization expired. Prior to its lapse of authorization, the Adams Memorial Foundation was working with the NCMAC on the potential recommendation of Area I. While the commission had not endorsed any particular site location, it had recommended that the foundation continue its examination of numerous sites in the District of Columbia in order to find a suitable location. Gold Star Mothers In December 2012, as part of the National Defense Authorization Act for Fiscal Year 2013, Congress authorized the Gold Star Mothers National Monument Foundation to establish a commemorative work to "commemorate the sacrifices made by mothers, and made by their sons and daughters who as members of the Armed Forces make the ultimate sacrifice, in defense of the United States." In testimony before the House Committee on Natural Resources Subcommittee on National Parks, Forests, and Public Lands, the legislation's ( H.R. 1980 ) sponsor, Representative Jon Runyan, explained why he thought a memorial to Gold Star Mothers was needed: During World War I, mothers of sons and daughters who served in the Armed Forces displayed flags bearing a blue star to represent pride in their sons or daughters and their hope that they would return home safely. For more than 650,000 of these brave mothers, that hope was shattered, and their children never returned home. Afterwards many of them began displaying flags bearing gold stars to represent the sacrifice that their sons and daughters made in heroic service to our country. Over the years the gold star has come to represent a child who was killed while serving in the Armed Forces, during either war or peacetime. In December 2013, the Gold Star Mothers National Monument Foundation presented its site analysis to the National Capital Memorial Advisory Commission. In that informational presentation, they expressed a preference for a site location adjacent to Arlington National Cemetery. In January 2015, the NCPC expressed support for a site next to the Arlington National Cemetery Visitor's Center on Memorial Drive, and the CFA approved that site location. Figure 9 shows the Gold Star Mothers National Monument Foundation's concept design. Global War on Terrorism Memorial In August 2017, Congress authorized the Global War on Terrorism Memorial Foundation to establish a commemorative work in the District of Columbia to "commemorative and honor the members of the Armed Forces that served on active duty in support of the Global War on Terrorism." During debate on the bill ( H.R. 873 ) in the House, Representative Tom McClintock, chair of the Federal Lands Subcommittee of the House Committee on Natural Resources, stated why a memorial to the Global War on Terrorism is important, despite a statutory prohibition against war memorials for ongoing conflicts. The Commemorative Works Act requires that a war be ended for at least 10 years before planning can commence on a national memorial. There is good reason for this requirement: it gives history the insight to place the war in an historic context and to begin to fully appreciate its full significance to our country and future generations. But the war on terrorism has been fought in a decidedly different way than our past wars. We are now approaching the 16 th anniversary of the attack on New York and Washington. The veterans who sacrificed so much to keep that war away from our shores deserve some tangible and lasting tribute to their patriotism and altruism while they, their families, and their fellow countrymen can know it. The Gold Star families of our fallen heroes for whom the war will never end deserve some assurance that their sons and daughters will never be forgotten by a grateful Nation. We should remember that many of our Nation's heroes from World War II never lived to see the completion of the World War II Memorial, which was completed 59 years after the end of that conflict. For these reasons, this measure suspends the 10-year period in current law. It doesn't repeal it. It merely sets it aside for the unique circumstances of the current war on terrorism. Emergency Medical Services Memorial In October 2018, Congress authorized the National Emergency Medical Services Memorial Foundation to establish a commemorative work in the District of Columbia to "commemorate the commitment and service represented by emergency medical services." During House debate on the bill ( H.R. 1037 ), Representative Tom McClintock, chair of the Federal Lands Subcommittee of the House Committee on Natural Resources, stated why he considered a memorial to the emergency medical services providers to be important: Mr. Speaker, each year 850,000 EMS providers answer more than 30 million calls to serve 22 million patients in need at a moment's notice and without reservation. For these heroes who serve on the front lines of medicine, sacrifice is a part of their calling. EMTs and paramedics have a rate of injury that is about three times the national average for all occupations, and some pay the ultimate price in the service of helping others. The men and women of the emergency medical services profession face danger every day to save lives and help their neighbors in crisis. They respond to incidents ranging from a single person's medical emergency to natural and manmade disasters, including terrorist attacks. But while their first responder peers in law enforcement and firefighting have been honored with national memorials, EMS providers have not. Commemorative Works with Lapsed Authorizations Since 1986, six commemorative works authorized by Congress were not completed in the time allowed by the Commemorative Works Act and were not granted subsequent extensions by Congress. These memorials were to be constructed to honor Thomas Paine, Benjamin Banneker, Frederick Douglass, Brigadier General Francis Marion, to create a National Peace Garden, and to build a Vietnam Veterans Visitor Center. The following section describes the initial authorization for each of these memorials and congressional extensions of memorial authorization, if appropriate. National Peace Garden In June 1987, Congress authorized the Director of the National Park Service to enter into an agreement with the Peace Garden Project to "construct a garden to be known as the 'Peace Garden' on a site on Federal land in the District of Columbia to honor the commitment of the people of the United States to world peace." In remarks during debate on the bill ( H.R. 191 , 100 th Congress), Representative Steny Hoyer summarized the need for a memorial to peace: No one or nation can ever doubt the commitment of the American people to protecting our freedoms when threatened by foreign aggressors. Our Nation's Capital rightfully honors our heroic defenders of freedom—Americans who served their country courageously, gallantly, and at great risk to their lives. Our citizens have also exhibited an equal commitment for world peace and international law and justice. The creation of a Peace Garden is an appropriate symbol of our efforts to continuing to seek peaceful resolution of world conflict and the institution of the rule of law. Certainly, this century has been one of bloodiest and most violent in man's history. We have seen countless battles, wars, rebellions, massacres, and civil and international strife of all kinds—continuing examples of man's inhumanity toward his fellow man. At the same time, against this terrible backdrop, there have been encouraging strides toward world peace. As we honor those who have made sacrifices in war, through monuments, so, too, should we honor them by striving to ensure that the world they have left us will be a peaceful one. A garden would be a living monument to our efforts. In 1988, a site was approved for the Peace Garden at Hains Point in Southwest Washington, DC. Since its initial authorization in 1987, the National Peace Garden was reauthorized twice. The authorization expired on June 30, 2002. Thomas Paine In October 1992, Congress authorized the Thomas Paine National Historical Association to establish a memorial to honor Revolutionary War patriot Thomas Paine. In remarks summarizing the need for a memorial to Thomas Paine, Representative William Lacy Clay stated: Thomas Paine's writings were a catalyst of the American Revolution. His insistence upon the right to resist arbitrary rule has inspired oppressed peoples worldwide, just as it continues to inspire us. It is time that a grateful nation gives him a permanent place of honor in the capital of the country he helped build. Since its initial authorization in 1992, the authorization for the Thomas Paine memorial was extended once. Authorization for the memorial expired on December 31, 2003. Benjamin Banneker In November 1998, Congress authorized the Washington Interdependence Council of the District of Columbia to establish a memorial to "honor and commemorate the accomplishments of Mr. Benjamin Banneker." Adopted as part of a larger bill to create a national heritage area in Michigan, the authorization for the Benjamin Banneker Memorial passed the House and Senate without debate and by voice vote in October. In 2001, the National Park Service reported that the memorial was to be sited on the L'Enfant Promenade in Southwest Washington and be under the jurisdiction of the District of Columbia. Since its initial authorization, the Washington Interdependence Council has not been granted an extension to its original authorization, which expired in 2005. A bill ( S. 3886 ) was introduced in the 111 th Congress (2009-2010) to reauthorize a Benjamin Banneker Memorial. S. 3886 was referred to the Senate Committee on Energy and Natural Resources, but no further action was taken. Frederick Douglass In November 2000, Congress authorized the Frederick Douglass Gardens, Inc., "to establish a memorial and gardens on lands under the administrative jurisdiction of the Secretary of the Interior in the District of Columbia or its environs in honor and commemoration of Frederick Douglass." During debate, Representative James Hansen provided a summary of why a memorial to Frederick Douglass was important: Mr. Speaker, Frederick Douglass was one of the most prominent leaders of the 19 th century abolitionist movement. Born into slavery in eastern Maryland in 1818, Douglass escaped to the North as a young man where he became a world-renowned defender of human rights and eloquent orator, and later a Federal ambassador and advisor to several Presidents. Frederick Douglass was a powerful voice for human rights during the important period of American history, and is still revered today for his contributions against racial injustice. Early in 2001, the Frederick Douglass Memorial Gardens, Inc., expressed its preference for a site location near the Douglass Memorial Bridge in Southeast Washington, but no further action was taken by Congress to approve the site location. The Frederick Douglass Memorial's authorization expired in 2008. One attempt was made to reauthorize a Frederick Douglass Memorial during the 110 th Congress (2007-2008), but the bill was not reported by the House Committee on Natural Resources. Brigadier General Francis Marion In May 2008, Congress authorized the Marion Park Project to establish a commemorative work to honor Brigadier General Francis Marion. In testimony before the Senate Committee on Energy and Natural Resources, Subcommittee on National Parks, Daniel N. Wenk, deputy director for operations, National Park Service, supported the enactment of legislation authorizing a Brigadier General Francis Marion Memorial and explained why such a memorial meets criteria for commemoration in the District of Columbia. Brigadier General Francis Marion commanded the Williamsburg Militia Revolutionary force in South Carolina and was instrumental in delaying the advance of British forces by leading his troops in disrupting supply lines. He is credited for inventing and applying innovative battle tactics in this effort, keys to an ultimate victory for the American Colonies in the Revolutionary War. Additionally Brigadier General Marion's troops are believed to have been the first racially integrated force fighting for the United States. The Marion Park Project identified its preferred site location for the memorial at Marion Park in southeast Washington, DC. In December 2014, the National Capital Planning Commission expressed its support for the Marion Park site. Since its initial authorization, the Marion Memorial was reauthorized once. Authorization for the memorial expired on May 8, 2018. Vietnam Veterans Memorial Visitors Center In November 2003, Congress authorized the Vietnam Veterans Memorial Fund to create a visitor center at the Vietnam Veterans Memorial to "better inform and educate the public about the Vietnam Veterans Memorial and the Vietnam War." In the House report accompanying the legislation ( H.R. 1442 , 108 th Congress), the Committee on Resources summarized the need for a visitor center at the Vietnam Veterans Memorial: Since its dedication in 1982, the Vietnam Veterans Memorial, known to many as simply "The Wall," has done much to heal the nation's wounds after the bitterly divisive experience of the Vietnam War. For those who served, that year marked a sea change in the country's view of the Vietnam veteran. Americans began to understand and respect the Vietnam veterans' service and sacrifice. Today, over 4.4 million people visit The Wall every year—making it the most visited Memorial in the Nation's Capital. Today, most visitors to The Wall were not alive during the "Vietnam Era." Many veterans' organizations and many others believe today's visitor is shortchanged in his/her experience. Many leave The Wall not fully understanding its message. To that end, a visitor center would provide an educational experience for visitors by facilitating self-guided tours, collecting and displaying remembrances of those whose names are inscribed on the Memorial, and displaying exhibits discussing the history of the Memorial and the Vietnam War. The visitor's center would eventually replace a 168-foot National Park Service kiosk currently at the site. The visitor center was to be constructed underground and located across the street from the Vietnam Veterans Memorial and the Lincoln Memorial. In 2015, the NCPC and CFA approved the visitor center's design. On September 21, 2018, the Vietnam Veterans Memorial Fund announced their intenti on not to seek an extension to its authorization to build the visitor center, which expired on November 17, 2018. At that time, legislation had been introduced, but not considered, to extend the fund's authorization into 2022. Previously, the fund had received two statutory extensions.

Under the Commemorative Works Act (CWA) of 1986, Congress may authorize commemorative works to be placed in the District of Columbia or its environs. Once a commemorative work has been authorized, Congress continues to be responsible for statutorily designating a memorial site location. This report provides a status update on 12 in-progress memorials and 6 memorials with lapsed authorizations. For each monument or memorial, the report provides a rationale for the work as expressed in the Congressional Record or a House or Senate committee report; its statutory authority; the group or groups sponsoring the commemoration; and the memorial's location (or proposed location), if known. A picture or rendering of each work is also included, when available. For more information on the Commemorative Works Act, see CRS Report R41658, Commemorative Works in the District of Columbia: Background and Practice, by Jacob R. Straus; CRS Report R43241, Monuments and Memorials in the District of Columbia: Analysis and Options for Proposed Exemptions to the Commemorative Works Act, by Jacob R. Straus; and CRS Report R43743, Monuments and Memorials Authorized and Completed Under the Commemorative Works Act in the District of Columbia, by Jacob R. Straus.

GAO_GAO-19-458T

Status of Major Space Systems DOD space systems support and provide a wide range of capabilities to a large number of users, including the military services, the intelligence community, civil agencies, and others. These capabilities include positioning, navigation, and timing; meteorology; missile warning; and secure communications, among others. Space systems can take a long time to develop and involve multiple segments, including space, ground control stations, terminals, user equipment, and launch, as figure 1 below shows. DOD satellite systems are also expensive to acquire. Unit costs for current DOD satellites can range from $500 million to over $3 billion. The associated ground systems can cost over $6 billion to develop and maintain and the cost to launch a satellite can climb to well over $100 million. Table 1 provides highlights of the current status of DOD’s major space programs. As the table shows, DOD is also in the beginning phases of acquiring several constellations of new satellites and ground processing capabilities—including for missile warning, protected communications, space-based environmental monitoring, and space command and control. We have work underway to assess the Air Force’s space command and control development efforts and examine DOD’s analysis of alternatives for wideband communication services. For a more complete description of these major space programs, see appendix I. In addition, DOD is exploring alternatives for acquiring wideband satellite communications as well as funding development of new launch vehicles as it pursues a new acquisition strategy for procuring launch services. Our prior work has shown that many major DOD space programs have experienced significant cost increases and schedule delays. For instance, the total program cost for the Advanced Extremely High Frequency (AEHF) satellite program, a protected satellite communications system, has grown 117 percent since the program’s original cost estimate and its first satellite was launched more than 3.5 years late. For the Space Based Infrared System (SBIRS), a missile warning satellite program, the program cost grew 265 percent from its original estimate and the launch of the first satellite was delayed roughly 9 years. Both programs moved to the production phase where fewer problems tend to surface, and where there is typically less risk of significant cost and schedule growth. A more recent major satellite program, Global Positioning System (GPS) III, has seen an almost 4-year delay due to technical issues and program cost growth of about 32 percent. Cost and schedule growth has also been a challenge for satellite ground systems and user equipment. Ground system delays have been so lengthy, that satellites sometimes spend years in orbit before key capabilities can be fully exploited. For example, The command and control system for GPS III satellites, known as the Next Generation Operational Control System, or OCX, is approximately 5 years behind schedule. As a result, the Air Force has had to start two separate back-up efforts to modify the current ground system to ensure the continuity of GPS capabilities and to make anti- jamming capabilities available via Military Code, or M-code, until OCX is delivered. Our ongoing review of GPS includes an assessment of OCX schedule risk and potential impacts on OCX delivery, acceptance, and operation. We expect to issue our report on GPS in spring 2019. Development of GPS user equipment that can utilize the M-Code signal has lagged behind the fielding of GPS M-code satellites for more than a decade, due to prolonged development challenges. In December 2017, we found that while DOD had made some progress on initial testing of the receiver cards needed to utilize the M-code signal, additional development was necessary to make M-code work with the over 700 weapon systems that require it. We also found that DOD had begun initial planning to transition some weapon systems to use M-code receivers, but significantly more work remained to understand the cost and schedule of transitioning to M-code receivers across DOD. Further, in December 2017, we found that multiple entities were separately maturing their own receiver cards. We recommended that DOD assign responsibility to a single organization to collect test data, lessons learned, and design solutions so that common design solutions are employed and DOD could avoid duplication of efforts. DOD concurred with the recommendation, but has not yet taken action on it. We have previously reported that over 90 percent of the capabilities to be provided by Mobile User Objective System communications satellites—currently, five satellites are in orbit, the first of which launched in 2012—are being underutilized because of difficulties with integrating the space, ground, and terminal segments and delays in fielding compatible user terminals. Largely because of technical and management challenges, the Joint Space Operations Center Mission System (JMS) Increment 2 program—intended to replace and improve upon an aging space situational awareness and command and control system—was almost 3 years behind schedule and 42 percent over budget before the Air Force stopped development work last year. Earlier this month, we reported that operational testing in 2018 found that JMS Increment 2 was not operationally effective or suitable due, in part, to missing software requirements, urgent deficiencies that affected system performance, and negative user feedback. Cost and schedule growth in DOD’s space programs is sometimes driven by the inherent risks associated with developing complex space technology; however, over the past 10 years we have identified a number of other management and oversight problems that have worsened the situation. These include making overly optimistic cost and schedule estimates, pushing programs forward without sufficient knowledge about technology and design, and experiencing problems in overseeing and managing contractors, among others. We have also noted that some of DOD’s programs with operational satellites, such as SBIRS, were also exceedingly ambitious, which in turn increased technology, design, and engineering risks. While SBIRS and other satellite programs provide users with important and useful capabilities, their cost growth has significantly limited the department’s buying power at a time when more resources may be needed to protect space systems and recapitalize the space portfolio. Challenges Facing Acquisitions of New Space Systems DOD faces significant challenges as it replenishes its satellite constellations. First, DOD is confronted with growing threats in space, which may require very different satellite architectures and acquisition strategies. Second, DOD is in the midst of planning major changes to its leadership for space. While these changes are designed to streamline decision-making and bring together a dispersed space workforce, they could cause some disruption to space system acquisition programs. Third, in fiscal year 2016, Congress gave DOD authority to speed up acquisition timeframes by streamlining acquisition processes and oversight. GAO is examining DOD’s application of streamlining to its weapons programs. For space, challenges with past streamlining efforts may offer some lessons learned. And fourth, DOD may face resource and capacity challenges in taking on multiple space acquisitions at one time. For example, our work and other reports point to potential gaps in the space acquisition workforce and ongoing difficulties managing software development. Growing Threats to Satellites Require New Approaches According to Air Force Space Command and others, U.S. space systems face intentional and unintentional threats that have increased rapidly over the past 20 years. These include radio frequency interference (including jamming), laser attacks, kinetic intercept vehicles, and ground system attacks. Additionally, the hazards of the already-harsh space environment (e.g., extreme temperature fluctuations and radiation) have increased, including numbers of active and inactive satellites, spent rocket bodies, and other fragments and debris. According to a February 2019 Defense Intelligence Agency report, China and Russia in particular are developing a variety of means to exploit perceived U.S. reliance on space-based systems and challenge the U.S. position in space. The report also states that Iran and North Korea have demonstrated some counterspace capabilities that could pose a threat to militaries using space-based services. In response, recent governmentwide and DOD strategic and policy guidance have stressed the need for U.S. space systems to be survivable or resilient against such threats and DOD has taken steps to be more resilient in some of its new programs. As we found in October 2014, one way to do this is to build more disaggregated systems, including dispersing sensors onto separate satellites; using multiple domains, including space, air, and ground to provide full mission capabilities; hosting payloads on other government or commercial spacecraft; or some combination of these. With capabilities distributed across multiple platforms, rather than centralized onto just a few satellites, it may be more difficult for an adversary to target all assets to attack full system capabilities, and if an attack does take place, the loss of one smaller satellite or payload could result in less capability loss than damage to, or loss of, a large multifunctional satellite. In addition to disaggregation, DOD could make satellites more maneuverable and build in defense capabilities to protect themselves as a means to increase survivability. We also found in October 2014 that some of these options could have beneficial impacts on acquisition. For example, acquiring smaller, less complex satellites may require less time and effort to develop and produce. This may be in part due to improved requirements discipline, as more frequent production rates may allow program managers to delay new requirements to the next production cycle instead of incorporating them into ongoing timelines midstream. Building more, less-complex satellites might also provide DOD the opportunity to use commercial products and systems that have already been tested in the market. At the same time, however, addressing the need to make satellites more resilient could introduce complications. For example, DOD may need to acquire higher quantities of satellites, which may make it more difficult to manage acquisition schedules. In addition, potentially more development and production contracts may result in more complexity for program offices to manage, requiring increased oversight of contractors. Adding more satellites and new technologies may also complicate efforts to synchronize satellite, terminal, and ground system schedules, limiting delivery of capabilities to end users. Our work has also found potential barriers to making satellites more resilient. For example, in October 2014, we found that disaggregation could require DOD to make significant cultural and process changes in how it acquires space systems—for instance, by relying on new contractors, relinquishing control to providers who host government payloads on commercial satellites, using different contracting methods, and executing smaller but more numerous and faster-paced acquisition programs. It will likely require DOD to be more flexible and agile when it comes to satellite acquisitions, especially with regard to coordinating satellite delivery with interdependent systems, such as user equipment. Yet, as we have previously found, DOD’s culture has generally been resistant to changes in space acquisition approaches, and fragmented responsibilities have made it very difficult to coordinate and deliver interdependent systems. Senior leaders have recognized the need to change the space acquisition culture, and as discussed below, changes are being made to space leadership and acquisition approaches. More recently, in July 2018, we found that two factors have contributed to DOD’s limited use of commercially hosted payloads. First, DOD officials identified logistical challenges to matching government payloads with any given commercial host satellite. For example, most of the offices we spoke with cited size, weight, and power constraints, among others, as barriers to using hosted payloads. Second, while individual DOD offices have realized cost and schedule benefits from using hosted payloads, DOD as a whole has limited information on costs and benefits of hosted payloads. Further, the knowledge DOD obtained is fragmented across the agency—with multiple offices collecting piecemeal information on the use of hosted payloads. The limited knowledge and data on hosted payloads that is fragmented across the agency has contributed to resistance among space acquisition officials to adopting this approach. We recommended, and DOD concurred, that the department bolster and centralize collection and analysis of cost, technical, and lessons learned data on its use of hosted payloads. Lastly, in October 2018, we found that DOD faced mounting challenges in protecting its weapon systems—satellites and their ground systems included—from increasingly sophisticated cyber threats. We reported that this was due to the computerized nature of weapon systems, DOD’s late start in prioritizing weapon system cybersecurity, and DOD’s nascent understanding of how to develop more secure weapon systems. In operational testing, DOD routinely found mission-critical cyber vulnerabilities in systems that were under development, yet program officials GAO met with believed their systems were secure and even discounted some test results as unrealistic. Using relatively simple tools and techniques, testers were able to take control of systems and operate largely undetected, due in part to basic issues such as poor password management and unencrypted communications. DOD has recently taken several steps to improve weapon system cybersecurity, including issuing and revising policies and guidance to better incorporate cybersecurity considerations. Further, in response to congressional direction, DOD has also begun initiatives to better understand and address cyber vulnerabilities. Space Leadership Changes Are a Positive Step, But Have Some Risk We and others have reported for over two decades that fragmentation and overlap in DOD space acquisition management and oversight have contributed to program delays and cancellations, cost increases, and inefficient operations. For example, in February 2012 we found that fragmented leadership contributed to a 10-year gap between the delivery of GPS satellites and associated user equipment. The cancellations of several large programs over the past 2 decades were in part because of disagreements and conflicts among stakeholders. In July 2016, in response to a provision of a Senate Report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2016, we issued a report that reviewed space leadership in more depth and concluded that DOD space leadership was fragmented. We identified approximately 60 stakeholder organizations across DOD, the Executive Office of the President, the Intelligence Community, and civilian agencies. Of these, eight organizations had space acquisition management responsibilities; eleven had oversight responsibilities; and six were involved in setting requirements for defense space programs. At the same time, many experts stated that no one seemed to be in charge of space acquisitions. Our report highlighted the pros and cons of various options to reorganize space functions recommended in prior congressionally-chartered studies. The issue has taken on more importance in recent years, as DOD has realized satellites are highly vulnerable to attacks and needs to make dramatic changes in space system architectures and operations. We have found that leadership has not been focused enough to overcome interagency rivalries and resistance to change, and it has not been able to get concurrence on future architectures. The President’s Administration and DOD have taken significant steps to change space leadership. Most recent is the President’s Space Policy Directive-4, issued on February 19, 2019, and DOD’s subsequent legislative proposal submitted on March 1, 2019, to establish a United States Space Force as a sixth branch of the United States Armed Forces within the Department of the Air Force. The Policy Directive states that this is an important step toward a future military department for space and that the Space Force will (1) consolidate existing forces and authorities for military space activities, as appropriate, to minimize duplication of effort and eliminate bureaucratic inefficiencies; and (2) not include the National Aeronautics and Space Administration, the National Oceanic and Atmospheric Administration, the National Reconnaissance Office, or other non-military space organizations or missions of the United States Government. According to the Policy Directive, the Space Force would include the uniformed and civilian personnel conducting and directly supporting space operations from all DOD Armed Forces, assume responsibilities for all major military space acquisition programs, and create the appropriate career tracks for military and civilian space personnel across all relevant specialties. Pertaining to organization and leadership, the Policy Directive creates a civilian Under Secretary of the Air Force for Space, to be known as the Under Secretary for Space, appointed by the President, and establishes a Chief of Staff of the Space Force, who would serve as a member of the Joint Chiefs of Staff. Furthermore, the Policy Directive states that as the Space Force matures, and as national security requires, it will become necessary to create a separate military department, to be known as the Department of the Space Force. This department would take over some or all responsibilities for the Space Force from the Department of the Air Force. The Policy Directive requires the Secretary of Defense to conduct periodic reviews to determine when to recommend that the President seek legislation to establish such a department. Our past work has identified fragmentation in space leadership, but because implementation has not yet occurred, it remains to be seen whether this policy directive and proposed legislation would resolve these issues. In implementing these changes there are many complexities to consider. For example, because space capabilities are acquired and used across the military services and defense agencies, it will be important to address many details on how to implement a Space Force among these equities. Our past work suggests that without close attention to the consequences of the compromises that will inevitably have to be made to carve out a new force structure from existing space functions, there is risk of exacerbating the fragmentation and ineffective management and oversight the Space Force is intended to address. For instance, earlier this month, DOD established the Space Development Agency to unify and integrate efforts across DOD to define, develop, and field innovative solutions. But it is unclear how this new organization will mesh with the Air Force Space and Missile Systems Center, which acquires satellites, the Defense Advanced Research Projects Agency, which creates breakthrough technologies and capabilities, and similar organizations. Moreover, even if changes are implemented effectively, they are only a first step toward addressing space acquisition problems. As we discuss below, programs will still need to embrace acquisition best practices, such as using demonstrable knowledge to make decisions. Our prior work has found that they will also need to be open to flexible and innovative approaches, and work effectively with a very wide range of stakeholders, including those that will not be part of the Space Force, such as the intelligence agencies, civilian space agencies, the current military services, as well as entities within the Office of the Secretary of Defense who help oversee and manage acquisitions. Senior leaders have acknowledged that additional changes are needed and have taken steps to help bring them about, such as the restructuring of the Air Force’s Space and Missile Systems Center, which is designed to break down stovepipes and streamline acquisition processes. Past Streamlining Efforts Offer Lessons Learned DOD is managing a number of new space acquisition programs using a new authority, established under Section 804 of the National Defense Authorization Act for Fiscal Year 2016, which is to provide a streamlined alternative to the traditional DOD acquisition process. Specifically, the programs—which include follow-on missile warning and protected communications satellites, among others—will be exempted from the acquisition and requirements processes defined by DOD Directive 5000.01 and the Joint Capabilities Integration and Development System. Instead, program managers are encouraged to use a tailored approach to documentation and oversight to enable them to demonstrate new technologies or field new or updated systems within 2 to 5 years. We have ongoing work looking across the military departments at how middle-tier acquisition authority is being implemented, including for the Air Force’s space acquisition programs, and plan to issue a report later this spring. GAO and others have highlighted lessons learned from past efforts to streamline, specifically with an approach adopted for space systems in the 1990s known as Total System Performance Responsibility (TSPR). TSPR was intended to facilitate acquisition reform and enable DOD to streamline its acquisition process and leverage innovation and management expertise from the private sector. Specifically, TSPR gave a contractor total responsibility for the integration of an entire weapon system and for meeting DOD’s requirements. We found in May 2009 that because this reform made the contractor responsible for day-to-day program management, DOD did not require formal deliverable documents—such as earned value management reports—to assess the status and performance of the contractor. As a result, DOD’s capability to lead and manage the space acquisition process diminished, which magnified problems related to unstable requirements and poor contractor performance. Further, the reduction in DOD oversight and involvement led to major reductions in various government capabilities, including cost- estimating and systems-engineering staff. This, in turn, led to a lack of technical data needed to develop sound cost estimates. Best practices that we identified in the aftermath of TSPR include retaining strong oversight and insight into programs; using quantifiable data and demonstrable knowledge to make decisions to proceed, not allowing development to proceed until certain thresholds are met, empowering program managers to make decisions on the direction of the program but also holding them accountable for their choices, and canceling unsuccessful programs. Similarly, in its study of TSPR programs, the Defense Science Board/Air Force Scientific Advisory Board Joint Task Force emphasized the importance of managing requirements, sufficiently funding programs, participating in trade-off studies, and assuring that proven engineering practices characterize program implementation, among other actions. See appendix II for a more complete list of the best practices we have identified for developing complex systems. DOD May Face Resource and Capacity Challenges in Taking on Multiple Programs at One Time DOD is simultaneously undertaking new major acquisition efforts to replenish its missile warning, protected communications, GPS, and weather satellites. At the same time, it is boosting efforts to increase space situational awareness and protect space assets. It is also helping to fund the development of new launch vehicles, and it is considering additional significant acquisitions in wideband satellite communications and in support of missile defense activities. While there is increased attention within DOD on funding for space and building the Space Force, such widespread acquisition activities could still pose resource challenges. For example: Funding requests for space system modernization have in the past 10 years represented a small percentage (3.9 to 5 percent) of total weapon system modernization funding DOD requested. Space is competing with ships, aircraft, and the nuclear triad, among other programs for funding. This can be challenging, because over the past 2 years, DOD has begun over 9 new space acquisition programs to recapitalize current space capabilities and enhance system resiliency. In the past, we have found that it has been difficult for DOD to fund multiple new space programs at one time, particularly when it was concurrently struggling with cost overruns and schedule delays from its legacy programs. For example, OCX system development challenges have resulted in a $2.5 billion cost increase and approximate 5-year delay to the system becoming operational— using more resources for a longer time—at a cost to other programs. It is unclear whether DOD has a sufficient workforce to manage multiple new space programs. We issued a report this month that found DOD did not routinely monitor the size, mix, and location of its space acquisition workforce. We collected and aggregated data from multiple DOD space acquisition organizations and found that at least 8,000 personnel in multiple locations nationwide were working on space acquisition activities at the end of 2017. Echoing concerns raised in our prior work, we also found that DOD had difficulty attracting and retaining candidates with the requisite technical expertise. Officials from the Air Force’s Space and Missile Systems Center were concerned that there are not enough experienced mid- level acquisition personnel and also expressed concern that the bulk of military personnel assigned to program management positions were more junior in rank than the Center was authorized to obtain. We recommended that DOD (1) identify the universe of its space acquisition programs and the organizations that support them, and (2) collect and maintain data on the workforce supporting these programs. DOD concurred with our first recommendation but not the second. Software is an increasingly important enabler of DOD space systems. However, DOD has struggled to deliver software-intensive space programs that meet operational requirements within expected time frames. Although user involvement is critical to the success of any software development effort, we found in our report issued earlier this month on DOD software-intensive space programs that key programs that experienced cost or schedule breaches often did not effectively engage users to understand requirements and obtain feedback. Program efforts to involve users and incorporate feedback frequently did not match plans. The lack of user engagement has contributed to systems that were later found to be operationally unsuitable. The programs we reviewed also faced challenges in delivering software in shorter time frames, and in using commercial software, applying outdated tools and metrics, as well as having limited knowledge and training in newer software development techniques. DOD acknowledged these challenges and is taking steps to address them, including identifying useful software development metrics and ways to include them in new contracts. We recommended, and DOD concurred, that the department ensure its guidance addressing software development provides specific, required direction on the timing, frequency, and documentation of user involvement and feedback. Moreover, it should be noted that software development has been a struggle for other non-space weapons programs as well. The Defense Innovation Board recently reported that the department’s current approach to software development is broken and is a leading source of risk to DOD—it takes too long, is too expensive, and exposes warfighters to unacceptable risk by delaying their access to the tools they need to assure mission success. Chairman Fischer, Ranking Member Heinrich, and Members of the Subcommittee, this concludes my statement. I am happy to answer any questions that you have. GAO Contact and Staff Acknowledgements If you or your staff have any questions about this statement, please contact me at (202) 512-4841 or chaplainc@gao.gov. Contacts for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to this statement include Rich Horiuchi, Assistant Director; Burns C. Eckert; Emily Bond; Claire Buck; Maricela Cherveny; Erin Cohen; Susan Ditto; Laura Hook, and Anne Louise Taylor. Key contributors for the previous work on which this statement is based are listed in the products cited. Appendix I: Status of Major Department of Defense Space Acquisitions Appendix II: Best Practices GAO Has Identified for Space and Weapons Systems Acquisitions Our previous work on weapons acquisitions in general, and space programs in particular, identified best practices for developing complex systems. We summarize these best practices in table 3, below. Related GAO Products DOD Space Acquisitions: Including Users Early and Often in Software Development Could Benefit Programs. GAO-19-136. Washington, D.C.: March 18, 2019. Defense Space Systems: DOD Should Collect and Maintain Data on Its Space Acquisition Workforce. GAO-19-240. Washington, D.C.: March 14, 2019. Weapon Systems Cybersecurity: DOD Just Beginning to Grapple with Scale of Vulnerabilitie., GAO-19-128. Washington, D.C.: October 9, 2018. Military Space Systems: DOD’s Use of Commercial Satellites to Host Defense Payloads Would Benefit from Centralizing Data. GAO-18-493. Washington, D.C.: July 30, 2018. Weapon Systems Annual Assessment: Knowledge Gaps Pose Risks to Sustaining Recent Positive Trends. GAO-18-360SP. Washington, D.C.: April 25, 2018. Global Positioning System: Better Planning and Coordination Needed to Improve Prospects for Fielding Modernized Capability. GAO-18-74. Washington, D.C.: December 12, 2017. Space Launch: Coordination Mechanisms Facilitate Interagency Information Sharing on Acquisitions GAO-17-646R. Washington D.C.: August 9, 2017 Satellite Acquisitions: Agencies May Recover a Limited Portion of Contract Value When Satellites Fail. GAO-17-490. Washington, D.C.: June 9, 2017 Space Acquisitions: DOD Continues to Face Challenges of Delayed Delivery of Critical Space Capabilities and Fragmented Leadership. GAO-17-619T. Washington, D.C.: May 17, 2017. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-17-333SP. Washington, D.C.: March 30, 2017. Global Positioning System: Observations on Quarterly Reports from the Air Force. GAO-17-162R. Washington, D.C.: October 17, 2016. Defense Space Acquisitions: Too Early to Determine if Recent Changes Will Resolve Persistent Fragmentation in Management and Oversight. GAO-16-592R. Washington, D.C.: July 27, 2016. Evolved Expendable Launch Vehicle: DOD Is Assessing Data on Worldwide Launch Market to Inform New Acquisition Strategy. GAO-16-661R. Washington, D.C.: July 22, 2016 Defense Weather Satellites: DOD Faces Acquisition Challenges for Addressing Capability Needs. GAO-16-769T, Washington, D.C.: July 7, 2016. Defense Weather Satellites: Analysis of Alternatives is Useful for Certain Capabilities, but Ineffective Coordination Limited Assessment of Two Critical Capabilities. GAO-16-252R. Washington, D.C.: March 10, 2016. Space Acquisitions: Challenges Facing DOD as it Changes Approaches to Space Acquisitions. GAO-16-471T. Washington, D.C.: March 9, 2016. Space Acquisitions: GAO Assessment of DOD Responsive Launch Report. GAO-16-156R. Washington, D.C.: October 29, 2015. Space Situational Awareness: Status of Efforts and Planned Budgets. GAO-16-6R. Washington, D.C.: October 8, 2015. GPS: Actions Needed to Address Ground System Development Problems and User Equipment Production Readiness. GAO-15-657. Washington, D.C.: September 9, 2015. Evolved Expendable Launch Vehicle: The Air Force Needs to Adopt an Incremental Approach to Future Acquisition Planning to Enable Incorporation of Lessons Learned. GAO-15-623. Washington, D.C.: August 11, 2015. Defense Satellite Communications: DOD Needs Additional Information to Improve Procurements. GAO-15-459. Washington, D.C.: July 17, 2015. Space Acquisitions: Some Programs Have Overcome Past Problems, but Challenges and Uncertainty Remain for the Future. GAO-15-492T. Washington, D.C.: April 29, 2015. Space Acquisitions: Space Based Infrared System Could Benefit from Technology Insertion Planning. GAO-15-366. Washington, D.C.: April 2, 2015. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-15-342SP. Washington, D.C.: March 12, 2015. Defense Major Automated Information Systems: Cost and Schedule Commitments Need to Be Established Earlier. GAO-15-282. Washington, D.C.: February 26, 2015. DOD Space Systems: Additional Knowledge Would Better Support Decisions about Disaggregating Large Satellites. GAO-15-7. Washington, D.C.: October 30, 2014. U.S. Launch Enterprise: Acquisition Best Practices Can Benefit Future Efforts. GAO-14-776T. Washington, D.C.: July 16, 2014. 2014 Annual Report: Additional Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Other Financial Benefits. GAO-14-343SP. Washington, D.C.: April 8, 2014. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-14-340SP. Washington, D.C.: March 31, 2014. Space Acquisitions: Acquisition Management Continues to Improve but Challenges Persist for Current and Future Programs. GAO-14-382T. Washington, D.C.: March 12, 2014. Evolved Expendable Launch Vehicle: Introducing Competition into National Security Space Launch Acquisitions. GAO-14-259T. Washington, D.C.: March 5, 2014. The Air Force’s Evolved Expendable Launch Vehicle Competitive Procurement. GAO-14-377R. Washington, D.C.: March 4, 2014. Space Acquisitions: Assessment of Overhead Persistent Infrared Technology Report. GAO-14-287R. Washington, D.C.: January 13, 2014. Space: Defense and Civilian Agencies Request Significant Funding for Launch-Related Activities. GAO-13-802R. Washington, D.C.: September 9, 2013. Global Positioning System: A Comprehensive Assessment of Potential Options and Related Costs is Needed. GAO-13-729, Washington, D.C.: September 9, 2013. Space Acquisitions: DOD Is Overcoming Long-Standing Problems, but Faces Challenges to Ensuring Its Investments are Optimized. GAO-13-508T. Washington, D.C.: April 24, 2013. Satellite Control: Long-Term Planning and Adoption of Commercial Practices Could Improve DOD’s Operations. GAO-13-315. Washington, D.C.: April 18, 2013. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-13-294SP. Washington, D.C.: March 28, 2013. Launch Services New Entrant Certification Guide. GAO-13-317R. Washington, D.C.: February 7, 2013. Evolved Expendable Launch Vehicle: DOD Is Addressing Knowledge Gaps in Its New Acquisition Strategy. GAO-12-822. Washington, D.C.: July 26, 2012. Space Acquisitions: DOD Faces Challenges in Fully Realizing Benefits of Satellite Acquisition Improvements. GAO-12-563T. Washington, D.C.: March 21, 2012. Space and Missile Defense Acquisitions: Periodic Assessment Needed to Correct Parts Quality Problems in Major Programs. GAO-11-404. Washington, D.C.: June 24, 2011. Space Acquisitions: Development and Oversight Challenges in Delivering Improved Space Situational Awareness Capabilities. GAO-11-545. Washington, D.C.: May 27, 2011. Space Acquisitions: DOD Delivering New Generations of Satellites, but Space System Acquisition Challenges Remain. GAO-11-590T. Washington, D.C.: May 11, 2011. Global Positioning System: Challenges in Sustaining and Upgrading Capabilities Persis., GAO-10-636. Washington, D.C.: September 15, 2010. Defense Acquisitions: Challenges in Aligning Space System Components. GAO-10-55. Washington D.C.: October 29, 2009. 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.

DOD space systems provide critical capabilities that support military and other government operations. They can also be expensive to acquire and field, costing billions of dollars each year. As DOD seeks to replenish its satellite constellations, it faces a number of challenges to ensuring funds are used effectively. Because space-based capabilities are fundamental to U.S. national security and civilian activities, it is essential that DOD manage its space system acquisitions carefully and avoid repeating past problems. This statement provides an update on DOD's space acquisitions, focusing on challenges facing acquisitions of new space systems. This statement is based on GAO reports issued over the past 10 years on DOD space programs. In addition it draws on recent work performed in support of GAO's 2019 annual reports on the progress of major defense acquisition programs as well as duplication, overlap, and fragmentation across the federal government, among other sources. DOD is simultaneously undertaking new major acquisitions to replenish its missile warning, protected communications, navigation, and weather satellites. At the same time, it is boosting efforts to increase space situational awareness and protect space assets. Such widespread acquisition acitivites could face a wide range of resource and management challenges that GAO has reported on, including: Growing threats to satellites . Threats to satellites from both adversaries— such as jamming and cyber attacks—and space debris are increasing. DOD is making changes to how it designs its space systems to increase the resilience and survivability of space capabilities. But it has been challenged in adopting new approaches, such as using commercial satellites to host payloads, and in prioritizing cybersecurity for all of its weapon systems. For hosted payloads, GAO recommended, and DOD concurred, that the department bolster and centralize collection and analysis of cost, technical, and lessons learned data. Implementing leadership changes . DOD is planning major changes to leadership for space. It recently proposed legislation to establish a United States Space Force—initially to be housed within the Department of the Air Force—that would, according to the President's Space Policy Directive, consolidate existing military space activities and minimize duplicative efforts across DOD. GAO found in July 2016 that changes are needed to reduce fragmentation that has negatively affected space programs for many years. But open questions remain about governance as new programs get underway and whether the changes themselves may result in further fragmentation. For example, it is unclear at this time how the new Space Development Agency will mesh with organizations currently involved in testing and acquiring new space technologies. Having the right resources and know-how . While there is increased attention on funding for space and building the Space Force, new programs can still face resource challenges. DOD has begun over 9 new space programs at a time when it is also seeking increased investments in ships, aircraft, and the nuclear triad, among other programs. Moreover, it is unclear whether DOD has a sufficient workforce to manage its new programs. GAO issued a report earlier this month that found DOD does not routinely monitor the size, mix, and location of its space acquisition workforce. Further, DOD has difficulty attracting and retaining candidates with the requisite technical expertise. GAO recommended that DOD collect and maintain data on its space acquisition workforce. DOD did not concur, but GAO maintains that DOD should have better information on such personnel, especially in light of its proposal for establishing the Space Force. GAO also found in March 2019 that key software-intensive space programs often did not effectively engage users to understand requirements and obtain feedback. GAO recommended, and DOD concurred, that the department ensure its guidance addressing software development provides specific, required direction on the timing, frequency, and documentation of user involvement and feedback.

GAO_GAO-19-696T

OPM and Agencies Need to Strengthen Efforts to Identify and Close Mission-Critical Skills Gaps The federal government faces long-standing challenges in strategically managing its workforce. We first added federal strategic human capital management to our list of high-risk government programs and operations in 2001. Because skills gaps within individual federal agencies—as well as across the federal workforce—can lead to costly, less-efficient government, the issue has been identified as the focus of the Strategic Human Capital Management GAO high-risk area since February 2011. Our experience has shown that the key elements needed to make progress in high-risk areas are top-level attention by the administration and agency leaders grounded in the five criteria for removal from the High-Risk List, as well as any needed congressional action. The five criteria for removal are: (1) leadership commitment, (2) agency capacity, (3) existence of a corrective action plan, (4) program monitoring, and (5) demonstrated progress. Although Congress, OPM, and individual agencies have made improvements since 2001, federal human capital management remains a high-risk area because mission-critical skills gaps within the federal workforce pose a high risk to the nation. GAO, along with OPM and individual agencies, has identified mission critical skills gaps in numerous government-wide occupations. These skills gaps both within federal agencies and across the federal workforce impede the government from cost-effectively serving the public and achieving results. For example, the difficulties in recruiting and retaining skilled health care providers and human resource staff at Veterans Health Administration’s (VHA) medical centers make it difficult to meet the health care needs of more than 9 million veterans. As a result, VHA’s 168 medical centers have large staffing shortages, including physicians, registered nurses, physician assistants, psychologists, physical therapists, as well as human resource specialists and assistants. In October 2017, we reported that the VHA, within the Department of Veterans Affairs (VA), has opportunities to improve staffing, recruitment, and retention strategies for physicians that it identified as a priority for staffing, or mission-critical. For 2016, the top five physician mission- critical occupations were primary care, mental health, gastroenterology, orthopedic surgery, and emergency medicine. However, VHA was unable to accurately count the total number of physicians who provide care in its VA medical centers (VAMC). Additionally, VHA lacked data on the number of contract physicians and physician trainees. Five of the six VAMCs in our review used contract physicians or physician trainees to meet their staffing needs, but VHA had no information on the extent to which VAMCs nationwide use these arrangements. We also reported that VHA had not evaluated the effectiveness of its physician recruitment and retention strategies. One such strategy—hiring physician trainees—was weakened by ineffectual hiring practices, such as delaying employment offers until graduation. In February 2018, we reported that the Department of Homeland Security (DHS) had taken actions to identify, categorize, and assign employment codes to its cybersecurity positions, as required by the Homeland Security Cybersecurity Workforce Assessment Act of 2014; however, its actions were not timely and complete. While DHS has implemented four of our six recommendations from this report, two recommendations remain open. For example, DHS has not yet completed its efforts to identify all of the department’s cybersecurity positions and accurately assign codes to all filled and vacant cybersecurity positions. Further, it has not yet fully developed guidance to assist DHS components in identifying their cybersecurity work categories and specialty areas of critical need that align to the National Initiative for Cybersecurity Education framework. Without ensuring that its progress in identifying and assigning codes to its positions is accurately reported and it has guidance to fully assist components, DHS will not be positioned to effectively examine its cybersecurity workforce, identify its critical skill gaps, or improve its workforce planning. In March 2019, we reported that 24 federal agencies generally assigned work roles to filled and vacant positions that performed information technology, cybersecurity, or cyber-related functions as required by the Federal Cybersecurity Workforce Assessment Act of 2015. However, most agencies had likely miscategorized the work roles of many IT positions. Until agencies accurately categorize their positions, the agencies may not have reliable information to form a basis for effectively examining their cybersecurity workforce, improving workforce planning, and identifying their workforce roles of critical need. Skills gaps caused by insufficient number of staff, inadequate workforce planning, and a lack of training in critical skills are contributing to our designating strategic human capital management and other areas as high risk. (See table 1.) Skills gaps affect individual agencies but also cut across the entire federal workforce in areas such as cybersecurity and acquisition management. As our 2019 analysis of federal high-risk areas shows, in addition to Strategic Human Capital Management, skills gaps played a role in 16 of the other 34 high-risk areas we have identified. Insufficient numbers of staff with critical skills can be related to staff retirements as well as to inadequate recruitment and hiring. Moreover, if not carefully managed, anticipated retirements could widen skills gaps or open new ones, adversely affecting agencies’ capabilities. As shown in figure 1, more than 31 percent of federal employees on board by the end of fiscal year 2017 will be eligible to retire in the next 5 years. Key Strategies and Practices for Recruiting, Incentivizing and Engaging the Current and Future Federal Workforce In March 2019, we reported on key talent management strategies that can help agencies better manage the current and future workforce. Below we focus on nine selected practices we identified related to recruiting, incentivizing, and engaging the federal workforce: Cultivate a diverse talent pipeline. In our prior work, we have noted the importance of active campus recruiting that goes beyond infrequent outreach to college campuses. Active campus recruiting includes developing long-term institutional relationships with faculty, administrators, and students. In addition, OPM guidance emphasizes that agencies should develop an inclusive approach to their talent acquisition strategies. This includes developing strategic partnerships with a diverse range of colleges and universities, trade schools, apprentice programs, and affinity organizations from across the country. Recruit continuously and start the hiring process early in the school year. The ability to hire students is critical to ensuring that agencies have a range of experience levels for succession planning and a talent pipeline to meet mission requirements. One of the key challenges agencies face in recruiting students is managing the timing of recruitment. The federal fiscal year begins on October 1—about when private sector firms we interviewed start recruiting on campus. Frequently, however, federal agencies have been unable to hire at this time of year because of the limitations of budget uncertainty. Yet if agencies wait to start the recruiting and hiring process until they receive funding, many graduates will have taken other job opportunities. Agencies can overcome these timing challenges by recruiting continuously and starting the hiring process early in the school year. To recruit continuously, Chief Human Capital Officers (CHCOs) from the U.S. Departments of Agriculture and Homeland Security said that they advertise funding-conditional positions throughout the year. Write user-friendly vacancy announcements. We previously reported that some federal job announcements were unclear. This can confuse applicants and delay hiring. In July 2018, OPM officials stated that agencies can develop more effective vacancy announcements when hiring managers partner with human resource (HR) staff. According to OPM, hiring managers can work with HR staff to identify the critical competencies needed in the job, develop a recruiting strategy, and ensure the job announcement accurately and clearly describes the required competencies and experience. To promote collaboration between hiring managers and HR staff, OPM is training agencies on the role of hiring managers in writing vacancy announcements, according to OPM officials. Strategically leverage available hiring and pay flexibilities. To help ensure agencies have the talent they need to meet their missions, we have found that federal agencies should have a hiring process that is simultaneously applicant friendly, sufficiently flexible to enable agencies to meet their needs, and consistent with statutory requirements, such as hiring on the basis of merit. Key to achieving this is the hiring authority used to bring applicants onboard. In March 2019, we reported that CHCOs cited the complex competitive examining process as a cause of the lengthy hiring time. This has been a long-standing concern. In our 2002 report on human capital flexibilities, we noted that for many years prior, federal managers had complained that competitive examining procedures were rigid and complex. Agencies can use a number of additional hiring authorities beyond competitive examining. These authorities can add flexibility to the process and CHCOs have expressed a desire for more. However, we previously found that agencies relied on only a small number of available authorities. In fiscal year 2014, of the 105 hiring authority codes used in total, agencies relied on 20 hiring authority codes to make around 90 percent of the new appointments. We recommended in 2016 that OPM use information from its reviews of agencies’ use of certain hiring authorities to determine whether opportunities exist to refine, consolidate, or expand agency-specific authorities, and implement changes where OPM is authorized, including seeking presidential authorization or developing legislative proposals if necessary. OPM agreed with our recommendation and has made progress in these areas, although more work is needed to follow through on planned actions to streamline authorities. For example, in December 2018, OPM said that it continues to research and examine streamlining opportunities, such as those identified in its July 2018 study on excepted service hiring authorities. However, OPM did not provide a time frame for implementation. In addition, in its March 2019 Congressional Justification for the Fiscal Year 2020 Budget Request, OPM included legislative proposals for new hiring authorities, such as authority for short-term appointments to allow agencies to appoint and compensate highly qualified experts to help agencies meet critical needs as well as a change to the criteria for granting direct hire authority. A variety of special pay authorities can help agencies compete in the labor market for top talent, but agencies only use them for a small number of employees. In fiscal year 2016, these incentives were used for less than 6 percent of employees. In December 2017, we reported that agencies can tap an array of special payments when they need to recruit or retain experts in engineering, cybersecurity, or other in-demand fields. These payments include, for example, incentives for recruitment or retention, or higher rates of pay for critical positions. We found that agencies reported that these payments were helpful, but few documented their effects, and OPM had not assessed their effectiveness. Further, in our March 2019 report, we found that less than 5 percent of employees received payments for recruitment or retention annually in the past 10 years. In December 2017, we made three recommendations to OPM, including for it to track the effectiveness of special payment authorities. OPM partially concurred with this recommendation, saying that agencies are in the best position to take this action. In December 2018, OPM stated that it established a baseline to measure changes in the use of special payment authorities over time, and that it is focused on government-wide, mission- critical occupations to help identify trends where there may be recruitment and retention difficulties. However, documents OPM provided gave no information on actions taken on this recommendation. We will continue to monitor OPM’s actions to implement this recommendation. This is one of 18 priority recommendations in GAO’s Priority Recommendations letter to OPM. Use relevant assessment methods and share hiring lists. In March 2019, we reported that CHCOs and OPM officials we interviewed stated that roadblocks to hiring the right skills include issues with assessment methods. Specifically, agencies may use methods that are less relevant for assessing the desired skills or agencies may experience issues incorporating multiple assessments in the hiring process. For example, one CHCO we interviewed said that her agency uses multiple-choice questions to assess candidates, but essay questions more effectively assess the skills she seeks. OPM issued guidance to agencies on how to use additional assessment methods, including how to rank applicants. Additionally, federal employee and management group representatives we spoke with said agencies could reduce the time of the assessment process by sharing hiring lists. The Competitive Service Act of 2015 allows agencies to share hiring lists, but agencies have only started to pilot the practice within departments, according to OPM officials we spoke with for our March 2019 report. OPM and agencies discussed sharing hiring certificates with the CHCO Council, and OPM is planning virtual training sessions on this topic. However, one federal employee group representative noted that to be consistent with merit principles, agencies may need to refresh the list every 2 to 3 months to give new candidates the opportunity to enter the application pool. Highlight agency mission and link to employees’ work. Agencies can help counter negative perceptions of federal work by promoting their missions and innovative work, according to experts and CHCOs we interviewed for our March 2019 report. For example, DHS’s CHCO told us that DHS provides “Day in the Life” information on its work to promote public awareness of how its everyday tasks tie in with its mission of protecting the United States. In addition, we have previously reported that high-performing organizations create a “line of sight” between individual performance and organizational results by aligning employees’ daily activities with broader results. Agencies can motivate and retain employees by connecting them to their agency’s mission, according to human capital experts and federal employee and management group representatives we interviewed. Employee responses to Federal Employee Viewpoint Survey (FEVS) indicate the federal government appears to be performing well in this area. In 2017, 84 percent of employees knew how their work related to the agency goals and priorities. Increase awareness of benefits and incentives, such as work-life programs. As shown in figure 2, the majority of federal employees were satisfied with compensation, and employees who participated in work-life programs were satisfied with those incentives. However, OPM’s 2018 Federal Work-Life Survey Governmentwide Report found that one of the most commonly reported reasons employees do not participate in work- life programs is lack of program awareness among employees and supervisors. Increase support for an inclusive work environment. An increasingly diverse workforce can help provide agencies with the requisite talent and multidisciplinary knowledge to accomplish their missions. In January 2005, we reported fostering a diverse and inclusive workplace could help organizations reduce costs by reducing turnover, increasing employee retention across demographic groups, and improving morale. We also reported that top management commitment is a fundamental element in the implementation of diversity management initiatives. Encourage details, rotations, and other mobility opportunities. In March 2019, we stated that CHCOs, human capital experts, and federal management groups said upward and lateral mobility opportunities are important for retaining employees. CHCOs also said that in some cases, lateral mobility opportunities such as rotations, details, and opportunities to gain experience in other sectors can help employees gain new skills more cost-effectively than training, particularly for rapidly changing skill sets such as those related to the sciences. Further, we previously reported that effective interagency rotational assignments can develop participants’ collaboration skills and build interagency networks. However, according to OPM data, few employees in 2017 moved horizontally because, according to federal manager group representatives and our previous work, managers are sometimes reluctant to lose employees. (See table 2.) We have previously made recommendations that could help address these challenges. For example in 2015, we recommended that OPM determine if promising practices, such as providing detail opportunities or rotational assignments to managerial candidates prior to promotion, should be more widely used across government. OPM partially concurred with this recommendation and agreed to work with the CHCO Council to explore more government-wide use of rotational assignments. However, OPM noted that agencies already have authority to take these actions. In June 2019, OPM officials told us they had discussed the scalability of promising practices for supervisors—specifically, details and rotational assignments and a dual career ladder—with members of the CHCO Council. OPM found these practices were being used at some agencies, but has not determined if these practices may be beneficial to other agencies. In conclusion, OPM has instituted numerous efforts to assist agencies’ in addressing mission-critical skills gaps within their workforces. This includes providing guidance, training and on-going support for agencies on the use of comprehensive data analytic methods for identifying skills gaps and the development of strategies to address these gaps. However, as of December 2018, OPM had not fully implemented 29 of our recommendations made since 2012 relating to this high-risk area. We will continue to monitor OPM’s efforts to implement our recommendations. Further, we have reported on numerous talent management strategies that can help agencies better manage the current and future workforce. Without these measures, the federal government’s ability to address the complex social, economic, and security challenges facing the country may be compromised. Chairman Lankford, Ranking Member Sinema, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions you may have at this time. If you or your staff have any questions about this testimony, please contact Yvonne D. Jones, Director, Strategic Issues, at (202) 512-6806 or jonesy@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 Clifton Douglas, Jr., Assistant Director; Christopher Falcone; Karin Fangman; Cindy Saunders, Alan Rozzi and Katherine Wulff. 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.

Strategic human capital management plays a critical role in maximizing the government's performance and assuring its accountability to Congress and to the nation as a whole. GAO designated strategic human capital management as a government-wide, high-risk area in 2001. Since then, important progress has been made. However, retirements and the potential loss of leadership and institutional knowledge, coupled with fiscal pressures, underscore the importance of a strategic and efficient approach to acquiring and retaining individuals with critical skills. As a result, strategic human capital management remains on GAO's High-Risk List. This testimony is based on a large body of GAO work issued from May 2008 through May 2019. This testimony, among other things, focuses on key human capital areas where some actions have been taken but attention is still needed by OPM and federal agencies on issues including: (1) addressing critical skills gaps and (2) recruiting and hiring talented employees. GAO, along with the Office of Personnel Management (OPM) and individual agencies, has identified skills gaps in numerous government-wide occupations. According to GAO's 2019 analysis of federal high-risk areas, skills gaps played a role in 17 of the 35 high-risk areas. Causes vary but these skills gaps often occur due to shortfalls in one or more talent management activities such as robust workforce planning. Staffing shortages and the lack of skills among current staff not only affect individual agencies but also cut across the entire federal workforce in areas such as cybersecurity and acquisition management. Additionally, the changing nature of federal work and the high percentage of employees eligible for retirement could produce gaps in leadership and institutional knowledge, and threatens to aggravate the problems created from existing skills gaps. For example, 31.6 percent of permanent federal employees who were on board as of September 30, 2017, will be eligible to retire in the next 5 years with some agencies having particularly high levels of employees eligible to retire. GAO's work has identified a range of problems and challenges with federal recruitment and hiring efforts. Some of these problems and challenges include unclear job announcements and a lengthy hiring process. Further, the federal workforce has changed since the government's system of current employment policies and practices were designed. Strategies that can help agencies better manage the current and future workforces include: Manage the timing of recruitment . To address issues of funding uncertainty at the beginning of the fiscal year, agencies should recruit continuously, starting the hiring process early in the school year. Write user-friendly vacancy announcements . GAO has reported that some federal job announcements were unclear. This can confuse applicants and delay hiring. OPM stated that when hiring managers partner with human resources staff, agencies can develop more effective vacancy announcements. Leverage available hiring and pay flexibilities . To help ensure agencies have the talent they need, they should explore and use all existing hiring authorities. A variety of special pay authorities can help agencies compete in the labor market for top talent, but GAO has found that agencies only use them for a small number of employees. Increase support for an inclusive work environment . An increasingly diverse workforce can help provide agencies with the requisite talent and multidisciplinary knowledge to accomplish their missions. Encourage rotations and other mobility opportunities. Upward and lateral mobility opportunities are important for retaining employees, but few employees move horizontally because managers are sometimes reluctant to lose employees. Without these measures, the federal government's ability to address the complex social, economic, and security challenges facing the country may be compromised.

CRS_R45942

Background and Context Amtrak—legally the National Railroad Passenger Corporation—was created by the Rail Passenger Service Act of 1970 and began operating in 1971, taking over intercity passenger service from financially distressed private railroad companies. It originally did not own any rail infrastructure, eventually coming to own some assets cast off by bankrupt private railroads. It is operated as a private company and not a government corporation, but the President appoints the members of its Board of Directors and its primary stockholder is the U.S. Department of Transportation (DOT), with a small proportion of common stock held by other railroad companies. Amtrak currently serves over 500 stations in 46 states and the District of Columbia, running over 300 trains per day on a network approximately 22,000 miles long ( Figure 1 ). Since 2008, Amtrak services have been grouped into three business lines: (1) the Washington-New York-Boston Northeast Corridor (NEC), (2) short-distance corridors under 750 miles long with service supported by state governments, and (3) long-distance trains serving destinations over 750 miles apart, usually once per day on an overnight schedule. Under the Fixing America's Surface Transportation (FAST) Act of 2015 ( P.L. 114-94 ), the state-supported short-distance and long-distance routes were grouped together into the National Network. Amtrak's Thruway network of over 150 intercity bus routes serves as a feeder service for passenger trips originating or terminating in cities off the rail system. Over 31 million trips were taken on Amtrak in 2018, a company record. Amtrak system ridership has exceeded 30 million trips every year since 2011, and has increased 26% over the last 15 years, with much of that growth coming on Amtrak's state-supported short-distance corridors ( Figure 2 ). Approximately 48% of all Amtrak trips were taken on state-supported routes in 2018, compared with 38% on the Northeast Corridor and the remaining 14% on long-distance trains. State-supported routes have accounted for the plurality of Amtrak trips among its three business lines every year since 2005. One contributing factor to the growth of state-supported route traffic over that period is that Amtrak and its state partners have added new routes and additional daily trains. Despite record ridership levels, Amtrak trains are roughly as full as they have been at any point in the past decade (see discussion of load factor below), and Amtrak passengers account for a small fraction of intercity passenger travel volume nationwide. In 2017, the most recent year for which such data are available, Amtrak generated 6.5 billion passenger-miles (one passenger-mile is equal to one passenger traveling one mile) of traffic volume; by comparison, domestic air travel generated 694 billion passenger-miles, over 100 times as many as Amtrak. Highway users generated an estimated 5.5 trillion passenger-miles in 2017, including 365 billion on buses, though this includes trips that are not intercity in nature. However, Amtrak passenger-miles have seen a greater cumulative percent increase since 2004 than highway passenger-miles, and saw a greater cumulative percent increase than domestic air passenger-miles from 2008 to 2015 before being overtaken in 2016 ( Figure 3 ). Though Amtrak ridership has been steady or rising in terms of trips taken, Amtrak passenger-miles have declined somewhat since 2013, suggesting an increase in shorter trips. The NEC is the only market in which Amtrak serves a larger proportion of intercity trips than airlines, with both lagging far behind highway travel. Lack of equipment and track capacity have inhibited Amtrak from increasing service on the NEC. Amtrak's Finances5 Amtrak's expenses exceed its revenues each year. In FY2018, Amtrak's revenues totaled $3.2 billion, against expenses of $4.1 billion, for a net loss of $868 million. That loss was covered by federal grants made to Amtrak by DOT (see the discussion of funding issues later in this report). Revenues covered 79% of the railroad's total expenses in FY2018, the highest ratio over the 15 years for which comparable data are available (see Figure 4 and Table 1 ). Under pressure from Congress and several Administrations, Amtrak has reduced—but not eliminated—its reliance on federal subsidies to support its operations. Amtrak had net losses of roughly $900 million in each of FY2017 and FY2018, the first two years in the past 15 in which net losses were less than $1 billion. One important reason for this improvement is a doubling of revenue from commuter railroads using the NEC from pre-2016 to post-2016, due to higher payments required under the cost allocation policy established by Section 212 of the Passenger Rail Investment and Improvement Act of 2008 (PRIIA; Division B of P.L. 110-432 ) and enforceable by the Surface Transportation Board (STB) under Section 11305 of the FAST Act. By Amtrak's preferred metric, which adjusts the net loss by removing depreciation and certain other expenses, annual operating losses have been reduced to a figure smaller than $250 million in each of the past five fiscal years; this figure was over twice as large in nominal terms in the years prior to 2007 ( Figure 5 ). The effect is more dramatic when taking the effects of inflation into account; in constant 2019 dollars, the figure was four times as large in 2007 as it was in 2018. This metric, dubbed the a djusted o perating r esult , is seen by Amtrak as more closely reflecting the need for federal operating support, but it does not take the railroad's capital investment needs into account. By another measure, which allocates costs and revenues to each available seat-mile of passenger capacity offered, Amtrak has recovered at least 96% of operating costs every year since 2014, up from below 80% in the preceding years ( Figure 6 ). One contributing factor to this improved financial performance is likely the requirement, contained in PRIIA, that operating losses on short-distance routes located off the NEC be offset by state funds, effective on the first day of FY2014. One measure of efficiency is the passenger load factor, which measures what percentage of the available seats is being used by passengers. Amtrak's load factor has varied within a fairly narrow band since 2004. Its current load factor, 51%, is near the record load factor Amtrak reported in FY1988. Load factor varies across Amtrak's three business lines, with NEC and Long Distance trains at 58% and 57%, respectively, in FY2018, while state-supported routes lagged at 40%. Improving load factor is one way of boosting revenue without increasing costs, but this can be difficult if passenger traffic is not distributed evenly along a route. Routes on which one station generates a large share of originating and terminating traffic are likely to have relatively low load factors in some segments but higher load factors in the "peak segment." For example, if a train on the NEC is sold out between Philadelphia and New York, Amtrak may not be able to accommodate passengers who wish to travel between Baltimore and New York, resulting in empty seats between Baltimore and Philadelphia. If Amtrak were to accommodate these riders with additional cars, this could reduce load factor even as it increases ridership. Funding Issues As discussed above, Amtrak has never generated sufficient revenue to cover its operating and capital expenses. The Administration requests funding for Amtrak each year as part of its DOT budget request. Amtrak also submits a separate appropriation request to Congress each year; typically, that request is larger than the Administration's request. Table 2 shows the difference in the requests submitted for FY2020. Congress addresses Amtrak's subsidy in the annual Transportation, Housing and Urban Development, and Related Agencies Appropriations Act. For most of Amtrak's existence, Congress has divided Amtrak's grant into two categories, operating and capital grants. The operating grant could be thought of as relating to Amtrak's annual cash loss, and the capital grant as relating to the depreciation of Amtrak's assets, as well as an amount for Amtrak debt repayments. Congress changed the structure of federal grants to Amtrak in Title XI of the FAST Act. Starting in FY2017, Amtrak's appropriation has been divided between funding for the operationally self-sufficient NEC, which has large capital needs, and the National Network, which has modest capital needs (as the tracks are almost entirely owned and maintained by freight railroads) but runs an operating deficit of several hundred million dollars. The change was intended to increase transparency of the costs of Amtrak's two major lines of business and eliminate cross-subsidization between them; operating profits from the NEC and state access payments for use of the NEC will be reinvested in that corridor, and passenger revenue, state payments, and federal grants for the National Network will be used for that account. Amtrak's reliance on annual appropriations has made it difficult to fund long-term capital projects. DOT's Inspector General has noted that the lack of long-term funding "has significantly affected Amtrak's ability to maintain safe and reliable infrastructure and equipment, and increased its capital program's annual cost." Amtrak's FY2020 budget request suggests a multiyear appropriation to provide some additional stability without fundamentally altering the mechanism by which Amtrak receives its federal funding. Most federal funding for highway and transit programs is provided by a special form of budget authority, contract authority, which allows DOT to obligate funds from the Highway Trust Fund in advance of an appropriation. This permits DOT to commit to support highway projects that may take several years to complete. There have been proposals to create a similar trust fund for Amtrak, in order to provide a greater level of financial stability and permit such long-term funding of capital projects. Such efforts have faced objections from some Members of Congress opposed to Amtrak receiving federal funding. There is also a practical challenge to identifying a revenue source for an Amtrak trust fund. The Highway Trust Fund, which receives revenue from taxes on motor fuels and heavy trucks, is not authorized to spend money on intercity rail services; in any event, the revenues flowing into the fund are far below the level required to support the levels of federal highway and transit spending authorized by Congress, necessitating several transfers of money from the general fund since 2008. If a passenger rail trust fund were to be funded solely from a tax on passengers, the cost of Amtrak tickets could rise by several dollars per ticket at current ridership levels, potentially contravening the purpose of the fund by reducing ridership. Issues for Congress Maintaining and Improving the Northeast Corridor Amtrak has stated that there is a $28.1 billion backlog of state-of-good-repair projects on the NEC, which Amtrak revenue alone is unable to fund, and which does not include capital projects deemed necessary to increase capacity. It seems unlikely that private investors would be prepared to provide that funding in exchange for a share of the operating profits generated by NEC passenger trains. The obstacles facing such an investor would be largely the same as the ones currently facing Amtrak: operating profits are insufficient to cover capital costs, and the ability to increase revenue by running additional trains into Penn Station in New York City, by far the most popular origin and destination point on the NEC, will be limited until and unless major capital improvements not included within the state-of-good-repair backlog, including a new tunnel under the Hudson River, are completed. The fragmented control of NEC infrastructure, some of which is owned by state governments, would persist even if Amtrak's assets in the corridor were operated by some private entity. A provision of the FAST Act required the Federal Railroad Administration (FRA) to solicit proposals to design, build, operate, and maintain high-speed rail systems on federally designated high-speed rail corridors, including the NEC. No such proposal was submitted for the NEC. Plans to create a separate entity to own and/or operate the NEC, including as part of larger plans to reorganize or privatize the entire passenger rail system, have been proposed but have never been adopted in full. In 2002, the Amtrak Reform Council submitted its recommendations to Congress for a "restructured and rationalized national intercity rail passenger system" as required by the Amtrak Reform and Accountability Act of 1997. Among other measures, the council endorsed organizing NEC infrastructure assets under a separate government corporation that would control the assets and manage rail operations and capital improvements. The council admitted in its recommendations that this new infrastructure company would not be able to fund its own capital needs, and endorsed continued federal funding in addition to funds committed by the states. A similar suggestion, which was known as the Competition for Intercity Passenger Rail in America Act, was proposed in 2011 by the leadership of the House Committee on Transportation and Infrastructure but never introduced. Some proposals have called for a dedicated funding source, backed by taxes or fees within the region served by the NEC. The thinking behind this is that restructuring of the NEC would be more attractive politically if it were dependent mainly on revenue raised within the region rather than on federal government resources. As the NEC passes through eight states and the District of Columbia, creation of a dedicated regional funding source is likely to require some form of interstate agreement, with each state concerned that its contribution is commensurate with the benefits it expects to receive. The Future of the National Network Critics of Amtrak have often questioned the necessity of continuing to operate long-distance trains, which usually require the largest operating subsidies, both in total dollars and in dollars per trip or per passenger-mile. Proponents of passenger rail have contended that these operating losses are distorted by Amtrak accounting practices, pointing to the allocation of fixed costs to individual routes and the differing treatment of state and federal grant funds. Amtrak has responded that its accounting practices, based on a performance tracking system developed by DOT's Volpe Transportation Systems Center in conjunction with the Federal Railroad Administration (FRA) and Amtrak, accurately allocate costs among its various routes. Amtrak points out, for example, that while its California Zephyr between Chicago and Emeryville, CA, has greater revenue per trip than an average Northeast Regional train on the NEC, the long-distance train requires nine times as many employees, twice as much equipment, and more switching operations in rail yards for every trip. Amtrak has proposed shifting its focus from maintaining existing levels of service on all 15 long-distance routes currently in the Amtrak system to shorter corridors that would be supported by the states. Amtrak is under pressure to accomplish two goals that at times seem to work against one another: to serve as the national passenger railroad, including through the operation of long-distance routes, and to reduce or eliminate the need for federal subsidies. Federal law provides that "Amtrak shall operate a national rail passenger transportation system which ties together existing and emergent regional rail passenger service and other intermodal passenger service." The phrase "national rail passenger transportation system" is defined to include "long-distance routes of more than 750 miles between endpoints operated by Amtrak as of the date of enactment of the Passenger Rail Investment and Improvement Act of 2008." However, Amtrak also has statutory power to discontinue routes, notwithstanding the above provisions. In its FY2020 budget request, the Trump Administration proposed a reduction in annual appropriations to the National Network, with the expectation that either states would support continued operation of long-distance routes or Amtrak would discontinue them. The Administration proposed to offset this reduction with a $550 million appropriation to a new Restoration and Enhancements discretionary grant program, which would allow states to gradually ramp up to their full contributions, with a federal subsidy decreasing each year over a five-year period. In its own FY2020 budget request, Amtrak requested an appropriation equal to the full $1.8 billion authorization contained in the FAST Act, but stated some support for changing the way the National Network is funded in the future (emphasis added): Amtrak appreciates the Administration's focus on expanding intercity passenger rail service to today's many underserved cities and corridors across the nation. We believe that a modernization of the National Network, with the right level of dedicated and enhanced federal funding , would allow Amtrak to serve more passengers efficiently while preserving our ability to maintain appropriate Long Distance routes. Removing federal support for long-distance service could create a circumstance in which, if one state along the route declined to contribute to its operating costs, Amtrak might be left with little recourse other than to discontinue the route. Proponents of continued long-distance train service point to the large proportion of trips taken on long-distance trains between origins and destinations other than the endpoints, and to the trains' relatively high load factor (57% in FY2018) compared to other Amtrak routes (58% on the NEC, 40% on state-supported routes), an indicator of efficient utilization of passenger space. However, depending on the number of cars in each train, this could conceal an inefficient utilization of engines and engineers, as a short train may require the same crew as a longer one no matter how many passengers are aboard. Existing state-supported routes could also face service cuts due to a lack of state support. The Chicago-Indianapolis Hoosier State route was created in 1980 to provide service on days when the thrice-weekly Cardinal long-distance train did not operate. When PRIIA Section 209 went into effect at the beginning of FY2014, requiring the state of Indiana to cover all operating losses associated with the route, state political support began to wane, and the route was threatened with discontinuance. Under a different section of PRIIA, the state contracted with a private railroad company to operate the route, but that company withdrew from the agreement before the base contract period had expired, returning responsibility to the state government. The Hoosier State was discontinued on June 30, 2019, after Indiana declined to provide further funding. Section 210 of PRIIA required Amtrak to generate performance improvement plans for all 15 of its long-distance routes, starting with the 5 worst-performing routes based on 2008 data. These reports contained a number of recommended actions to improve long-distance train performance according to various metrics: the Customer Satisfaction Index (CSI), on-time performance (OTP), and cost recovery (CR). There has been uneven improvement in long-distance train performance in the intervening years. Two routes have higher CSI scores (now referred to as eCSI scores) than they did in 2008, six routes have better on-time performance, and five have improved cost recovery rates. All other scores for these routes have stayed the same or worsened. The extent to which any actions taken as a result of the Section 210 plans either improved route performance or mitigated its decline is unclear. Access to Freight Rail Infrastructure and On-Time Performance Freight train interference is one cause of poor on-time performance on Amtrak routes. By law, Amtrak is to be given "preference" over other railroad traffic when using tracks it does not own. In practice this preference has been difficult to enforce, as freight railroads have little incentive to be overly accommodating to Amtrak trains, for which they are reimbursed only the incremental cost of Amtrak's use of their tracks. Sections 207 and 213 of PRIIA directed FRA, Amtrak, and STB to develop minimum on-time performance standards, and gave STB enforcement power over railroads that failed to meet these standards. Final metrics and standards went into effect in 2010, before being suspended in 2012 amid court challenges. Following a series of court decisions that ultimately upheld Amtrak's role in developing performance standards but altered the role of the STB, FRA and Amtrak are free to reformulate new on-time performance standards. At a June 2019 Senate hearing, Amtrak CEO Richard Anderson said this could be completed in less than 90 days, though he declined to commit to a specific timeline. Anderson compared these standards to similar metrics in use in the commercial aviation industry. Current law permits the U.S. Department of Justice (DOJ) to enforce Amtrak's statutory track preference. Anderson has noted in communications with lawmakers that DOJ has done so only once in Amtrak's history, against the Southern Pacific railroad in 1979. Amtrak has requested that a similar enforcement power be granted statutorily to Amtrak, going so far as to recommend specific bill language that would allow Amtrak to sue host railroads. Another option is to make funding available to states to assist them in purchasing tracks used by passenger trains from their freight railroad owners. The state of Michigan pursued this strategy, using roughly $150 million in federal grant funds awarded in 2011 to purchase the 135-mile rail corridor from Kalamazoo to Dearborn on the Chicago-Detroit corridor. At the time of the transaction in 2012, previous owner Norfolk Southern Railway had placed several sections of the corridor under slow orders due to poor infrastructure conditions. After several years of repairs and construction funded in part by additional federal grants beyond those used to purchase the line, Amtrak's on-time performance on the Chicago-Detroit Wolverine service rose from 53% in FY2015 to nearly 70% in FY2016, though it has declined slightly since (and 70% is still below the 80% standard initially set under PRIIA 207). Using a slightly different ownership structure, the state of North Carolina supports several passenger trains per day between Raleigh and Charlotte on tracks owned by the North Carolina Railroad, a state-owned entity that leases its tracks to Norfolk Southern. Norfolk Southern agreed to increased passenger service on the line in return for extensive public investment in improving and expanding the infrastructure. The number of daily trains offered by the state-supported Piedmont service has increased, and the service has exceeded the 80% on-time performance standard for state-supported routes in five of the past seven years. Public ownership of rail infrastructure can be beneficial for passenger rail on-time performance because of the lessened incentive to give priority to freight traffic. Where a freight railroad may find it more profitable to delay passenger trains to accommodate freight trains, a public owner might give preference to passenger services instead. However, in situations that involve public-sector purchases of busy freight lines, it is likely that the affected freight railroads would demand protection for their services as a condition in any sale agreements. Freight railroads are less likely to give up control of their busiest main lines than in the case of parallel or secondary lines. One issue that has hindered congressional efforts to encourage competition in passenger rail service is that freight railroads' statutory obligation to carry passenger trains applies only to trains operated by Amtrak. This may be one reason that states that have initiated state-supported routes have uniformly contracted with Amtrak to be the operator. For other operators to be able to compete with Amtrak on equal footing, legislation may be needed to address their rights to make use of freight railroads' infrastructure. Food and Beverage Service Amtrak has served food and beverages since it began operating in 1971, continuing the practice of its predecessor companies. As far back as 1981, Congress prohibited Amtrak from providing food and beverage service at a loss, and this prohibition is still in the statutes governing Amtrak: Amtrak may ... provide food and beverage services on its trains only if revenues from the services each year at least equal the cost of providing the services. The law does not define what is to be included in the "cost of providing the services." Amtrak has stated that providing food and beverage service is essential to meeting the needs of passengers, especially on long-distance trains, and it has interpreted the law as requiring that revenues cover the costs of food and beverage items and commissary operations but not the labor cost of Amtrak employees providing food service aboard trains. When on-board labor costs are excluded, Amtrak says, the service covers its costs. When labor costs are included, however, the service operates at a significant deficit (see Table 4 ). Amtrak has taken measures, at Congress's direction, to reduce costs for food and beverage service. In 1999, it shifted from handling food and beverage supplies internally to contracting out such activities. More recently, Amtrak announced it would be discontinuing its traditional dining car service on several long-distance routes, in part to save money. A House proposal in the 112 th Congress would have required FRA to contract out Amtrak's onboard food and beverage service but acknowledged that the service may operate at a loss. Section 11207 of the FAST Act requires Amtrak to develop a plan to eliminate food and beverage service losses, and prohibits federal funds from being used to cover losses starting five years after enactment—but also provides that no Amtrak employee shall lose his or her job as a result of any changes made to eliminate losses. Congress provided that Amtrak could eliminate the losses on food and beverage service through "ticket revenue allocation." Although that phrase is not defined in the law, it implies that Amtrak could declare that a portion of the ticket prices paid by certain passengers is dedicated to food and beverage service, as it already does for passengers traveling in first-class accommodations. Positive Train Control Interoperability Issues Positive train control (PTC) is an interconnected system of signals and communication devices designed to prevent collisions and derailments by automatically slowing or stopping a train if its engineer fails to do so. The Railway Safety Improvement Act of 2008 (RSIA; Division A of P.L. 110-432 ) required all tracks used by passenger trains to be equipped with PTC by the end of 2015, now effectively extended to December 31, 2020, by subsequent laws and regulations. All Amtrak-owned or -controlled track had PTC in operation on January 1, 2019, except approximately one mile of slow-speed track in the complex Chicago and Philadelphia terminal areas, and PTC is installed on 85% of other railroads' route miles that Amtrak uses. However, to fully comply with the PTC mandate, PTC-equipped Amtrak trains must be certified interoperable with all PTC systems installed by host railroads, and Amtrak's PTC system must be interoperable with other railroads' PTC-equipped trains that use its tracks. At the end of 2018, Amtrak had achieved interoperability with 2 railroads out of a total of 13 that use its tracks, though this does not necessarily reflect Amtrak's progress achieving interoperability with its host railroads. The Government Accountability Office has found that of all railroads subject to the statutory mandate, only two commuter railroads have achieved full operation and full interoperability. If Amtrak does not achieve 100% interoperability with its host railroads by the deadline, absent a waiver or subsequent extension (which FRA has stated it will not issue), Amtrak would need to suspend rail service on noncompliant lines or risk enforcement action in the form of financial penalties for each day it operates in violation of the mandate.

Amtrak—officially the National Railroad Passenger Corporation—has been the national intercity passenger railroad since 1971, and currently serves over 500 stations on a network approximately 22,000 miles long. In some markets, such as the busy Northeast Corridor (NEC) connecting Washington, New York, and Boston, it has captured a greater share of intercity passengers than domestic airlines. In other, more rural markets, some see it as a vital link to the national transportation system despite low levels of ridership. Though Amtrak is legally a private for-profit corporation, the federal government controls the company's operations. A five-year authorization of federal funding for Amtrak was included in the Fixing America's Surface Transportation (FAST) Act of 2015 ( P.L. 114-94 ), which expires at the end of FY2020. Since its inception, Amtrak has depended on annual appropriations from the federal government to cover its capital (infrastructure, vehicles) and operating (train crews, maintenance) costs. Amtrak's financial health has improved in recent years. In 2018, according to the railroad, revenue covered 79% of its expenses, the highest ratio it has ever reported. Amtrak's preferred metric for financial performance, its adjusted operating loss, declined to $168 million, but this figure does not take its capital needs into account. Increased contributions from commuter railroads that use the NEC have played an important role in reducing the need for federal support. Amtrak's ridership continues to increase, as does its relative share of passenger miles traveled, though both remain small on a national scale when compared to road and air traffic. Despite these improvements, a large backlog of capital projects remains unfunded, and Amtrak remains under pressure to further reduce its need for operating subsidies. Capacity constraints will make further ridership increases difficult to achieve without capital expenditures for additional equipment and track improvements. The Amtrak system is divided into two subsets for funding purposes, the NEC and the National Network (everything else), each facing its own set of challenges. Congress may want to explore opportunities to further differentiate these systems in terms of how they are funded and managed. Comparatively high revenues on the NEC compared to operating costs have prompted occasional proposals to either partially or fully privatize the existing service, while its large capital backlog and lack of a long-term dedicated funding source have raised questions about whether a new NEC-only funding mechanism is needed. The National Network, meanwhile, encompasses both short-distance corridors supported by state governments and long-distance routes that require the largest federal subsidies in the Amtrak system. Amtrak is under pressure to accomplish two goals that at times seem to work against one another: to serve as the national passenger railroad, including through the operation of long-distance routes, and to reduce or eliminate the need for federal subsidies. While Congress has repeatedly taken steps to preserve long-distance passenger trains, both the Trump Administration and Amtrak have voiced support for shifting focus away from long-distance trains and toward serving a larger number of shorter corridors. Any such rebalancing, however, would be contingent on state support that is far from certain. Apart from funding, other issues facing Amtrak have been on the congressional agenda for years. On-time performance has seen only sporadic improvement since the enactment of a 2008 law designed to enforce the preferential treatment, codified in statute since the 1970s, of Amtrak trains running on freight tracks. Onboard food and beverage service, long seen by critics as a contributor to financial losses but by supporters as integral to the rail travel experience, has mirrored Amtrak as a whole in improving its financial performance while still falling short of goals set by Congress. Installation of a key safety technology mandated in 2008 is continuing according to federally approved schedules, but Amtrak routes that operate on track owned by freight or commuter railroads face the additional hurdle of demonstrating interoperability with those railroads' safety systems, putting the timeline to full implementation at risk.

CRS_R46308

Introduction According to a 2019 study, 2 million Americans lack access to running water, indoor plumbing, or wastewater services. Many of the communities with inadequate water supply infrastructure are in rural areas or on tribal lands. Over time, Congress has authorized projects and programs through various federal agencies to address rural water supply needs. Since 1980, Congress has authorized the Bureau of Reclamation (Reclamation), among other federal agencies, to develop municipal and industrial (M&I) water supply projects in rural areas and on tribal lands. Reclamation was established to implement the Reclamation Act of 1902, which authorized the construction of water works to provide water for irrigation in arid western states. Reclamation owns and manages 491 dams and 338 reservoirs, which are capable of storing a combined 140 million acre-feet of water. Reclamation has incorporated M&I water resource projects into larger projects that serve various other authorized purposes (e.g., irrigation, power). Reclamation-funded M&I water deliveries total approximately 10 trillion gallons of water per year. As part of Reclamation's M&I responsibilities, Congress has expressly authorized the agency to undertake the design and construction of rural water supply projects intended to deliver potable water supplies to defined rural communities. From 1980 through 2009, Congress authorized Reclamation to undertake the design and construction, and in some cases the operations and maintenance (O&M), of specific projects intended to deliver potable water supplies to rural communities in western Reclamation states. These projects were largely located in North Dakota, South Dakota, Montana, and New Mexico. The rural communities include tribal reservations and nontribal rural communities with nonexistent, substandard, or declining water supply or water quality. Many rural water projects are large in scope—taking water from one location and moving it long distances to tie to existing systems. M&I portions of Reclamation water supply facilities typically require 100% repayment of construction costs to the federal treasury with interest. Congress also has authorized rural water projects that receive funding from the federal government for some or all costs on a nonreimbursable basis (i.e., a de facto grant). For example, the federal government pays up to 100% of the cost of tribal rural water supply projects, including O&M. For nontribal rural water supply projects, the federal cost share for current projects ranges from 75% to 80%. The Rural Water Supply Act of 2006 (Title I of P.L. 109-451 ) created the Rural Water Supply Program, a structured program for developing and recommending rural water supply projects. This program was to replace the previous process of authorizing projects individually—often without the level of analysis and review (e.g., feasibility studies) consistent with Reclamation's other projects. Under the Rural Water Supply Program, Congress authorized Reclamation to work with rural communities and tribes to identify M&I water needs and options to address such needs through appraisal investigations and feasibility studies. Congress would then consider feasibility studies recommended by the Administration before authorizing specific projects for construction in legislation. Ultimately, Congress did not authorize any projects for construction through this process, and the authority for the program expired in 2016. Reclamation continues to construct rural water projects (and to provide O&M assistance for some tribal components) that were authorized and initiated outside of the Rural Water Supply Program. In 2012, Reclamation developed prioritization criteria for budgeting these projects: inclusion of tribal components amount of financial resources committed urgency and severity of need financial need and potential economic impact regional and watershed approach water, energy, and other priority objectives According to Reclamation, the criteria aim to reflect both the priorities identified in the statutes that authorized individual projects and the goals of the Rural Water Supply Act of 2006. For FY2020, Congress appropriated $145.1 million for construction and O&M at seven authorized rural water projects, which was $117.4 million above the Administration's FY2020 budget request. As of early 2020, Reclamation reported that $1.2 billion was still needed to construct authorized, ongoing rural water projects. For FY2021, the Administration requested $30.3 million for Reclamation rural water activities, of which $8.1 million is for construction. This report provides an overview of Reclamation rural water projects, including completed and ongoing rural projects and efforts under Reclamation's Rural Water Supply Program. The report also discusses considerations for Congress (e.g., funding prioritization, potential nexus with other federal programs) and presents recent legislation relating to authorizing additional projects and reauthorizing the Rural Water Supply Program. Rural Water Projects Congress has funded water supply projects in rural areas for more than four decades. Reclamation first became involved in these efforts beginning with authorization of the WEB Rural Water Supply Project in 1980 ( P.L. 96-355 ). Since that time, Congress has authorized Reclamation to fund the construction of several other rural water supply projects (see Table 1 ). These projects have individual authorizations and generally aim to provide water exclusively for M&I water uses in rural areas—a departure from the historical mission of providing water for irrigation, with M&I water use as an incidental project purpose. According to a U.S. Government Accountability Office (GAO) report, Reclamation became involved in such projects because communities proposed projects directly to Congress and, in response, Congress created specific authorizations for these rural water supply projects, with Reclamation overseeing funding and construction. In addition to projects authorized only in Reclamation states, Congress specifically authorized Reclamation's involvement in the Lewis and Clark Rural Water Supply Project located in South Dakota, Iowa, and Minnesota. Reclamation reported that, prior to authorization, some rural water projects did not go through the level of analysis and review that is consistent with Reclamation's other projects and did not meet the economic, environmental, and design standards that are required to determine the feasibility of federal water resources development projects. In these instances, following authorization, Reclamation was to complete the analysis that was necessary to execute the project while adhering to the project configuration and designs specified by the authorizing statutes and in accordance with other laws (e.g., Clean Water Act [33 U.S.C. §§1251-1387], National Environmental Policy Act [42 U.S.C. §4321 et seq.]). Critics have sometimes expressed concerns over this approach—specifically, whether the authorized project would have emerged as the most cost-effective preferred alternative had a feasibility study been performed prior to authorization. Each rural water project authorization required that the cost ceilings authorized in the legislation be indexed to adjust for inflation to include the rising cost of materials and labor, which was estimated to be 4% annually. The result of these indexing requirements is that the overall cost of authorized rural water projects has risen and continues to rise due in part to actual federal appropriations for projects falling short of the optimal funding scenarios that were assumed under planning projections. As of early 2020, Reclamation reported that $1.2 billion was needed to construct authorized, ongoing rural water projects. For FY2021, the Administration's budget proposal requested $30.3 million: $8.1 million for ongoing construction at four authorized rural water projects and $22.2 million for O&M of tribal systems (e.g., $14.5 million for the Mni Wiconi Project, $7.7 million for the Garrison Diversion Unit M&I, and $20,000 for the Mid-Dakota Rural Water System). The FY2021 request is $114.8 million less than FY2020 enacted funding of $145.1 million. The FY2021 request continues a trend since FY2014 in which the President's budget requested reduced funding for rural water projects from prior-year enacted levels. Reclamation also has emphasized its authority to accept nonfederal contributions in excess of cost-sharing requirements as one way to expedite projects in the absence of increased federal funding. In the FY2021 budget request, Reclamation noted that nonfederal parties have the ability to move forward with important investments in water resources infrastructure by contributing amounts in excess of minimum contributions. Rural Water Projects Under Construction in FY2020 In FY2020, Reclamation funded $125.4 million in construction work at five projects ( Table 2 ). Reclamation's FY2020 budget request included $8.0 million in construction for four projects, but Congress provided $117.4 million in appropriations above the President's budget request. The Administration distributed the funds above the request among five authorized projects, as described in Reclamation's additional funding spend plan. The following briefly describes the projects under construction in FY2020 based on Reclamation budget documents. Garrison Diversion Unit of the Pick-Sloan Missouri Basin Program The Garrison Diversion Unit of the Pick-Sloan Missouri-Basin Program was authorized in 1965 (P.L. 89-108) and was amended in 1986 by the Garrison Diversion Unit Reformulation Act ( P.L. 99-294 ) to include rural water services. Garrison Diversion Unit water supply facilities are associated with Garrison Dam of the Pick-Sloan Missouri Basin Program. They are located in eight counties in the central and eastern part of North Dakota and serve four tribal reservations (Spirit Lake, Fort Berthold, Turtle Mountain, and Standing Rock Indian Reservations). The multipurpose project principally provides tribal and nontribal M&I water, along with fish and wildlife, recreation, and flood control benefits. Fort Peck Reservation/Dry Prairie Rural Water System The Fort Peck Reservation Rural Water System Act of 2000 ( P.L. 106-382 ), as amended, authorized rural water projects in northeastern Montana for the Fort Peck Reservation, serving the Assiniboine and Sioux Tribes, and for the Dry Prairie Rural Water Authority, serving towns outside of the reservation. The total service area population is around 25,000 people; rural water use is also available for commercial users and livestock. Currently, groundwater from shallow alluvial aquifers is the primary water source for the municipal systems, but groundwater quality is generally poor. The regional rural water project is to provide for a single water treatment plant located on the Missouri River, which is to distribute up to 13.6 million gallons of treated water per day through 3,200 miles of pipeline. Lewis and Clark Rural Water System The Lewis and Clark Rural Water System Act of 2000 (Division B, Title IV of P.L. 106-246 ) authorized the Lewis and Clark Rural Water System to serve over 300,000 people in southeast South Dakota, southwest Minnesota, and northwest Iowa. The project aims to address concerns regarding low water quality, contamination, and insufficient supplies of existing drinking water sources throughout the project area. The water source for the Lewis and Clark Rural Water System is the sand and gravel aquifers of the Missouri River near Vermillion, SD. The project is to collect, treat, and distribute water through a network of wells, pipelines, pump stations, and storage reservoirs to each of 15 municipalities (including the city of Sioux Falls) and five rural systems. As of February 2020, completed facilities delivered water to the first 14 of 20 members, serving more than 200,000 individuals in Iowa, Minnesota, and South Dakota. Rocky Boy's/North Central Montana Rural Water System The Rocky Boy's/North Central Montana Regional Water System Act of 2002 (Title IX of P.L. 107-331 ) authorized a rural water system to serve the Rocky Boy's Indian Reservation (Chippewa Cree Tribe) and surrounding communities in northern Montana. The system is designed to serve a total projected population of 43,000 (14,000 on reservation and 29,000 off reservation) by providing infrastructure to ensure existing water systems within the project service area comply with federal Safe Drinking Water Act (42 U.S.C. §§300f-300j-26) regulations. A core pipeline is to provide potable water from Tiber Reservoir to the Rocky Boy's Reservation, and non-core pipelines are to serve 21 surrounding towns and rural water districts. A $20 million trust fund established with Bureau of Indian Affairs appropriations is to fund O&M and replacement for the core and on-reservation systems initially; eventually, water users are expected to entirely fund the project. Reclamation states that the current authorization is not adequate to cover the project. Eastern New Mexico Water Supply Section 9103 of the Omnibus Public Land Management Act of 2009 ( P.L. 111-11 ) authorized the Eastern New Mexico Water Supply project to deliver water from Ute Reservoir on the Canadian River to eight member communities. The use of Ute Reservoir water aims to provide long-term water supply and reduce the eight communities' dependence on groundwater in the Ogallala Aquifer. Current funding is for planning, design, and construction of interim projects to deliver groundwater to the communities before treated surface water is delivered from the Ute Reservoir Pipeline. Rural Water Supply Act of 2006 The Rural Water Supply Act of 2006 (Title I of P.L. 109-451 ) authorized the Rural Water Supply Program and directed the Secretary of the Interior to undertake certain activities to implement the program. Specifically, the act directed Reclamation to conduct appraisal investigations and feasibility studies (or to ensure that nonfederal entities conducted such studies) and to recommend proposed projects to Congress for construction authorization and subsequent funding. In 2008, Reclamation published an interim final rule (43 C.F.R. §404) that established operating criteria for the program and defined the criteria for the prioritization, eligibility, and evaluation of appraisal investigations and feasibility studies, in accordance with the act. To be eligible under the rule, a rural community must have a population under 50,000. The rule prioritized domestic, residential, and municipal uses and prohibited the use of water for commercial irrigation purposes. Interested entities (e.g., Reclamation states and western tribes) may request that either (1) Reclamation complete an appraisal investigation or feasibility study or (2) Reclamation provide financial assistance so the entity can conduct an appraisal investigation or feasibility study. Reclamation began to implement the Rural Water Supply Program in FY2010 on a pilot basis, providing assistance to nonfederal entities to conduct appraisal investigations and feasibility studies. Between FY2009 and FY2012, Congress provided Reclamation a total of $7.9 million for the program. After FY2012, Reclamation no longer requested funding for the program and Congress did not appropriate funds for it. Overall, Reclamation reported using this authority to study approximately 22 projects to varying extents (see Appendix ). Twelve were located in the Reclamation's Great Plains region, five in the Upper Colorado region, four in the Lower Colorado region, and one in the Pacific Northwest region. Of these, Reclamation finalized and approved two feasibility reports: the Musselshell-Judith Rural Water System Feasibility Report (Montana) and the Payson-Cragin Reservoir Water Supply Project Feasibility Report (Arizona). Reclamation did not recommend these or any other projects for authorization, and Congress did not authorize any projects. In justifying its lack of construction recommendations, Reclamation pointed to existing rural water construction obligations, which it argued precluded recommendation of new projects with completed feasibility studies. The authority for the Rural Water Supply Program expired at the end of FY2016 and has not been renewed. Members of Congress have introduced legislation in the 116 th Congress that would reauthorize both the Rural Water Supply Program and particular projects and studies previously considered through the expired program (see " Legislation in the 116th Congress "). Issues for Congress Congress continues to fund construction and O&M (only required for tribal components) of authorized rural water projects; however, since the FY2016 expiration of the Rural Water Supply Program, Reclamation has for the most part ceased activities relating to new project study and authorization. Congress may consider conducting oversight or legislating changes to Reclamation's rural water activities, including those related to existing or new program and project authorizations, funding prioritization criteria, and Reclamation's role in supporting rural water projects. Addressing Ongoing Rural Water Needs The Rural Water Supply Act of 2006 required the Secretary of the Interior to assess the demand for new rural water supply projects in Reclamation states. In FY2009, Reclamation estimated that identified needs for potable water supply systems in rural areas ranged from $5 billion to $8 billion for nontribal needs; in the same year, it estimated approximately $1.2 billion for specific tribal water supply projects. However, the Administration has not recommended, and Congress has not authorized, any new Reclamation rural water projects since 2009. Additionally, because authorization of Reclamation's Rural Water Supply Program lapsed at the end of FY2016, Reclamation lacks a structured program for developing and recommending rural water supply projects. Legislation in the 116th Congress In the 116 th Congress, House and Senate companion bills H.R. 967 and S. 334 , both titled the Clean Water for Rural Communities Act, would authorize $5 million for a feasibility study for the Dry Redwater Rural Water System and $56.7 million (2014 price levels) for construction of the Musselshell-Judith Rural Water System. As noted, a feasibility report for the Musselshell-Judith Rural Water System was completed through Reclamation's Rural Water Supply Program, but the Administration did not recommend the project to Congress for authorization. Congress also is considering legislation to reauthorize the Rural Water Supply Program through FY2026. In the 116 th Congress, both the Water Justice Act ( H.R. 4033 ) and the Securing Access for the Central Valley and Enhancing (SAVE) Water Resources Act ( H.R. 2473 ) would reauthorize the existing program. Congress may consider other legislative proposals to address the demand for rural water assistance in the West. For example, the Disadvantaged Community Drinking Water Assistance Act ( H.R. 5347 ) would require the Secretary of the Interior to establish a grant program to provide financial assistance to disadvantaged communities of less than 60,000 residents that have experienced a significant decline in quantity or quality of drinking water. The grants could fund technical assistance, initial operating and capital costs for edible facilities, and up to 25% of such facilities' O&M. Other legislative proposals would address rural water needs by amending authorities to specific water technology and programs. For example, the Western Water Security Act of 2019 ( H.R. 4891 ) would amend the Water Desalination Act of 1996, as amended ( P.L. 104-298 ; 42 U.S.C. §10301 note), to add a classification for rural desalination projects with a higher federal cost share than desalination projects serving more than 40,000 individuals. Funding of Current and Future Projects In early 2020, Reclamation stated that $1.2 billion was needed to complete authorized rural water projects under construction by the agency. In addition, Reclamation has previously estimated nontribal rural water supply needs in excess of $5 billion, and some observers have reported that assistance for communities is needed to address these needs. Some stakeholders have requested continued and increased funding for Reclamation rural water projects. In the 115 th Congress, representatives of the National Water Resources Association and the Family Farm Alliance asked Congress to compel Reclamation and the Office of Management and Budget to implement the Rural Water Supply Program and investigate opportunities to develop loan and loan guarantee programs that can help fund new water infrastructure projects. Over the years, Reclamation has provided its views regarding funding for rural water projects. In general, Reclamation has testified that rural water projects must compete with a long list of other priorities, including aging infrastructure, environmental compliance and restoration actions, and dam safety. During the consideration of authorizing existing rural water projects, Reclamation stated that long-standing agency policy was that local sponsors, particularly those that are nontribal, should reimburse Reclamation for 100% of the costs incurred for rural water supply from multipurpose projects. Reclamation notes in its budget requests to Congress that constrained federal budgets do not preclude nonfederal sponsors' ability to move forward with rural water projects by funding in excess of the minimum nonfederal contributions. Reclamation has recommended that tribes, where possible, and other project beneficiaries be responsible for the O&M expenses of their rural water projects. Congress has appropriated funds for rural water projects on a nonreimbursable basis (i.e., as de facto grants). In some cases, local and tribal sponsors do not have funds or have not prioritized funds to increase their funding contributions. Should Congress continue to support rural water projects through Reclamation, Congress may consider various options. These might include Continue to provide Reclamation annual appropriations for the agency to allocate funds to individually authorized rural water projects based on established agency criteria. Establish mandatory funding for Reclamation to allocate funds to individually authorized rural water projects based on established agency criteria. For example, the Authorized Rural Water Projects Completion Act ( S. 1556 ) in the 115 th Congress would have created a Reclamation Rural Water Construction Account to receive $80 million annually that otherwise would be deposited into the Reclamation Fund. Funds in the Reclamation Rural Water Construction Account, in addition to amounts appropriated for rural water projects, would be available for the construction of authorized rural water projects. Provide grant funding through a competitive process for nonfederal sponsors to support local projects, such as the grant program the Disadvantaged Community Drinking Water Assistance Act ( H.R. 5347 ) would establish for communities with fewer than 60,000 residents. Direct appropriations to individually authorized rural water projects. Other Rural Water Options As GAO noted in a 2007 report, numerous federal entities provide funding for water supply and wastewater projects. In addition to Reclamation (which funds only water supply projects), the U.S. Department of Agriculture (USDA), Environmental Protection Agency (EPA), Army Corps of Engineers (USACE), Department of Housing and Urban Development (HUD), and Department of Commerce (DOC) all provide funding for both water supply and wastewater projects. USDA, EPA, HUD, and DOC have formal, nationwide programs with standardized eligibility criteria and processes under which communities compete for funding. In contrast, Reclamation and USACE fund water projects in defined geographic locations under explicit congressional authorizations. According to GAO, Congress has chosen Reclamation to fill a void for projects that are larger and more complex than other rural water projects and that do not meet the criteria of other rural water programs. Some might argue that these projects would be better accomplished via other existing federal water quality or water supply programs. However, as GAO has observed, as designed, some of Reclamation's authorized rural water projects do not fit criteria of other agency's programs due to their cost and regional focus; thus, project proponents have looked to Reclamation for funding. For example, Reclamation may assist rural areas with populations in excess of 10,000 residents that may not be eligible for funding under other programs. Reclamation rural water projects also may serve more than one community (i.e., a regional area, as opposed to a single area). Reclamation developed its Rural Water Supply Program with the intent to complement, rather than duplicate, the efforts of the other agencies' programs and activities. In creating the program, Reclamation signed memoranda of understanding and related documents with other agencies to coordinate efforts. Reclamation has stated that it participates in a variety of broad coordination activities among agencies related to ongoing authorized projects. With the expiration of the Rural Water Supply Program, this formal coordination between Reclamation and other agencies' programs is no longer required. Appendix. Rural Water Supply Program Appraisal Investigations and Feasibility Studies The Bureau of Reclamation (Reclamation) provided the Congressional Research Service with a list of appraisal investigations and feasibility studies conducted for potential projects under the Rural Water Supply Program. Before the program authorization expired in FY2016, 22 appraisal investigations were conducted, with nine recommendations for a feasibility study. Five feasibility studies were conducted. Reclamation did not recommend any projects for construction funding, although two studies found feasible alternatives for rural water supply. Reclamation issued concluding reports for appraisal investigations and feasibility studies of projects that were not recommended for construction funding. Reclamation provided a range of reasons for issuing concluding reports: studies being incomplete, no found feasible alternatives, lack of funding, and program expiration. According to Reclamation, some concluding reports were not issued due to a lack of time or resources. In these cases, Reclamation considered the appraisal reports as concluding reports for the purposes of the Rural Water Supply Program. A feasibility report for the Musselshell-Judith Rural Water System was completed through Reclamation's Rural Water Supply Program. Legislation introduced in the 116 th congress, the Clean Water for Rural Communities Act ( H.R. 967 and S. 334 ), would authorize the Central Montana Musselshell-Judith Rural Water System.

Congress has authorized projects and programs through various federal agencies to address water supply needs. Since 1980, Congress has authorized the Bureau of Reclamation (Reclamation), among other agencies, to develop municipal and industrial (M&I) water supply projects in rural areas and on tribal lands. Congress has authorized these projects, known as rural water supply projects, for several locations throughout the West. From 1980 through 2009, Congress authorized Reclamation to undertake the design and construction, and sometimes the operations and maintenance (O&M), of specific rural water supply projects intended to deliver potable water supplies to rural communities in western states. These projects are largely located in North Dakota, South Dakota, Montana, and New Mexico. The rural communities served by these projects included tribal reservations and nontribal rural communities with nonexistent, substandard, or declining water supply or water quality. Many rural water projects are large in scope—taking water from one location and moving it across long distances to tie to existing systems. Although M&I portions of most Reclamation water supply facilities require 100% repayment with interest, Congress has authorized rural water projects that receive some or all costs from the federal government on a nonreimbursable basis (i.e., a de facto grant). For example, the federal government pays up to 100% of costs for tribal rural water supply projects, including O&M. For nontribal rural water supply projects, the federal cost share for current projects ranges from 75% to 80%. The Rural Water Supply Act of 2006 (Title I of P.L. 109-451 ) created the Rural Water Supply Program, a structured program for developing and recommending future rural water supply projects. This program was to replace the previous process of authorizing projects individually—often without the level of analysis and review (e.g., feasibility studies) required for Reclamation's other projects. Under the Rural Water Supply Program, Congress authorized Reclamation to work with rural communities and tribes to identify M&I water needs and options to address such needs through appraisal investigations and feasibility studies. Congress would then consider feasibility studies recommended by the Administration before authorizing specific project construction in legislation. Ultimately, Reclamation did not recommend and Congress did not authorize any projects through this process, and the authority for the program expired in 2016. Members have introduced legislation in the 116 th Congress to reauthorize the Rural Water Supply Program through FY2026: the Water Justice Act ( H.R. 4033 ) and the Securing Access for the Central Valley and Enhancing (SAVE) Water Resources Act ( H.R. 2473 ). Other bills would authorize individual activities (i.e., a feasibility study and a project) previously considered by the Rural Water Supply Program or would address rural water needs by creating authorities for rural water grants or water technology programs. Reclamation continues to construct rural water projects (and to provide O&M assistance for some tribal components) authorized and initiated outside of the Rural Water Supply Program. Enacted funding for rural water supply projects in FY2020 provided $145.1 million for construction and O&M at seven authorized rural water projects, which was $117.4 million above the Administration's FY2020 budget request. Five projects received construction funding in FY2020: Garrison Diversion Unit of the Pick-Sloan Missouri Basin Program, Fort Peck Reservation/Dry Prairie Rural Water System, Lewis and Clark Rural Water System, Rocky Boy's/North Central Montana Rural Water System, and Eastern New Mexico Water Supply. For FY2021, the Administration requested $30.3 million for rural water projects. As of early 2020, Reclamation reported that $1.2 billion was needed to construct authorized, ongoing rural water projects.

CRS_R46226

Introduction The United States and Liberia have maintained diplomatic relations for more than 150 years. Close ties endured in the 20th century—underpinned by U.S. investment in the rubber sector and robust political, development, and defense cooperation during the Cold War—but they came under strain during Liberia's two civil wars (1989-1997 and 1999-2003). The United States provided substantial humanitarian assistance in response to those conflicts and helped mediate an end to each war, and the U.S. military briefly deployed a task force to assist peacekeepers and support aid delivery after the conflict. U.S.-Liberia ties improved considerably during the tenure of former President Ellen Johnson Sirleaf (in office 2006-2018) and have remained close under current President George Weah (inaugurated in 2018). Congress has shown enduring interest in Liberia and has held periodic hearings on the country. Since the end of the second civil war, Congress has appropriated over $2.4 billion in State Department- and USAID-administered assistance to support Liberia's stabilization, recovery, and development. Such aid has centered on promoting good governance, strengthening the rule of law, reforming the security sector, improving service delivery, and spurring inclusive economic development. Congress provided roughly $600 million in additional State Department- and USAID-administered assistance to help combat the 2014-2016 Ebola outbreak in Liberia, where the U.S. government—in collaboration with Liberian authorities and U.N. agencies—played a lead role in the response. In recent years, several Members of Congress have sought to adjust the immigration status of over 80,000 Liberian nationals resident in the United States, some of whom originally came to the United States as refugees. Members regularly travel to Liberia, including under a House Democracy Partnership legislative engagement program initiated in 2006. Historical Background The United States and Liberia established diplomatic relations in 1864, nearly two decades after Liberia declared independence from the American Colonization Society, a U.S. organization that resettled freed slaves and freeborn African-Americans in Liberia. A small elite dominated by "Americo-Liberians," descendants of this settler population, held a monopoly on state power until a 1980 military coup d'état. Under President Samuel Doe, economic mismanagement, corruption, and repression along ethnic lines characterized much of the ensuing decade. In 1989, Charles Taylor, a Liberian former civil servant who had fled to the United States after falling out with Doe, launched a rebellion from neighboring Côte d'Ivoire. Factional violence soon engulfed the country. Hundreds of thousands died and "virtually all" Liberians fled their homes at some point during Liberia's first civil war. After a series of abortive ceasefires, the war ended in a peace accord and general elections in 1997, which Taylor won by a wide margin. In 1999, an incursion by Liberian rebels based in neighboring Guinea grew into a second nationwide conflict that pitted Taylor's army against two insurgent factions. After years of fighting, a rebel assault on the capital, Monrovia, and mounting international pressure—including U.N. sanctions and a public demand from President George W. Bush that Taylor resign—ultimately forced Taylor to step down in 2003. Days later, a peace agreement officially ended the conflict and laid the foundations for a transitional government. The U.N. Security Council established a peacekeeping mission, the U.N. Mission in Liberia (UNMIL), in September 2003 to help stabilize the country. Liberia's wars impeded social service provision, devastated the economy, and destabilized the broader region. Notably, Taylor provided material support to rebels in neighboring Sierra Leone during that country's civil war (1991-2002). In 2006, Taylor was arrested in Nigeria (where he had been granted asylum upon stepping down in 2003) on a warrant issued by the Special Court for Sierra Leone (SCSL), a U.N.-mandated judicial body created to prosecute crimes perpetrated during the Sierra Leonean civil war. In 2012, the SCSL convicted Taylor of war crimes in relation to his support for Sierra Leonean rebels; he is now serving a 50-year sentence in a prison in the United Kingdom. To date, a similar tribunal to prosecute atrocities committed during Liberia's wars has not been established, spurring perceptions of impunity and mounting calls by civil society and some legislators for the creation of a war crimes court for Liberia (see " Postwar Transitional Justice Efforts "). Taylor's ex-wife and several former associates remain active in Liberian politics, as do figures formerly associated with various armed factions. The Sirleaf Administration (2006-2018) President Ellen Johnson Sirleaf, a Harvard-educated former Finance Minister and U.N. official, won election in 2006, putting an end to a three-year transitional government led by Taylor's vice president. During her two terms in office, Sirleaf won praise for overseeing a postwar transition marked by political stability and, until the Ebola outbreak in 2014, rapid economic growth. Africa's first elected female head of state, Sirleaf bolstered confidence among donors, drawing large inflows of U.S., Chinese, and multilateral assistance. Such aid financed the rehabilitation of infrastructure and a range of other development and stabilization efforts. Sirleaf also secured almost $5 billion in external debt relief and oversaw an expansion in state revenues. The United States—long the largest bilateral donor to Liberia—provided significant assistance to Sirleaf's administration, funding programs to spur economic growth and development, reform the security sector, promote good governance, and build state capacity (see " U.S. Relations and Assistance "). The Sirleaf administration took steps to rehabilitate Liberia's global standing. The U.N. Security Council had imposed various sanctions in response to Liberia's civil wars, including embargoes on imports of arms into the country and on exports of rough diamonds and timber of Liberian origin. As Liberia stabilized and the Sirleaf government enacted sectoral reforms, these sanctions were gradually lifted. The Security Council lifted the last arms embargo, on non-state actors, in 2016, ending the U.N. sanctions regime. (The Obama Administration lifted U.S. targeted sanctions on Taylor and key associates in late 2015.) Also in 2016, UNMIL officially transferred national security duties to Liberian authorities in anticipation of full withdrawal in 2018. Sirleaf's international standing arguably surpassed her popularity among Liberians. Despite rapid economic growth, her administration struggled to meet high expectations for Liberia's postwar trajectory. Extreme poverty remained widespread throughout her tenure, and her government failed to implement key recommendations of Liberia's postwar Truth and Reconciliation Commission (TRC), such as the creation of a war crimes court. Several corruption scandals arose during her tenure, and she drew criticism for appointing her sons to state posts. Her administration's response to the 2014-2016 Ebola outbreak reportedly featured financial irregularities and a heavy-handed approach by security forces. Some of these shortcomings reasonably could be attributed to structural challenges, such as corruption, low institutional capacity, deficiencies in education and health service provision, and infrastructure gaps. The October 2017 presidential and legislative polls were Liberia's third set of postwar general elections. Constitutional term limits barred Sirleaf from seeking reelection. Approaching the polls, the opposition Congress for Democratic Change party, led by professional soccer star-turned-politician George Weah, allied with the National Patriotic Party of Jewel Howard-Taylor (an ex-wife of Charles Taylor) to form the Coalition for Democratic Change (CDC). Weah won the presidency with 62% of votes in a runoff against incumbent Vice President Joseph Boakai of Sirleaf's Unity Party (UP). Despite some violence and a short-lived legal challenge over alleged fraud in the first round of polls, election observers from the U.S. National Democratic Institute (NDI) lauded the election as a "historic achievement for the country." Concurrent House of Representatives elections resulted in a slim plurality for Weah's party, which took 21 out of 73 seats, ahead of the UP, which took 20. Ten parties and thirteen independents claimed the rest. The United States, the European Union (EU), and other donors provided substantial support for the 2017 elections. U.S. support included the $17 million, USAID-funded Liberia Elections and Political Transition (LEPT) project, under which the U.S. International Foundation for Electoral Systems (IFES) and NDI provided technical assistance to the National Elections Commission (NEC), supported voter education initiatives targeting women and people with disabilities, and enhanced civil society oversight of voting and other electoral processes. The Weah Administration (2018-Present) President Weah, who took office in January 2018, gained prominence as a European league soccer star prior to his foray into politics. His lack of formal education was a point of criticism during an unsuccessful bid for the presidency in 2005; he went on to earn a high school diploma and, later, an undergraduate business degree in the United States. In 2014, he won a Senate seat representing Montserrado County, which surrounds Monrovia. His choice of then-Senator Jewel Howard-Taylor as his running mate in the 2017 election hinted at the enduring influence of Charles Taylor and his associates in Liberia's politics. As a legislator, Howard-Taylor sparked controversy by attempting to make homosexuality a felony punishable by death and to amend the constitution to declare Liberia a Christian state, despite its sizable Muslim minority. Goodwill surrounding Weah's inauguration—which marked Liberia's first electoral transfer of power since 1944 and paved the way for UNMIL's withdrawal—has dissipated as several high-profile corruption scandals have undermined his political standing. Weah initially drew criticism for failing to disclose his assets prior to taking office, as required of all senior public officials. He ultimately declared his assets in 2018, though the disclosure has remained confidential. Since Weah's inauguration, a number of his associates reportedly have been awarded public contracts, including for large infrastructure projects. Meanwhile, Weah's attempt to nominate a political ally, former Speaker of the House Alex Tyler, to the board of ArcelorMittal, Liberia's largest iron ore producer, prompted significant pushback in local media, given an open inquiry into bribery allegations against Tyler. Weah ultimately withdrew the nomination. (Tyler was later acquitted.) Among the highest-profile scandals that have arisen under Weah was the reported disappearance, in late 2018, of a shipping container holding 15.5 billion Liberian dollars ($104 million). Officials issued contradictory statements about the "missing millions," which the Sirleaf government had procured but whose delivery to Liberia extended into the Weah administration. A U.S. Embassy-contracted inquiry by Kroll Associates, a corporate investigations firm, found no evidence that banknotes had disappeared but documented "discrepancies at every stage" of the procurement and delivery processes. The review also raised concerns regarding the "potential misappropriation of banknotes" and "opportunities for money laundering" in the course of the Weah government's mid-2018 infusion of $25 million U.S. dollars into the monetary system to replace Liberian dollars in an effort to control inflation. (Liberia has two official currencies, the Liberian dollar and the U.S. dollar.) Several former central bank officials, including former President Sirleaf's son, have been charged in the scandal. A USAID technical assistance program, to be implemented by Kroll Associates, aims to enhance the Central Bank's currency management processes. Concerns also have centered on the Weah administration's management of donor assistance, a key source of financing for development efforts. In mid-2019, the U.S. ambassador to Liberia and several foreign counterparts sent a joint letter to the government signaling discontent with the Weah administration's use of aid funds for unintended purposes. The Weah administration publicly acknowledged that it had used aid funds to pay state salaries, but claimed that it had later restored donor accounts. Separately, press reports emerged that the U.N. Resident Coordinator in Liberia had sent a letter to the government over concerns about delayed and inaccurate financial reporting on U.N.-funded activities. In late 2019, the World Bank reportedly demanded that the government refund certain ineligible expenses identified during a project review. According to the State Department's congressionally mandated fiscal transparency report, "foreign assistance receipts, largely project-based, were neither adequately captured in the budget nor subject to the same audit and domestic oversight as other budget items" in 2018, the latest reporting year. In June 2019, simmering discontent over alleged corruption and mismanagement by the Weah administration gave way to large-scale anti-government protests in Monrovia. Headed by the Council of Patriots (COP), a coalition of opposition politicians and activists, the demonstrators called for an audit of all state ministries and petitioned Weah to publicly disclose his assets. The government drew criticism for its response to the protests, during which it blocked social media access. In January 2020, thousands of protesters joined COP-led demonstrations in Monrovia, which police dispersed with tear gas. The Independent National Commission on Human Rights, a state body, has called for an inquiry into allegations of excessive force by security forces. In a joint statement, the ambassadors of the United States, EU, and Economic Community of West African States (ECOWAS) lauded the security forces' management of the demonstrations but noted "with regret" the government's decision to disperse peaceful protesters without warning. Human rights groups and press freedom advocates have condemned what they have described as a crackdown on COP leader Henry Costa, a radio host who currently lives in the United States. The Economy and Development Issues Annual GDP growth averaged 7.4% over the decade following the end of Liberia's second conflict, as substantial donor assistance helped power a fragile postwar recovery and modest development gains. Foreign direct investment (FDI) significantly increased under President Sirleaf, mostly concentrated in the mining, palm oil, rubber, and timber industries. The 2014 Ebola outbreak and a simultaneous slump in global commodity prices cut short this expansion: Liberia's economy contracted by 1.6% in 2016 before rebounding to 2.5% growth the following year owing to expanded gold, rubber, and palm oil exports. The International Monetary Fund (IMF) projects a contraction of 1.4% in 2019 due to slowing aggregate demand, followed by a recovery to 1.4% growth in 2020 due to an expected rise in consumption. Since 2017, a weakening of the Liberian dollar (which depreciated by 26% in 2018) and rising inflation (which stands at around 30%) have undermined local purchasing power and living standards. The World Bank projects a rise in the household poverty rate from 42% in 2018 to 44% by 2021; the rural poverty rate, estimated at 72%, is more than double that of urban areas—a longstanding pattern. The IMF predicts average annual growth of 3.0% between 2020 and 2023, a rate likely insufficient to raise living standards adequately for a population growing at 2.6% per year. Infrastructure gaps, low electricity access (estimated at 17% nationally and 3% in rural areas), poor service delivery, corruption, and an uncompetitive business climate all threaten growth prospects. Liberia ranked fifth lowest globally in the World Bank's 2018 Human Capital Index (HCI), a survey of health and education indicators. The government has struggled to marshal donor assistance for its ambitious Pro-Poor Agenda for Prosperity and Development (PAPD, 2018-2023), which centers on infrastructure investments and social service improvements. The government relies heavily on exports of rubber, gold, iron ore, diamonds, and palm oil for state revenues and foreign exchange, but these sectors have created minimal local employment. The multinational firms ArcelorMittal and Firestone, which are engaged in the extraction of iron and rubber, respectively, are among Liberia's largest private sector actors, though low global commodity prices have prompted both companies to downsize operations in recent years. Most working-age Liberians remain engaged in subsistence agriculture. According to the World Bank, infrastructure gaps, high transport costs, limited market information, and inadequate public sector support have discouraged a shift toward more productive agricultural activity. At the same time, few households produce enough food for family consumption, and Liberia depends on imports of key staple foods, such as rice and cassava, despite ample rainfall and fertile land. Rural poverty drives high rates of food insecurity and malnutrition. Liberia ranked 112 out of 117 countries surveyed on the International Food Policy Research Institute's 2019 Global Hunger Index, a composite ranking of undernourishment and related indicators. A 2018 analysis by the Liberian government and international partners found that 18% of Liberians faced moderate to severe food insecurity, meaning they regularly lack food and consistently do not consume a diet of adequate quality. Roughly 36% of children under five years old are "stunted," or too short for their age—a risk indicator of impaired cognitive and physical development. Low global oil prices and a poor business climate have dimmed interest in Liberia's nascent oil and gas sector. Several U.S. oil firms, including Chevron, ExxonMobil, and Anadarko Petroleum, have relinquished licenses to offshore blocks, in some cases following unsuccessful exploration activities. According to the State Department, foreign investors have cited corruption as a key obstacle to engagement in Liberia, with graft perceived to be "most pervasive in government procurement, contract and concession awards, customs and taxation systems, regulatory systems, performance requirements, and government payments systems." Human Rights According to State Department monitors, key human rights challenges in 2018 included extrajudicial killings by police, arbitrary and prolonged detention, and harsh and overcrowded prison conditions. Additional challenges included discrimination and violence against women and marginalized communities. While Weah earned plaudits for supporting a new press freedom act, which repealed various criminal statutes that had been used to harass and arrest journalists, his government also has targeted opposition media figures and shuttered critical news outlets. Reporters have faced harassment and violence from government officials, including members of the national legislature, and press outlets self-censor to evade persecution. Sexual and gender-based violence is widespread; the State Department reports that rape remains "a serious and pervasive problem" despite efforts to address the issue by successive governments as well as nongovernmental organizations operating in Liberia. Access to justice is constrained by an under-resourced, uneven, and often ineffective justice system in which judicial corruption is common, and by social practices and attitudes that discourage reporting and prosecution. In August 2019, President Weah signed into law the Domestic Violence Act, which criminalizes various forms of intimate partner violence, including spousal rape—long excluded from legal definitions of sexual assault. That legislation ultimately did not include a provision that would have criminalized female genital mutilation/cutting (FGM/C), which Liberia's legislature has not prohibited despite considerable pressure from the Sirleaf and Weah administrations, donors, and domestic and international civil society groups. The practice remains widespread and is politically sensitive. Same-sex relations are illegal under Liberian law, and lesbian, gay, bisexual, transgender, and intersex individuals face violence, discrimination, harassment, and hate speech. Interethnic grievances over access to land and other resources have been a source of social and political tension and conflict. Surrounding the 2017 polls, NDI election observers documented derogatory statements and other forms of discriminatory behavior targeting Liberia's Muslim community (roughly 12% of the population) and the largely Muslim Mandingo ethnic group (3%), some of whom were barred from registering or voting. Mandingo mobilization formed the backbone of the 1997-2003 insurgency against Taylor. Since 2017, Liberia has ranked as a Tier 2 Watch List country on the State Department's annual Trafficking in Persons (TIP) report, submitted pursuant to the Trafficking Victims Protection Act of 2000 (TVPA, Division A of P.L. 106-386 ). Per the TVPA, failure to improve from Tier 2 Watch List ranking for three consecutive years results in a downgrade to Tier 3 (worst) status, which may carry restrictions on access to certain types of U.S. assistance. The Administration granted Liberia a waiver from such a downgrade in 2019 because the State Department found that Liberia's "government has devoted sufficient resources to a written plan that, if implemented, would constitute significant efforts to meet the minimum standards" for TIP elimination. Postwar Transitional Justice Efforts Accountability for wartime human rights violations in Liberia remains a highly sensitive topic. A postwar Truth and Reconciliation Commission (TRC), which operated between 2005 and 2010, recommended the establishment of a war crimes tribunal, but no such court has been established. This is partly attributable to opposition from former combatants and others likely to be targeted by such a tribunal, some of whom are current or former elected officials. The TRC recommended the prosecution of at least three members of the current legislature. Such individuals wield influence not only within the legislature but also as vote mobilizers at the national level; for instance, Senator Prince Johnson, one of two former armed faction leaders currently serving in Liberia's legislature, arguably was critical to President Weah's winning 2017 political coalition. Opponents of a possible war crimes court also include former President Sirleaf, whom the TRC identified as having provided financial support to Charles Taylor in the early years of Liberia's first civil war. Some Liberians may oppose potential transitional justice measures out of a reluctance to revisit wartime atrocities or fear of rekindling social tensions. In September 2019, President Weah appeared to endorse the establishment of a war crimes court and requested that the legislature advise him on the issue. After Weah's announcement, a resolution calling for a war crimes tribunal quickly garnered the two-thirds support required for passage in Liberia's House of Representatives. Weah subsequently walked back his support for the court, however, and it remains to be seen whether Weah's announcement paves the way for the creation of a court and/or the implementation of other transitional justice measures. U.S. Judicial Responses Some perpetrators of wartime atrocities have faced justice abroad, including in the United States. In 2009, Charles Taylor's U.S.-born son, Roy M. Belfast Jr. (AKA Charles "Chuckie" Taylor), was sentenced to 97 years in prison by a U.S. District Court for wartime acts of torture. Belfast remains the only individual prosecuted in the U.S. judicial system specifically for atrocities committed during Liberia's conflicts. Others have faced immigration-related charges, however, often in relation to fraud or perjury linked to nondisclosure of involvement in wartime abuses in applications for U.S. asylum, residency, or citizenship. Several Liberian nationals have been convicted on such offenses, which can carry lengthy prison sentences and/or result in deportation and loss of citizenship or residency permission. Former armed faction leader George Boley was deported from the United States in 2012 in connection with his involvement in the use of child soldiers. This marked the first deportation under the Child Soldiers Accountability Act ( P.L. 110-340 ), which made use of child soldiers a ground for deportation from the United States. U.S. Relations and Assistance As noted above, the United States played a key role in Liberia's founding, and bilateral ties generally have been close, characterized by substantial U.S. assistance. U.S. engagement in Liberia expanded significantly during the administration of President Sirleaf, under successive U.S. Administrations and with bipartisan support from Congress. Sirleaf addressed a joint session of Congress in 2006, and between FY2006 and FY2018, Congress appropriated over $2.1 billion in State Department- and USAID-administered aid to Liberia to support stabilization, development, security sector reform, and health programs. This total does not include assistance provided via other U.S. agencies and substantial Millennium Challenge Corporation (MCC) aid funding (see below). It also excludes U.S. funding for UNMIL provided through assessed contributions to the U.N. peacekeeping budget, as well as U.S. support for Liberia's Ebola response or programs funded through regionally or centrally managed programs. The Trump Administration has expressed support for strong U.S.-Liberia ties. In late 2019, Assistant Secretary of State for African Affairs Tibor Nagy hosted the fourth U.S.-Liberia Partnership Dialogue, a high-level diplomatic engagement that most recently focused on "youth engagement, trafficking in persons, economic growth, and strengthening health and education systems." Congress has continued to appropriate sizable bilateral foreign assistance for the country (see below), and has held hearings on its development and governance prospects. Congress also has fostered relations through a House Democracy Partnership (HDP) program with the Liberian legislature, which is one of 21 HDP partner legislatures worldwide. Launched in 2006, the Liberia HDP program has focused on the development of Liberian parliamentary capacity, including through peer-to-peer visits. In October 2019, five Members of Congress visited Liberia, where they met with various legislators and President Weah. Immigration Issues. Liberian immigration to the United States has played a significant role in bilateral relations. According to the U.S. Census Bureau, there were roughly 85,000 foreign-born individuals from Liberia living in the United States in 2018 (latest available). Liberians in the United States first received Temporary Protected Status (TPS) in 1991 during the first civil war. In the years since, qualifying Liberians have been granted TPS and/or Deferred Enforced Departure (DED)—temporary blanket relief from removal provided by the President—in the context of Liberia's conflicts and, later, the Ebola outbreak. Efforts to extend the immigration status of Liberians eligible for such protections have drawn bipartisan congressional support. In March 2019, three days before DED was to expire for certain Liberians resident in the United States since 2002, President Trump reaffirmed the termination but extended the wind-down period through March 30, 2020. In his memorandum, President Trump stated that "Extending the wind-down period will preserve the status quo while the Congress considers remedial legislation" to provide Liberian DED beneficiaries with relief from removal. Congress ultimately granted such relief in the National Defense Authorization Act for 2020 ( P.L. 116-92 ), which directs the Secretary of Homeland Security to adjust the status of eligible Liberian applicants—those continuously present in the United States since November 20, 2014, or the immediate family of such individuals, among other criteria—to lawful permanent resident (LPR) status. Current U.S. Assistance Appropriated State Department and USAID-administered assistance for Liberia totaled $112.3 million in FY2018 and $96.5 million in FY2019. Recent U.S. aid largely has focused on health system strengthening and support for public service delivery, civil society capacity building, agriculture sector development, and justice sector improvements. Most U.S. development assistance is implemented by nongovernmental organizations, but the United States has a direct government-to-government financing agreement with Liberia's Ministry of Health that supports health service delivery. The State Department has funded programs to train, equip, advise, and professionalize the Armed Forces of Liberia (AFL), which was established with U.S. support after Liberia's second civil war, and to build the capacity of civilian law enforcement. DOD has conducted periodic trainings for AFL personnel and provided support to Liberia's defense ministry. Liberia also benefits from a State Partnership Program with the Michigan National Guard. The country hosts 94 Peace Corps Volunteers (PCVs) working on projects related to education and health. In December 2019, the U.S. Embassy withdrew PCVs from several regions due to liquidity challenges associated with withdrawing money from local banks. FY2020 aid allocations for Liberia pursuant to P.L. 116-94 have yet to be made public. The Administration requested $32.6 million in State Department- and USAID-administered aid for Liberia in FY2021, which would represent a 66% decrease from FY2019 appropriations. In successive years, Congress has appropriated aid for Liberia far in excess of the levels proposed in the Trump Administration's budget requests. Millennium Challenge Corporation (MCC) Engagement Liberia is currently implementing a five-year, $256.7 million MCC C ompact that entered into force in 2016. The Compact targets two constraints to economic growth: (1) a lack of access to reliable and affordable electricity, and (2) inadequate road infrastructure. The energy project seeks to provide a new hydropower turbine to the Mt. Coffee Hydropower Plant, train electricity sector personnel, and support the creation of an independent energy sector regulator. The roads project aims to build the capacity of Liberian authorities to plan road maintenance. Liberia previously benefitted from a $15 million MCC Threshold Program (2010-2013) focused on expanding girls' access to education, enhancing land rights and access, and promoting trade. In FY2019 and FY2020, Liberia did not secure a passing grade on half of its MCC Scorecard—a prerequisite for a potential second compact. According to its FY2020 scorecard, Liberia failed to meet standards in fiscal and trade policy, regulatory quality, inflation control, land rights and access, government effectiveness, rule of law, and a range of human development measures. Outlook Pressures on Weah's administration are likely to mount. State finances are under increasing strain due to weak economic growth, poor tax administration, declining donor aid, and the departure of UNMIL, which came to play a key role in Liberia's economy. At a time when the government faces popular expectations for dividends from Liberia's postwar transition—including for better infrastructure, improved public services, job creation, and poverty reduction—surging inflation and a depreciation of the Liberian dollar have contributed to falling purchasing power, rising poverty, and a mounting food security crisis. The IMF has welcomed austerity measures on the part of the government, including cuts to the public sector wage bill, and in late 2019 approved a four-year, $213.6 million program to support macroeconomic adjustments and other reforms. Austerity policies are likely to be domestically unpopular, however, and it remains to be seen whether the Weah administration continues to pursue reforms that may be politically challenging. Efforts to address corruption and other governance demands are likely to encounter pushback from key segments of Liberia's political landscape. Corruption has been a longstanding concern in Liberia and remains prevalent throughout the government, according to the State Department, which has documented a "culture of impunity" in the civil service. Any attempts to enact meaningful anti-corruption measures may thus founder on a lack of political will from legislators and other officials who profit from the current system. Meanwhile, Weah's stated commitment to address mounting calls from civil society and some legislators for postwar transitional justice measures has met with opposition from some legislators who are central to his political coalition. Recent protests and instances of inflammatory rhetoric have raised concerns over political tensions in the country. In May 2019, the U.S. Embassy condemned ethnically divisive statements by politicians, reproaching those who "incite unlawful acts through ill-considered rhetoric that could jeopardize Liberia's hard-won peace and security." The U.S. Embassy also has warned Liberia's opposition against using charged rhetoric, as it has called on the Weah administration to respect political freedoms. Mounting socioeconomic pressures and calls for governance reform and postwar accountability are key challenges facing Liberia's fledgling democracy; how the country's political class responds to such forces will have implications for Liberia's trajectory. U.S.-Liberia ties remain close, and the United States appears poised to continue supporting the country's development, albeit with potentially lower aid allocations than in past years. The United States continues to exert significant influence in the country, and Liberian authorities appear receptive to U.S. engagement, as suggested by President Weah's recent suspension of an official whom the U.S. ambassador had accused of promoting societal divisions. At the same time, the Weah administration's mismanagement of donor assistance may be of concern to some Members of Congress, as may enduring corruption, rising political tensions, persistent institutional weaknesses, and continued inaction on transitional justice measures. Members of Congress may continue to debate the relative effectiveness of various tools for advancing U.S. interests in Liberia, including diplomacy, foreign assistance, and possible punitive measures.

Introduction . Congress has shown enduring interest in Liberia, a small coastal West African country of about 4.8 million people. The United States played a key role in the country's founding, and bilateral ties generally have remained close despite significant strains during Liberia's two civil wars (1989-1997 and 1999-2003). Congress has appropriated considerable foreign assistance for Liberia, and has held hearings on the country's postwar trajectory and development. In recent years, congressional interest partly has centered on the immigration status of over 80,000 Liberian nationals resident in the United States. Liberia participates in the House Democracy Partnership, a U.S. House of Representatives legislative-strengthening initiative that revolves around peer-to-peer engagement. Background. Liberia's conflicts caused hundreds of thousands of deaths, spurred massive displacement, and devastated the country's economy and infrastructure, aggravating existing development challenges. Postwar foreign assistance supported a recovery characterized by high economic growth and modest improvements across various sectors. An Ebola outbreak from 2014-2016 cut short this progress; nearly 5,000 Liberians died from the virus, which overwhelmed the health system and spurred an economic recession. The outbreak also exposed enduring governance challenges, including weak state institutions, poor service delivery, official corruption, and public distrust of government. Politics. Optimism surrounding the 2018 inauguration of President George Weah—which marked Liberia's first electoral transfer of power since 1944—arguably has waned as his administration has become embroiled in a series of corruption scandals and the country has encountered new economic headwinds. According to the International Monetary Fund (IMF), the economy contracted by 1.4% in 2019, down from 1.2% growth in 2018, as rising inflation has undermined household purchasing power. Weah's government has struggled to deliver on ambitious pro-poor campaign pledges, as diminishing foreign aid flows, poor tax administration, and low global prices for Liberia's top export commodities have strained state finances. Public discontent with alleged mismanagement and corruption has given way to large anti-government protests in the capital city of Monrovia. The Economy and Development Issues . Liberia faces substantial obstacles to broad-based, sustainable development. Infrastructure gaps, poor electricity provision, corruption, and an uncompetitive business climate impede growth. Exports of raw rubber, gold, iron ore, diamonds, and palm oil are key sources of government revenues and foreign exchange, but these industries provide few high-paying jobs to local Liberians, and much of the population relies on subsistence agriculture. Nearly one-third of Liberians face moderate to severe chronic food insecurity despite the country's fertile land, extensive coastline, and abundant rainfall. Human Rights. Human rights conditions have improved considerably since the early 2000s, though corruption, episodic security force abuses against civilians, and di scrimination against women and marginalized communities persist. Press freedoms have come under threat during Weah's presidency; reporters have faced harassment and occasional violence from government officials, including legislators, and some journalists reportedly self-censor to evade persecution. Accountability for wartime abuses remains a highly sensitive issue, and several individuals who played key roles in Liberia's conflicts retain influence and/or serve in elected office. Several perpetrators of wartime abuses have faced trial in the U.S. court system, most on immigration-related fraud or perjury charges related to nondisclosure of involvement in such abuses in applications for U.S. asylum, residency, or citizenship. U.S. Assistance. Since the end of Liberia's second conflict in 2003, the United States has provided more than $2.4 billion in State Department- and USAID-administered assistance to support Liberia's post-war stabilization and development. This does not include nearly $600 million in emergency assistance for Liberia's Ebola response, aid channeled through other U.S. agencies, or U.S. funding for a long-running U.N. peacekeeping mission that completed its mandate in 2018. Current U.S. assistance, which totaled $96.5 million in FY2019, centers on supporting agriculture-led development and strengthening the health system, public service delivery, civil society capacity, and justice and security sectors. An ongoing $256.7 million Millennium Challenge Corporation (MCC) Compact seeks to enhance Liberia's power sector and roads infrastructure.

GAO_GAO-20-404

Background TSA and Industry Roles in Securing Passenger Rail The Aviation and Transportation Security Act designated TSA as the primary federal agency responsible for security in all modes of transportation, which includes physical security and cybersecurity. Passenger rail operators, however, have the day to day responsibility for carrying out safety and security measures for their systems. Unlike the aviation environment, where TSA has operational responsibility for screening passengers and baggage for prohibited items prior to boarding a commercial aircraft, the agency has a limited operational role for securing mass transit (including rail). To secure passenger rail, TSA primarily partners with public and private transportation operators to address their security needs by conducting vulnerability assessments and sharing intelligence information and key practices, among other measures. The agency also engages with the passenger rail industry through associations, such as APTA and Association of American Railroads. Additionally, TSA is responsible for assessing the risk from terrorism and cyber threats to passenger rail, as well as other transportation modes. In addition to engaging with domestic passenger rail stakeholders, TSA’s Office of Policy, Plans, and Engagement is responsible for coordinating domestic and international multimodal transportation security polices, programs, directives, strategies, and initiatives, including conducting outreach to foreign stakeholders. TSA also engages with foreign stakeholders through TSARs. TSARs are primarily located in posts overseas and communicate with foreign government officials to address transportation security matters involving all modes of transportation, including aviation, rail, mass transit, highways, and pipelines. The TSAR role was originally created in response to the 1988 bombing of Pan Am Flight 103 over Lockerbie, Scotland, when the Aviation Security Improvement Act of 1990 was enacted, which provided that foreign security liaison officers were to serve as liaisons to foreign governments in carrying out U.S. government security requirements at specific airports. TSARs are responsible for ensuring the implementation of TSA’s requirements primarily as they relate to passenger and cargo air transportation departing the specific country en route to the United States. The primary focus of the role remains on aviation; however it has evolved over time to include maritime and land transportation. Physical and Cybersecurity Threats to Passenger Rail According to TSA, recent attacks overseas and online terrorist messaging point to public transportation systems, which include passenger rail systems, as continued high-value targets for terrorists. In general, passenger rail systems are open and designed to expedite the free flowing movement of large numbers of passengers through multiple stations. As such, these systems are inherently vulnerable to physical attacks (such as improvised explosive devices, active shooters, and chemical or biological attacks) due in part to factors such as high ridership, open access points, limited exit lanes, and fixed, publically available schedules. In addition, TSA has reported that risks increase in urban areas where multiple transportation systems and high volumes of travelers merge at intermodal stations. Transportation systems, including passenger rail systems, rely on technology and internet-connected devices to manage and secure certain business/enterprise functions, such as the operation’s website, communications, and reservations and ticketing mechanisms. They also increasingly rely on computer-networked systems for tracking, signals, and operational controls of transportation equipment and services. As dependence on these systems increases, so does risk to the system. Cyberattacks have the potential to significantly affect both business/enterprise systems and operational control systems. Business/Enterprise systems. Cybersecurity threats include ransomware, malware, phishing, and website attacks that may compromise sensitive information and affect an operator’s ability to communicate with passengers or engage in day-to-day business functions. Operational control systems. Cybersecurity threats, which may include malware or physical manipulation of a system, such as jamming signals or damaging equipment, include threats to the systems that control signaling and train speed. For example, attackers could attempt to access positive train control systems, a computer-based system designed to automatically slow or stop a train that is not being operated safely, to disrupt services. Unintentional cybersecurity threat sources may include failures in equipment or software due to aging or user errors, such as unintentionally inserting a flash drive infected with malware or clicking on a phishing email. Intentional cybersecurity threats may include corrupt employees, criminal groups, terrorists, and nations and may be used, for example, to achieve monetary gain, or for political or military purposes. Figure 1 shows examples of the types of physical and cyber threats passenger rail systems face. DHS Risk Management Framework The NIPP outlines a risk management framework for critical infrastructure protection. In accordance with the Homeland Security Act of 2002, as amended, DHS created the NIPP in 2006 to guide the national effort to manage security risk to the nation’s critical infrastructure, including through coordination of agencies and 16 various critical infrastructure sectors, including transportation systems. Most recently updated in 2013, the NIPP uses a risk management framework as a planning methodology intended to inform how decision makers take actions to manage risk. The framework calls for public and private partners to conduct risk assessments. The NIPP defines risk as a function of three elements: threat, vulnerability, and consequence, as shown in Figure 2. Threat is an indication of the likelihood that a specific type of attack will be initiated against a specific target or class of targets. Vulnerability is the probability that a particular attempted attack will succeed against a particular target or class of targets. Consequence is the effect of a successful attack. In 2010, DHS, through TSA and the U.S. Coast Guard, developed the Transportation Systems Sector-Specific Plan to conform to requirements in the NIPP. Most recently updated in 2015, this plan describes shared goals, priorities, and activities to mitigate critical infrastructure risks, and acknowledges the increasing dependence of transportation companies on cyber systems for business, security, and operational functions. Regarding cybersecurity risks, DHS produced the Cybersecurity Strategy in 2018 to help execute its cybersecurity responsibilities during the next 5 years. In order to meet one of its objectives, DHS is to encourage the adoption of applicable cybersecurity best practices, including the NIST Framework for Improving Critical Infrastructure Cybersecurity (referred to as the NIST Cybersecurity Framework). The framework is a set of voluntary industry standards and best practices to help organizations manage security risks specific to cybersecurity. The framework consists of five functions: Identify, Protect, Detect, Respond, and Recover. When considered together, these functions provide a high-level view of an organization’s management of cybersecurity risk. NIST issued the framework in 2014 and updated it in April 2018. CISA, formerly DHS’s National Protection and Programs Directorate, manages the national effort to secure and protect against critical infrastructure risks, including cybersecurity risk, for all 16 critical infrastructure sectors, including transportation. CISA’s responsibilities include coordinating with sector-specific agencies to carry out its cybersecurity and critical infrastructure activities. TSA Conducts Passenger Rail Risk Assessments and Coordinates with CISA on Cybersecurity Risk TSA Uses Three Mechanisms to Assess Passenger Rail Risk According to TSA officials, TSA uses the TSSRA, the BASE, and threat assessments to assess risk elements for physical and cyber security in passenger rail. Such assessments may address different elements of risk—threat, vulnerability, or consequence—or the total risk for specific assets, such as airport perimeters and pipeline critical facilities. Table 1 below shows the type of risk element each assessment addresses, and whether the assessment addresses risks to intermodal stations or cybersecurity risk. TSSRA. TSA uses the TSSRA, a periodic risk assessment, to assess threat, vulnerability, and consequence for various attack scenarios across the five transportation modes for which TSA is responsible. The scenarios define a type of threat actor—including homegrown violent extremists and transnational extremists, such as Al Qaeda and its affiliates—a target, and an attack mode. For example, a scenario might assess the risk of attacks using varying types of weapons on passenger rail system assets. As part of the assessment process, TSA engages with subject matter experts from TSA and industry stakeholder representatives to compile vulnerabilities for each mode, and TSA analyzes both direct and indirect consequences of the various attack scenarios. According to TSA, the agency uses the TSSRA to provide strategic insights to inform the administration’s risk mitigation strategies, policy considerations, security countermeasures and programs, and resource allocation decisions. Our analysis of the TSSRAs issued during calendar years 2015 through 2017 indicates that TSA included intermodal station attack scenarios, but did not include cybersecurity scenarios. Specifically, the assessments featured various scenarios that targeted intermodal stations, which could include rail systems. For example, a scenario might describe attacks using various numbers of improvised explosive devices on an intermodal station. TSA did not include cybersecurity attack scenarios in the calendar year 2015, 2016, or 2017 assessments. According to the 2016 assessment and TSA officials we interviewed, threat experts have indicated that cyber threats, due to their unique nature and other factors, do not lend themselves to traditional TSSRA attack scenarios. However, as discussed below, the agency does conduct cyber threat assessments. Further, TSA’s Cybersecurity Roadmap 2018, states that, as one objective, the agency will include cybersecurity in its risk assessments for all modes. According to TSA officials, the implementation plan for the Roadmap, which was approved in September 2019, provides guidance and direction for meeting this objective. TSA officials confirmed that they plan to include basic cybersecurity scenarios for all modes in the 2020 TSSRA, and that they plan to engage with TSA mass transit experts and consult with industry experts as needed to inform future cyberattack scenarios. BASE. The BASE is a voluntary security assessment of national mass transit, passenger rail, and highway systems conducted by TSA surface transportation inspectors that addresses potential vulnerabilities, among other things. It consists of an assessment template with 17 security action items developed by TSA and the Federal Transit Administration that address, among other best practices, security training programs, risk information sharing, and cybersecurity. TSA developed this assessment in 2006 to increase domain awareness, enhance prevention and protection capabilities, and further response preparedness of passenger transit systems nationwide. The agency uses the BASE assessments to track progress in implementing specific security measures over time, offer technical assistance and share best practices to help improve the overall security posture of agencies, and inform transportation security grant funding by, among other things, identifying actions agencies have taken to reduce vulnerability. TSA officials stated that the most recent formal update to the assessment template began in 2014 and was fully implemented in 2015. The update included, among other changes, revised guidance for TSA surface inspectors and the addition of questions concerning active shooter events. In fiscal year 2016, the agency also developed a more targeted BASE assessment that focuses the assessment on an entity’s areas of concern as identified by surface inspectors in a previous BASE review of that operator. As of 2017, TSA had completed initial and follow-up assessments for the top 100 mass transit agencies in the country, which comprise approximately 80 percent of the ridership in the United States. TSA officials told us that their goal is to conduct follow-up assessments every one to three years. As previously shown in table 1, our analysis of the BASE template for mass transit and passenger rail indicates that it includes questions that address selected rail agency concerns about intermodal station security, and questions related to cybersecurity issues. Specifically, we found that while the template does not contain security action items or questions that directly refer to intermodal stations, questions in the template do correspond to topics that domestic rail agencies we interviewed identified as significant to intermodal station security, such as coordination among security forces, visible security measures, and establishing roles and responsibilities. For example, one BASE question asks if the agency’s system security plan has procedures or protocols for responding to security events with external agencies such as law enforcement or fire departments. This question corresponds to the challenge of coordination among security forces in intermodal stations identified by six of the seven agencies we interviewed. Cybersecurity is the focus of one of the security action items, which includes a series of general questions related to whether the transit agency has developed a comprehensive cybersecurity strategy. According to TSA officials, the agency added cybersecurity questions to the BASE in 2013 and the questions are intended to be a high level review. For example, the BASE addresses whether the transit agency has conducted a cybersecurity risk assessment, ensured employee training covers cybersecurity roles and threats, and established a protocol for reporting cyber incidents. It also provides a list of available cybersecurity resources for agencies to consult. Threat Assessments. TSA’s Intelligence and Analysis Office identifies security threats to mass transit and passenger rail systems through various threat assessments, including annual and semiannual Mass Transit and Passenger Rail Terrorism Threat Assessments and annual Cyber Modal Threat Assessments. TSA’s Mass Transit and Passenger Rail Terrorism Threat Assessment is produced annually and establishes the current mass transit passenger rail threat level and reviews terrorist threats against mass transit passenger rail for the past year. Threat information includes terrorist attacks on passenger rail trains, train tracks, buses, bus stops, and various stations. Additionally, the threat assessment analyzes intelligence gaps for the mass transit mode. TSA supplements the annual assessment with a semiannual threat assessment that reviews terrorist threats against mass transit and passenger rail for a 6-month period. Our analysis of threat assessments TSA issued for calendar years 2015 through 2019 indicates that they addressed stations, in general, and intermodal stations specifically, when they are the subject of an attack. For example, an attack on Manchester, England’s Victoria station, an intermodal station, was included in the 2018 Mass Transit and Passenger Rail Terrorism Threat Assessment. TSA’s Cyber Modal Threat Assessment reviews cyber threats to transportation over the course of the previous year, establishes cyber threat levels for the transportation modes for which TSA is responsible, and evaluates the threat through the next year or two. This annual assessment examines cyber threats to business and industrial control systems from state and non-state actors, including terrorist groups, pro-terrorist hacker groups, and hacktivists. Moreover, it analyzes incidents of cyberattacks and cyber espionage against U.S. and foreign transportation. Both assessments analyze threat actors and their capabilities, intent, and activities—including attacks occurring internationally—as well as tactics, techniques, and procedures that could be employed in future attacks. TSA calculates threat levels for transportation and cyber modes based on assessments of threat actor intent and capability. It may also issue additional situation-based products on emerging threats. TSA routinely shares these threat assessments with rail agencies and other stakeholders, such as industry security professionals. TSA Coordinates with CISA to Facilitate Voluntary Cybersecurity Assessments and Industry Outreach In addition to TSA’s risk assessment efforts, the agency coordinates with CISA, which conducts voluntary cybersecurity assessments as needed and requested by TSA and industry stakeholders. Specifically, CISA offers eight different voluntary cyber assessment options for public and private sector stakeholders, including mass transit and passenger rail agencies. Because CISA provides services to all 16 critical infrastructure sectors, including the transportation systems sector, officials noted that it must balance the resources it devotes to each sector. For example, CISA officials stated that they have conducted six Validated Architecture Design Review assessments on rail agencies since 2015, and currently have four pending requests from transportation agencies. The Validated Architecture Design Review evaluates systems, networks, and security services to determine if they are designed, built, and operated in a reliable and resilient manner. CISA officials also stated that they have conducted weekly vulnerability scans for one rail agency since 2015. While CISA coordinates with federal and private sector stakeholders to identify and address significant risks to critical infrastructure through its assessments, agency officials stated that they defer to TSA (as the co- sector specific agency for transportation) to take the lead in broader cyber initiatives and outreach to the transportation sector. For example, TSA officials stated that the agency included CISA in planning its cybersecurity workshops, a series of half-day workshops for surface transportation agencies to learn about cybersecurity resources from DHS and discuss nontechnical cybersecurity actions to improve their cybersecurity posture. According to TSA’s Cybersecurity Roadmap 2018, the agency plans to assess the resilience of the transportation modes to malicious cyber activity in conjunction with CISA, among other things. According to officials, TSA and CISA are collaborating or planning to collaborate on several cybersecurity assessments for passenger rail systems, including a cyber risk assessment for passenger rail cars and a cyber assessment of the mass transit and passenger rail mode. CISA officials told us that TSA, DHS’s Science and Technology Directorate, and CISA’s National Risk Management Center are in early phases of developing a cyber risk assessment for select passenger rail cars that they plan to produce in fiscal year 2020. CISA officials stated that they intend to address cyber vulnerability in the rail car assessments and plan to reach out to operators to discuss results. TSA officials told us that TSA and CISA also are considering a mass transit and passenger rail cyber assessment similar to one being developed for the pipeline mode. CISA officials stated that the planned pipeline assessment effort will include a total of 10 Validated Architecture Design Review assessments, in which TSA will help make arrangements with industry and will observe the process. TSA officials explained that expanding this effort to include passenger rail would depend on CISA’s availability to conduct assessments and balance demands in other sectors. CISA officials noted that they currently do not have the resources to support a similar plan for rail. TSA Actively Works with Domestic Stakeholders to Identify Standards and Key Practices but Provides Limited Guidance on Foreign Stakeholder Engagement TSA Works with Stakeholder Groups to Develop Domestic Standards and Recommended Practices TSA participates in APTA working groups that review and develop standards and recommended practices for passenger rail security, including those that apply to intermodal station security and cybersecurity. Specifically, from 2009 through 2019, APTA produced 45 documents related to security and emergency management standards and recommended practices, among other things. TSA is listed as a participant in 37 of the 45 documents. TSA officials noted that APTA working groups regularly review documents and issues related to security topics, including through monthly phone calls in some cases, and update them as needed. According to APTA’s Manual for the Standards Development Program, standards address safety-critical subjects and establish requirements that must be met by industry; recommended practices describe an established or generally recommended approach that does not rise to the level of a standard; and white papers are intended to provide information about complex issues that present the industry’s prevailing philosophy on the subject matter. For example: APTA offers a series of general standards, recommended practices, and white papers targeted at physical infrastructure protection at passenger facilities. These documents are not specifically directed at intermodal stations, but, according to our analysis and APTA officials, apply to such facilities as well as others. The documents address factors such as exterior door and window security, as well as securing mailrooms and utility openings, among other issues. Another APTA standard addresses security and emergency management considerations during planned special events, such as identifying transit hubs that are likely to be inundated with passengers going to and from the event. APTA offers cybersecurity recommended practices that are targeted at transit agencies in the early stages of starting a cybersecurity program, including how to obtain executive-level awareness and support and how to develop a cybersecurity awareness and training program. APTA also offers recommended practices for securing control and communications systems in transit environments, such as train control systems and fare collection systems. Table 2 provides additional examples of industry standards and key practice documents, as they relate to threats identified by domestic passenger rail stakeholders we interviewed. In addition to working with industry through APTA to develop standards and practices, TSA officials stated that the Surface Transportation Security Advisory Committee, which was established in 2019 to provide advice and recommendations to the TSA Administrator on transportation security matters, may serve as a mechanism for discussing or recommending key practices as the Committee develops. Officials noted that the Committee, which includes industry and community groups, could serve as a source for identifying forward looking best practices for rail security. The Committee held initial meetings in July 2019, October 2019, and January 2020, and proposed establishing subcommittees on topics such as cybersecurity and insider threats. None of the seven domestic rail agencies we contacted identified any security areas in which they felt recommended practices were missing. Officials from five agencies specifically commented on the usefulness of APTA publications. Officials from three agencies however, noted that many transit and rail agencies are still in the early stages of starting a cybersecurity program and that cybersecurity recommended practices are generally targeted at those agencies, as compared to agencies that already have a more sophisticated approach to cybersecurity. Officials from one agency further noted that publications related to the more technical aspects of cybersecurity (such as industrial control systems) can become outdated quickly as industry outpaces the development of security standards. TSA, CISA, and passenger rail agency officials we interviewed identified the NIST Cybersecurity Framework as the primary key practices document they reference for cybersecurity. Domestic and foreign rail agency, and industry association officials, as well as academic experts we interviewed noted that the possibility or likelihood of a cyberattack causing physical damage or harm to rail passengers or infrastructure is unlikely and largely hypothetical at this time. Academic experts we interviewed pointed to an incident in Poland in 2008 as one of the few, if only, known incidents in which a cyber-related attack on rail resulted in physical harm. In this incident, according to news reports, a Polish teenager modified a television remote control so that it could be used to control signals and switch points in a local tram system. Four vehicles derailed and 12 people were injured in the incident. Several rail agency officials and stakeholders we spoke with noted that successfully hacking into train control systems would require a highly sophisticated knowledge of the system. Officials further noted that train systems are designed to fail to safe mode and stop a train in the event of an abnormal signal, and that train operators have the ability to take over controls and manually stop trains if necessary. Officials from three rail agencies, however, stated that as agencies continue to adopt new technologies and systems become more interconnected, the potential for a cyberattack increases. Additionally, CISA officials and officials from one rail agency stated that, despite the lack of many incidents to date, protecting control systems is critical given the potential catastrophic impact of a successful attack. TSA Identifies Foreign Standards and Key Practices through Multilateral Working Groups and Bilateral Relationships, but Provides Limited Guidance to TSARs on Engaging with Foreign Rail Stakeholders According to TSA officials, TSA identifies foreign passenger rail security standards and key practices through engagement in multilateral groups and by leveraging bilateral relationships. Examples of multilateral groups include the International Working Group on Land Transport Security and the European Association of Railway Police Forces (RAILPOL). The working group, established in 2006, consists of 19 member states, including the United States. It is intended as a framework for members to openly share best practices, exchange information, and contribute to the development of surface transportation security initiatives. For example, TSA and members of the working group developed a searchable database of international surface transportation security measures (known as the SMARTbox) as a resource for surface transportation professionals to gain insights into security practices used by their peers. RAILPOL, founded in 2004, is an international association of government railway police organizations. It has 22 members, including TSA and the Amtrak Police Department. Information about intermodal stations and cybersecurity can be identified and exchanged through both of these mechanisms. For example, representatives from the United Kingdom delivered a presentation on securing intermodal stations at a 2016 working group meeting, and both working group and RAILPOL meetings have included cybersecurity discussions. Figure 3 provides an image of St. Pancras International Station in London, an intermodal station where international, local, and long distance trains converge with the London Underground. Regarding bilateral engagement, TSA identifies foreign rail security standards and practices through one-on-one relationships with other countries. TSA officials noted that their level of engagement with other countries can depend on a variety of factors, including how much the countries have in common regarding transportation systems and threats, and whether or not there are formal agreements in place that allow for regular, detailed information sharing. While some relationships are ongoing, officials stated that TSA interactions with other countries are often situational or transactional—countries may reach out either directly to TSA or through the TSAR for information about a specific issue, such as perimeter protection for surface transportation. For example: TSA holds biannual meetings with Transport Canada, the Canadian government department responsible for transportation policies and programs. Discussion topics from the meetings in 2017 and 2018 included Canadian efforts to develop passenger rail regulations, results from TSA derailment device testing, and opportunities for collaboration. According to TSA officials, TSARs in several countries have facilitated engagement with foreign surface transportation officials, including passenger rail officials. For example, officials stated that one TSAR facilitated the use of TSA’s Exercise Information System for an exercise on the metro system in a foreign city, as well as joint rail security training at TSA facilities in the United States. Officials further noted that another TSAR has taken initiative to facilitate quarterly meetings between foreign government and TSA surface transportation officials, including research and development and passenger rail officials. In addition to quarterly meetings facilitated by the TSAR, TSA officials stated that they are in regular contact with research and development officials in one country to share testing information, such as the results of derailment device testing and explosives testing on railcars, and to discuss security issues related to unmanned aircraft systems. TSA officials also reported that representatives attended an APTA- sponsored study trip to Brussels and London after the 2016 and 2017 rail attacks in those cities, in part, to observe lessons learned from the attacks. Foreign governments and international rail associations also produce a variety of passenger rail security standards and key practice documents. Table 3 below provides examples of these documents and the types of threats they address. TSA officials noted that while multilateral forums provide valuable opportunities to communicate with other countries about evolving threats, emerging security technologies, and potential key practices, interest in forums such as the International Working Group on Land Transport Security has been in decline. For example, while the working group charter calls for annual meetings and quarterly conference calls, the full group has not met since 2016. TSA and foreign government officials we spoke with stated that interest in the working group may be in decline due to factors such as retirements of key officials and lack of engagement from certain countries. These officials also noted that, as leaders in rail security, they typically provide more information about key practices to other countries in large forums than they receive. Additionally, TSA officials noted that other countries frequently used the working group- developed SMARTbox initially, but that use declined in recent years in part due to its location on the Homeland Security Information Network because users may find it difficult to navigate. Further, eight of the 10 domestic and foreign rail agencies we interviewed said they were either unfamiliar with the application or did not use it. For example, officials from one domestic agency said that there was little incentive to contribute and that they found informal networks to be more useful for sharing information. In contrast, TSA and other officials we spoke to stated that bilateral relationships with trusted partners with similar sophisticated rail operations may allow for more detailed exchanges of current and emerging key security practices. TSA Provides Limited Guidance to TSARs on Engaging with Foreign Rail Stakeholders TSA has provided limited guidance to TSARs on engagement with foreign passenger rail stakeholders through the TSAR Toolkit (or handbook), which states that TSARs should engage with officials involved in multiple modes of transit, including rail; however, the primary focus of the document is engagement with aviation stakeholders. TSA further provides comprehensive and specific guidance for TSAR aviation engagement as part of its foreign airport assessments and air carrier inspections, but does not do so for surface transportation. As discussed above, according to TSA officials, some TSARs have taken the initiative to facilitate meetings and share testing and training information related to surface transportation, including passenger rail. Passenger rail officials we talked to in one country stated that these TSAR-led initiatives served as a valuable source of information and communication with TSA. In addition, one TSA official cited the value of discussing preliminary testing findings, as well as new guidelines on topics such as security in station designs, which address concerns about security in public spaces. These efforts, however, are dependent on the individual initiative of each TSAR and are not universal. For example, one TSAR we interviewed stated that TSA’s expectations and priorities for surface transportation engagement were unclear and, as a result, he focused almost exclusively on aviation. TSA officials stated that they have focused TSAR guidance on aviation engagement because of the agency’s regulatory role in this area, which, as discussed above, includes foreign airport assessments and air carrier inspections. In lieu of detailed guidance on surface transportation, officials noted they defer to the individual TSARs on how or whether to engage foreign surface transportation stakeholders. Officials emphasized this individual approach and stated that in some countries, TSAR engagement on passenger rail security issues may be limited by legal or cultural barriers. Because rail (unlike aviation) does not directly connect to the United States in most cases, officials noted that there may be less incentive for some host countries to engage. Further, some countries may not have a rail system, or may not be as advanced in rail security policies and procedures, and therefore may be less able to offer key practices. In November 2019, TSA officials noted that they were considering adding guidance for engaging with surface transportation officials and addressing intermodal concerns to TSAR Regional Operational Implementation Plans. According to officials, these plans provide targeted guidance to TSARs for engagement within their specific regions. As of February 2020, officials stated that draft plans for two regions (Western Hemisphere and Africa/Middle East) were under review at TSA. Officials further stated that these drafts, and drafts for the remaining regions currently in development, would include surface transportation-related guidance. TSA officials stated that they hoped to complete all regions’ plans by the end of calendar year 2020, but they did not provide documentation for us to verify that the final plans would contain surface transportation guidance for TSARs. The 2018 TSA Administrator’s Intent document includes a goal to promote security partnerships across surface transportation systems by, in part, identifying and communicating best practices and lessons learned to stakeholders and international partners. In addition, the NIPP states that officials should share actionable and relevant information across the critical infrastructure community to build awareness and enable risk informed decision making. The TSAR Toolkit further states that, even in locations without modal connections to the United States, there is still great value in establishing key points of contact who can share best practices or facilitate the exchange of information in the event of an emergency in modes of transit outside of aviation. As the primary overseas point of contact for security matters involving all modes of transportation, TSARs are responsible for developing bilateral relationships and facilitating information sharing with foreign stakeholders, among other things. Further leveraging formal or informal bilateral relationships could allow TSA to obtain additional passenger rail security information. While several TSARs have individually taken initiative with regard to rail, without additional guidance from TSA, there is no assurance that they will engage in these exchanges with modes outside of aviation. As a result, TSA is less likely to be fully aware of key passenger rail security practices in other countries, such as those listed in table 3 above, among others. Moreover, specific guidance will also provide TSARs with clear expectations for engaging with stakeholders, and provide TSA with greater assurance that they are engaging in a consistent manner. TSA’s new Regional Operational Implementation Plans provide an opportunity for TSA to more clearly incorporate targeted guidance to encourage TSAR outreach and information sharing in specific areas. Recent efforts by TSARs in several countries demonstrate practices, such as opening lines of regular communication on surface transportation, including passenger rail, which could be replicated in other countries. TSA Uses Various Mechanisms to Share Security Standards and Key Practices but Does Not Fully Incorporate NIST Cybersecurity Standards in the BASE TSA Shares Information about Standards and Key Practices through Its Participation in Working Groups, and through Assessments and Exercises According to TSA officials and domestic rail stakeholders we interviewed, TSA uses various mechanisms such as the Transit Policing and Security Peer Advisory Group, monthly conference calls with rail stakeholders, and the annual APTA roundtable meeting to share and discuss a range of security information with stakeholders, including information about standards and key practices. These mechanisms provide opportunities to discuss issues related to intermodal stations and cybersecurity key practices. TSA also shares information about key practices with domestic stakeholders through voluntary TSA programs such as BASE, the Intermodal Security Training and Exercise Program, and the Visible Intermodal Prevention and Response program. TSA officials provided information about how they incorporate information from foreign threats and attacks into these programs. Specifically: TSA officials noted that TSA initially developed the BASE program around standards that were produced by APTA and other industry partners following the 2004 terrorist attacks on commuter trains in Madrid and the 2005 terrorist attacks on the London subway system. According to TSA officials, the APTA standards and recommended practices, which evolve based on threats and lessons learned, form the basis for the BASE assessment template. One way in which TSA helps communicates these standards and practices to agencies is through the questions in the template. Officials noted that lessons learned from foreign rail security incidents have been used to further support certain security concepts in the BASE, such as assessment questions related to whether agencies engage in public outreach for security awareness (e.g. “If You See Something, Say Something”) and report suspicious activity. TSA officials reported that they consider overseas and domestic attack methods and tactics when planning Intermodal Security Training and Exercise Program exercises to raise awareness of emerging tactics and threats. These exercises are intended to share best practices and lessons learned, among other things. Officials noted that they recently incorporated cyber, chemical, and vehicle- ramming attacks into the program’s objectives based on recent domestic and overseas incidents, and that they shared resources, information, and best practices for security solutions. For example, officials reported conducting two regional exercises that focused on chemical threat elements as the result of a 2017 plot in Australia. TSA further reported hosting a series of vehicle ramming program workshops in the wake of attacks in New York City and Europe. According to TSA officials, TSA has not made any recent changes to the Visible Intermodal Prevention and Response program directly as a result of lessons learned or key practices resulting from a foreign rail security incident; however, officials said they regularly integrate information about foreign incidents and threats when planning program deployments. Officials also noted that the majority of current deployments are for surface transportation, which includes rail. Regarding cybersecurity, TSA has shared information about cybersecurity key practices, including the NIST Cybersecurity Framework, through a series of regional cybersecurity Intermodal Security Training and Exercise Program workshops since 2017. These “5N5” workshops listed five nontechnical cybersecurity actions an agency could take in 5 days, including: (1) develop familiarity with the NIST Cybersecurity Framework; (2) implement a unique password change policy; (3) understand the latest phishing and spam trends and how to message awareness; (4) differentiate access control among staff; and (5) report cybersecurity incidents. Six of the seven domestic rail agencies we spoke with were generally satisfied with TSA’s efforts to share security and key practice information; however officials from two of these six agencies also expressed concerns about timeliness and quality of cybersecurity information provided by TSA. For example, officials from one agency stated that they received limited cybersecurity information from TSA and that the information they did receive was of limited use because it was targeted at agencies without a sophisticated cybersecurity program. An official from another agency noted that while there were opportunities to discuss cybersecurity, the information provided was often general in nature and there was limited time for discussion in certain mechanisms because of the large number of people involved. This official also noted that while the information TSA provides is valuable and there are mechanisms available to share information about a range topics, discussions are typically related to security incidents and threats, as opposed to key practices. TSA officials acknowledged that the agency’s cybersecurity efforts were still in the early stages. They further noted that the implementation plan for the 2018 Cybersecurity Roadmap, which, among things, calls for improving information sharing and partnering with stakeholders to promote the adoption of best practices and industry and/or international standards, was only recently signed in September 2019. In addition to TSA’s information sharing mechanisms, domestic rail agency officials we spoke to reported learning about foreign key practices through personal experience and direct engagement with foreign rail counterparts. For example, officials from two agencies we spoke to hosted visits from foreign rail officials to study security measures, among other things. Officials from one agency noted they provided information to Hong Kong through APTA on key practices for managing large protest crowds in an urban transit environment. Officials from another agency noted that they participate in international information sharing surveys and research to learn about cybersecurity practices by foreign rail operators, and sent representatives to an international mass transit training forum on the development of threat, vulnerability, and risk assessments. Domestic rail agencies also identified several changes they have made to their physical security systems as a result of key practices or lessons learned from foreign rail incidents. For example: increasing random patrols and high visibility deployments of security officers, changing security camera placement to better capture station exits, and increasing security awareness messaging to employees and passengers. Additionally, officials from one agency noted that they revised subway evacuation plans to direct people towards areas less vulnerable to an attack after reviewing lessons learned from recent vehicle-based attacks in Europe. With regard to cybersecurity, one domestic agency we spoke to noted that recent wide-spread global cyberattacks reinforced challenges they have securing legacy Information Technology systems against threats such as ransomware threats. As a result, the agency is focused on identifying expiring technologies and replacing those that can no longer be patched or updated. Officials from another agency noted that they have increased the number of firewalls they use to further segment and protect systems. Table 4 below provides information on mechanisms that can be used to identify and share rail security key practice information, as identified by TSA and domestic stakeholders. TSA Does Not Fully Incorporate NIST Cybersecurity Standards into Its BASE Assessments While TSA has taken initial steps to share cybersecurity key practices and other information with passenger rail stakeholders, the BASE assessment, does not fully reflect the updated cyber key practices presented in the NIST Cybersecurity Framework, nor does it include the framework in a list of available cyber resources. As discussed above, TSA uses the BASE assessment to share security best practices with transit agencies, among other things. Our review of the BASE cybersecurity questions in the template found that they cover selected activities associated with three of the five functions outlined in the framework– Identify, Protect, and Respond. For example, the BASE asks agencies if they ensure training reinforces cybersecurity roles and responsibilities, which corresponds to the awareness and training category of the NIST Protect function. However, the remaining two functions—Detect and Recover—are not represented in the BASE. According to the framework, when considered together, these functions provide a high-level, strategic view of the life cycle of an organization’s management of cybersecurity risk. TSA officials stated that they regularly review the BASE and noted that the questions are intended to reflect both industry key practices and agency policy; however, they also stated that the agency has not updated the BASE cybersecurity questions since NIST released its Cybersecurity Framework in 2014. In January 2020, officials responsible for the BASE acknowledged that the cybersecurity questions should be updated to reflect the framework. TSA officials also noted that they would want to align changes to the BASE cybersecurity questions with any new guidance or direction provided by the newly established Surface Transportation Security Advisory Committee. As of January 2020, the Committee is in its initial start-up phase, and has not yet provided any reports or recommendations or published a timeline or project plan. Further, because the framework functions organize basic cybersecurity activities at their highest level, incorporating elements of all five functions into the BASE template should not require additional guidance from the Committee. The 2015 TSA Transportation Systems Sector-Specific Plan states that encouraging the adoption of the NIST Cybersecurity Framework across all transportation modes supports the plan’s goal to manage the security risks to the physical, human, and cyber elements of critical transportation infrastructure. The plan also states that encouraging the adoption of the framework contributes to several of the NIPP’s calls to action related to sharing actionable and relevant information. TSA considers the framework a best practice document. By updating the BASE cybersecurity questions to align more closely with the core functions in the NIST Cybersecurity Framework, TSA could better assist passenger rail and other operators in identifying current key practices and improving their cybersecurity posture. As a result, transit operators would be more aware of cybersecurity vulnerabilities and better prepared to reduce the impact from a cybersecurity incident. In addition, this would create a more consistent cybersecurity approach from TSA, since the agency promotes the framework through other mechanisms, such as the series of cybersecurity workshops, as noted above. Conclusions Recent physical and cyberattacks in U.S. cities and Europe demonstrate the evolving nature of the threats to passenger rail and highlight the importance of working with both domestic stakeholders and foreign rail security partners. As such, TSA actively engages with domestic passenger rail stakeholders, but could do more to engage with foreign stakeholders. TSARs stationed abroad are well positioned to further leverage bilateral relationships with foreign passenger rail stakeholders, and several TSARs have taken initiative to do so. However, TSA provides only limited guidance to TSARs on surface transportation engagement. Without specific guidance, there is no assurance that TSARs will engage in these exchanges with modes outside of aviation. TSA’s new Regional Operational Implementation Plans provide an opportunity to more clearly incorporate targeted guidance to encourage TSAR outreach and information sharing in specific areas. Additionally, such guidance will provide TSA with greater assurance that TSARs are engaging with foreign stakeholders in a consistent manner. TSA uses various mechanisms to share security standards and key practice information with rail stakeholders, including through BASE assessments. The cybersecurity questions in the BASE template, however, do not fully reflect two of the five core areas identified in the NIST Cybersecurity Framework. By updating the BASE cybersecurity questions to align more closely with current key practices such as the framework, TSA could better assist passenger rail and other operators in improving their cybersecurity posture. As a result, transit operators would be more aware of cybersecurity vulnerabilities and better prepared to reduce the impact from a cybersecurity incident. Recommendation for Executive Action We are making two recommendations to TSA. The TSA Administrator should ensure that the TSAR Regional Operational Implementation Plans include guidance on how TSARs are to engage with foreign surface transportation stakeholders, including passenger rail stakeholders. (Recommendation 1) The TSA Administrator should update the BASE cybersecurity template to ensure it reflects cybersecurity key practices, including the Detect and Recover functions outlined in the NIST Cybersecurity Framework. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of this report to DHS for review and comment. DHS provided written comments, which are reprinted in appendix II, and also provided technical comments, which we incorporated as appropriate. DHS concurred with both recommendations and described actions TSA plans to take to address them. Specifically, to address recommendation 1, TSA plans to draft an Operational Implementation Plan, which will provide guidance to TSARs for engaging with foreign surface transportation stakeholders, including in passenger rail security. According to TSA, this plan will also serve as the outline for the development of Regional Operational Implementation Plans, which will help align resources worldwide. To address recommendation 2, TSA plans to update the BASE Cybersecurity Security Action Item section to ensure it reflects the NIST Cybersecurity Framework Detect and Recover functions. These actions, if fully implemented by TSA, should address the intent of both recommendations. We are sending copies of this report to the appropriate congressional committees and the acting Secretary of Homeland Security. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact Triana McNeil at (202) 512-8777 or McNeilT@gao.gov. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributors to this report are listed in appendix III. Appendix I: Physical Security and Cybersecurity Key Practices Cited by Domestic and Foreign Stakeholders We asked domestic and foreign passenger rail agencies and foreign passenger rail stakeholders we interviewed to identify some security related key practices or lessons learned that they employ, including, but not limited to, intermodal stations and cybersecurity. Table 5 below provides examples of common security practices both domestic and foreign officials identified; table 6 shows several additional key practices foreign rail stakeholders cited. These tables are not intended to be a comprehensive list, but provide examples of key security practices utilized by selected domestic and foreign rail agencies. Figure 4 below shows an example of a Project Servator poster displayed during an exercise at St. Pancras International Station in London. As noted in table 6 above, foreign passenger rail stakeholders cited Project Servator as a key rail security practice. Appendix II: Comments from the U.S. Department of Homeland Security Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In additional to the contact named above, Christopher Ferencik (Assistant Director), Sarah Turpin (Analyst in Charge), Chuck Bausell, Benjamin Crossley, Suzanne Kaasa, Tracey King, Ronald La Due Lake, William Reed, and Adam Vogt made key contributions to this report.

Recent physical and cyberattacks on rail systems in U.S. and foreign cities highlight the importance of strengthening and securing passenger rail systems around the world. TSA is the primary federal agency responsible for securing transportation in the United States. GAO was asked to review TSA's efforts to assess passenger rail risk, as well as its role in identifying and sharing security standards and key practices. This report addresses (1) TSA's efforts to assess risk; (2) the extent to which TSA works with U.S. and foreign passenger rail stakeholders to identify security standards and key practices; and (3) the extent to which TSA shares passenger rail security standards and key practices with stakeholders. GAO analyzed TSA risk assessments from fiscal years 2015 through 2019 and reviewed TSA program documents and guidance. GAO interviewed officials from TSA, and from seven domestic rail agencies, three foreign rail agencies, and two foreign government agencies. The results from these interviews are not generalizable but provide perspectives on topics in this review. The Transportation Security Administration (TSA) assesses passenger rail risks through the Transportation Sector Security Risk Assessment, the Baseline Assessment for Security Enhancement (BASE), and threat assessments. TSA uses the risk assessment to evaluate threat, vulnerability, and consequence for attack scenarios across various transportation modes. TSA surface inspectors use the baseline assessment, a voluntary security review for mass transit, passenger rail, and highway systems, to address potential vulnerabilities and share best practices, among other things. TSA works with U.S. stakeholders to identify security standards and key practices and identifies foreign standards and practices through multilateral and bilateral exchanges. However, TSA Representatives (TSARs), the primary overseas point of contact for transportation security matters, lack specific guidance on foreign rail stakeholder engagement. As a result, TSA is less likely to be fully aware of key practices in other countries, such as station security guidance. Specific guidance would provide TSARs with clear expectations and encourage more consistent engagement with foreign rail stakeholders. Public Awareness Campaign Canine Units Emphasize security awareness Detection of vapor from explosives TSA shares standards and key practices with stakeholders, including those related to cybersecurity, through various mechanisms including BASE reviews; however, this assessment does not fully reflect current industry cybersecurity standards and key practices. For example, it does not include any questions related to two of the five functions outlined in the National Institute of Standards and Technology's Cybersecurity Framework—specifically the Detect and Recover functions. Updating the BASE questions to align more closely with this framework would better assist passenger rail operators in identifying current key practices for detecting intrusion and recovering from incidents.

GAO_GAO-19-512

Background In the early 2000s, the Navy conceived of a new small surface combatant concept known as LCS. This ship was intended to offer the Navy an affordable, flexible platform that would be able to swap out surface warfare, anti-submarine warfare, or mine countermeasure mission packages to provide for one of those mission needs. As we found in multiple reports, the Navy’s vision for LCS evolved significantly over time in response to diminished capability expectations and significant cost and schedule growth. In 2014, the Secretary of Defense directed the Navy to evaluate alternatives to LCS, citing survivability and lethality concerns. This represented the beginning of the Navy’s pursuit of a solution to address LCS shortcomings and the evolving threat environment acknowledged by the department. The Navy initially envisioned quickly fielding a frigate—referred to as the FF program—based on a minor modified LCS design. The ship was expected to provide a more lethal and survivable multi-mission ship capable of simultaneous surface and anti-submarine warfare, with a planned contract award for the lead ship in 2018. In 2016, we found that the Navy’s planned upgrades for FF did not significantly improve certain survivability areas and lacked capabilities that were prioritized by fleet operators, such as the ship’s range of travel without refueling. Then, in April 2017 we found the Navy’s aggressive FF acquisition schedule increased risk to the government because it included a commitment to buy ships in advance of adequate knowledge. In May 2017, the Navy announced it was revising its frigate plans and began pursuing FFG(X). Shipbuilding Best Practices In 2009, we identified commercial shipbuilding best practices that could be adapted for use by the Navy. We found that successful shipbuilding programs have sound business cases built on attaining critical levels of knowledge at key points in the shipbuilding process before significant investments are made, as shown in figure 1. Regardless of the differences between Navy and commercial shipbuilding, knowledge attainment is crucial to success. Executable business cases use realistic cost and schedule targets to meet performance and quality expectations by balancing inherent uncertainties in acquisition programs. A solid business case provides for the resources necessary to mitigate challenges, such as immature technologies and design requirements. The greater the potential for challenges to occur, the more time and money should be factored into the business case to address them. The Navy has previously agreed, in principle, that knowledge should be attained prior to key milestones to better ensure ships are built to established cost, schedule, quality, and performance standards. Navy Shipbuilding Acquisition Framework In general, the Department of Defense (DOD) acquires new weapon systems, such as Navy surface combatants, through a management process known as the Defense Acquisition System. Under this system, programs typically complete a series of milestone reviews and other key decision points that authorize entry into a new acquisition phase. To execute shipbuilding acquisition programs, the Navy uses the acquisition processes included in the DOD Instruction 5000 series, as well as acquisition instructions established by the Secretary of the Navy. The Navy’s guidance supports a seven-gate review process intended to ensure that requirements align with acquisition plans, and to improve collaboration among stakeholders. Figure 2 provides an overview of the notional framework for Navy shipbuilding acquisition programs described by the DOD and Navy guidance. This acquisition framework includes decision reviews and milestones at key junctures in the acquisition cycle. The Milestone Decision Authority is the individual responsible for determining what events and documentation requirements will apply to an acquisition program, as well as providing approval for a program to proceed to the next acquisition phase. The acquisition framework and Milestone Decision Authority’s purpose is to support careful assessment of a program’s readiness to proceed to the next stage of acquisition activities. The gates and milestones that will be included in an acquisition program’s schedule can be customized based on its circumstances and needs. We have previously found that shipbuilding programs typically have different decision points than other DOD weapon systems. For example, Milestone B for ship programs usually occurs after development of ship specifications and system diagrams is well under way and is typically aligned with the decision to authorize the start of detail design. While Milestone C generally represents the decision to start production for weapon systems, several of the Navy’s more recent shipbuilding programs either do not include a Milestone C review or changed the sequencing of the review to occur after delivery of the lead ship. Programs can receive approval to tailor the requirements for information that must be developed to support this process and to have the decision- making authority delegated to other individuals for acquisition decisions and approvals. Navy Expects That FFG(X) Requirements Will Provide a More Capable Small Surface Combatant, but at Increased Cost The Navy expects that its current plans for FFG(X) will result in a small surface combatant with considerable capability improvements compared to LCS. To achieve this increased capability, the Navy is committing to construct a larger, more expensive ship than LCS. To help refine FFG(X) requirements and identify opportunities for cost savings, the Navy used a conceptual design phase, in which it awarded $75 million in contracts to industry. FFG(X) Requirements Reflect Limitations of LCS and Evolution in Capability Needs The Navy’s FFG(X) requirements represent the department’s recognition of its need for a more capable small surface combatant and the limitations of LCS. For LCS and its mission packages, the Navy has devoted nearly $28 billion (constant fiscal year 2018 dollars) to develop and buy a ship that has fallen far short of demonstrating it can meet the minimum level of capability defined at the beginning of the program. Specifically, LCS was designed with reduced survivability requirements as compared to other surface combatants. Over time the Navy lowered several survivability and lethality requirements further and removed some design features— making the ships less survivable in their expected threat environments and less lethal than initially planned. As shown in figure 3, the Navy arrived at its FFG(X) plans after spending several years developing and evaluating a variety of inputs to address problems with LCS and emerging capability needs. The Small Surface Combatant Task Force study report maintained the Navy’s need for 52 small surface combatants, which was revalidated in the Navy’s 2016 Force Structure Assessment. In recognition of LCS’s shortcomings, the Navy significantly reduced the total number of LCS, and began planning for the new frigate based on minor modifications to an LCS design—referred to as FF—to fulfill the 52-ship need. While the FF program was developing its acquisition plans and moving toward a contract award for the lead ship scheduled for 2018, the maritime operating environments continued to rapidly evolve, becoming increasingly complex and contested. In recognition of this, the Chief of Naval Operations directed the Navy to conduct another study, increasing air defense and survivability beyond the FF baseline. In response, the Navy convened a Frigate Requirements Evaluation Team from January to June 2017. The purpose of this team was to build upon FF requirements by analyzing options for air defense and vulnerability upgrades to help determine top-level mission requirements that would yield a more capable frigate. The results of this review led the Navy to cancel its FF acquisition plans and focus on meeting increased requirements through a new FFG(X) Guided Missile Frigate program. Both the FF and FFG(X) requirements reflect the 2015 Small Surface Combatant Task Force report findings that identified a need for increased capabilities for small surface combatants to address evolving threats. As we reported in June 2016, an FF based on a minor modified LCS only partially fulfilled the small surface combatant capabilities that the task force identified as most valued by the fleet. In particular, FF requirements supported a multi-mission ship with some of the fleet’s highest priority mission capabilities, such as surface and anti-submarine warfare, but did not provide air warfare capability. For FFG(X), the Navy maintained the FF requirements and added local air defense as a capability. Table 1 outlines the requirements evolution that the Navy undertook to support a more lethal and capable small surface combatant. Requirements Drive Higher FFG(X) Cost than for Previous Small Surface Combatants To achieve the increased capability expectations for FFG(X), the Navy committed to acquiring a larger, more expensive ship than LCS or the previously planned FF. Figure 4 provides average shipbuilding cost estimates for the three different ships, with costs shown in same-year dollars for comparison. Although the FFG(X) requirements have been finalized, the Navy plans to make final cost and capability tradeoffs through the process of evaluating proposed designs before selecting which one will be built. The Navy Used Conceptual Design Phase to Better Understand Ship Requirements and Associated Costs In an effort to focus on the relationship between requirements and cost, the Navy undertook a conceptual design phase for FFG(X), which enabled industry to inform requirements and identify opportunities for cost savings. In February 2018, the Navy competitively-awarded FFG(X) conceptual design contracts valued at nearly $15 million each to five industry teams. These 16-month contracts were intended to enable industry to mature parent ship designs—designs for FFG(X) that are based on ships have been built and demonstrated at sea—and help refine technical and operational program requirements. The purpose of the conceptual design phase has parallels with the purpose of pre-contractual negotiations in commercial shipbuilding. As we previously have reported, these pre-contractual practices minimize ship buyer risk prior to awarding construction contracts by developing the ship concept and specifications based on negotiations between the ship buyer and the shipyard. The practices include specifying the expected performance and the major equipment on the ship. As part of these activities, commercial shipbuilders and ship buyers analyze one or more ship concepts to identify areas of potential risk and either mitigate these risks or remove the risky elements from the ship before signing a contract. Figure 5 provides an overview of the industry teams and shipyards participating in the FFG(X) conceptual design. Each industry team performed ship development, ship design, workforce planning, and shipyard improvement planning, among other activities, in support of FFG(X) requirements refinement and cost reduction efforts. Industry teams updated the Navy regularly on their design progress and technical approach to fulfill requirements through monthly technical exchange meetings and two design review meetings. Navy officials stated that these meetings were intended to provide information to support the program’s Preliminary Design Review in May 2019 and mitigate risk prior to the Navy’s release of its request for proposal in June 2019 for the FFG(X) detail design and construction competition. Our prior work on shipbuilding best practices emphasizes the importance of having a full understanding of the effort needed to design and construct a ship before awarding a contract for ship construction in order to reduce cost and schedule risk. Navy and industry officials stated that the conceptual design phase facilitated dialogue and information sharing that helped ensure FFG(X) requirements were more fully understood by industry and the government. Specifically, industry officials noted that communication and activities during conceptual design improved their understanding of the impetus for specific Navy requirements, allowing industry the opportunity to get clarification on the intent of some requirements, propose less costly alternatives, and get government feedback on the proposed alternatives. It also improved their understanding of the linkages between FFG(X)’s approved capability requirements and system specifications. In particular, industry officials told us that one-on-one opportunities with the Navy aided knowledge sharing and provided them with a means to ask questions without concern that disclosing such information could jeopardize their competitive position. They emphasized that in other cases where the request for proposals process is their primary means for communicating with the Navy (as opposed to having a conceptual design phase), submitting questions about requirements or system specifications can be challenging because those inquiries are available to the public. As a consequence, contractors may opt to infer more about the intent of requirements to avoid compromising their competitive interests. The conceptual design phase included a formal cost savings effort, with the Navy seeking proposals internally and from industry participants to reduce cost through requirement and system specification refinement. To support this effort, Navy officials stated they established a Frigate Affordability Board to review potential cost reduction measures submitted by both contractors and government that responded directly to Navy requirements and specifications. Navy officials said the Board—co- chaired by the Program Executive Office for Unmanned and Small Combatants and the Naval Sea System Command’s Naval Systems Engineering Directorate, as well as the Chief of Naval Operations’ Surface Warfare Directorate—assessed the potential cost and capability trade-offs of these proposed changes to requirements, and accepted or declined them. Before going to the Board, relevant Navy subject matter experts reviewed the technical and requirements implications of cost reduction measures. The program office subsequently worked with Navy engineering and requirements officials to balance cost with capabilities. If the program office, Navy engineers, and requirements officials could not reach agreement on the appropriate cost and capability mix, then their different positions were presented to the Board. For cost reduction initiatives submitted by industry, the Navy provided feedback on the Board’s decision, and incorporated fully or partially accepted cost reduction initiatives into the FFG(X) system specifications. Navy officials said they informed all industry teams of any changes to the specifications on a monthly basis. Navy officials also stated that industry submitted about 350 cost reduction ideas, with roughly 60 percent partially or fully accepted by the Navy. They estimated $86 million in savings per ship (constant year 2018 dollars) based on changes made in response to the cost reduction measures submitted by industry or government-initiated cost savings measures influenced by engagement with industry. Streamlined Acquisition Approach Accelerates Planned FFG(X) Schedule, but Reduces Knowledge Available for Key Program Decisions In an effort to accelerate the time between FFG(X) acquisition planning and the fielding of ships, the Navy streamlined the program’s acquisition approach and leveraged knowledge obtained from industry during the conceptual design phase. While the program may benefit from the streamlining efforts, the acquisition approach for FFG(X) required the Navy to submit its budget request for lead ship construction before the program had a comprehensive understanding of the potential ship designs and cost. Recent Navy policy changes have created some uncertainty for Navy cost estimation activities by altering roles and responsibilities within the Navy for completing component cost positions and independent cost assessments. Navy Streamlined FFG(X) Program Acquisition Approach in an Effort to Accelerate Fielding of Ships As permitted by DOD and Navy policy, the Navy has streamlined the FFG(X) acquisition approach to move from planning to ship delivery and fielding quicker than in a more traditional acquisition program. The accelerated schedule reflects the Navy’s desire to field a minimum of 52 small surface combatants, which the Navy’s long-range shipbuilding plan states will be achieved by fiscal year 2034. Navy officials stated that the significant amount of knowledge that already existed to inform the program’s early activities and the use of parent designs helped enable the streamlined approach for FFG(X). For example, Navy officials cited previous efforts by the Small Surface Combatant Task Force and the Frigate Requirements Evaluation Team to determine appropriate ship requirements, as well as activities performed in support of the FF frigate acquisition plan that immediately preceded the shift to FFG(X). The Navy also leveraged industry input received from a request for information in 2017 to understand cost drivers and the potential shipbuilders’ abilities to meet top level FFG(X) requirements and incorporate Navy-defined equipment into ship designs. Figure 6 provides a high-level schedule of key activities for the program. To support its decision to pursue an accelerated acquisition schedule, the Navy used the previously discussed conceptual design phase as well as its decisions to limit FFG(X) to parent ship designs and minimize technology development. Navy officials noted the use of parent designs is allowing the program to proceed at a much faster pace from early assessment of capability options to detail design and construction contract award. They added that the parent designs provided a higher- fidelity design baseline from which the conceptual design industry teams incorporated Navy systems and other requirements. Use of parent designs is consistent with our best practices work in shipbuilding, which has found that commercial shipbuilders use previous ship designs to the extent possible. Doing so can reduce technical, schedule, and cost risk in building a ship as compared to a “clean sheet” new ship design. FFG(X) program officials noted the latter approach can take up to 9 years to complete an analysis of alternatives and move through the acquisition process to construction contract award. Navy officials said the program also used opportunities available as an Acquisition Category (ACAT) 1B program to shorten the approval timeline for specific acquisition requirements. For an ACAT 1B program, the head of the DOD component is generally the Milestone Decision Authority but, as appropriate, may delegate approval authorities to lower level offices under its jurisdiction. In the case of FFG(X), the Assistant Secretary for the Navy for Research, Development, and Acquisition serving as the Milestone Decision Authority delegated specific approval authorities to the Program Executive Office for Unmanned and Small Combatants. These approval authorities applied to the program’s life cycle sustainment plan, independent logistics assessment, program protection plan, and a compliance schedule addressing environmental considerations. The Navy also took advantage of opportunities to alter or waive some significant early acquisition activities. For example, the Milestone Decision Authority waived the formal Analysis of Alternatives and Affordability Analysis, decided not to conduct a Milestone A review, and deferred the full “Should-Cost” Analysis to later in the acquisition process. Table 2 defines the purpose of these DOD acquisition program elements and provides an overview of the Navy’s actions related to them. As the first major milestone for many major acquisition programs, Milestone A is a review by the Milestone Decision Authority of key program documents that support the materiel solution and risk reduction. We have previously found that DOD officials place a high value on the information developed for some of these documents, including the Analysis of Alternatives, Affordability Analysis, and Should-Cost Analysis. The Navy’s decision to not conduct a Milestone A review also eliminated a formal opportunity to bring the broad set of FFG(X) stakeholders within the Navy and the Office of the Secretary of Defense together at a relatively early stage to assess the program’s acquisition strategy and affordability and feasibility, as well as technical, cost, and schedule risks. Further, it reduced the FFG(X) acquisition approach to a single milestone decision point—Milestone B—for the broader group of DOD stakeholders to evaluate program progress and readiness to proceed to the detail design and construction contract award planned in July 2020. In the absence of Milestone A, the Navy’s Gate 3 review for FFG(X) provided an opportunity to communicate the program’s progress toward developing requirements and acquisition expectations, albeit to a more limited audience than typically would participate in a Milestone A. In particular, the Navy used Gate 3 to discuss top-level requirements changes and receive capability development document approval from the Chief of Naval Operations. It also included cost discussion related to FFG(X) affordability within the overall Navy shipbuilding portfolio. The gate’s participants included officials from the Navy and the Office of Cost Assessment and Program Evaluation (CAPE) within the Office of the Secretary of Defense. The Navy’s Gate 4 conducted in February 2019 focused on a review of the FFG(X) system specification before the draft detail design and construction request for proposal release. Gate 4 documentation for FFG(X) indicates that participants were limited to stakeholders from the office of the Deputy Assistant Secretary of the Navy for Ships; Naval Sea Systems Command Cost and Design Directorates; Program Executive Office for Unmanned and Small Combatants; the FFG(X) program office; and the Chief of Naval Operations Surface Warfare Directorate. This excludes a number of key stakeholders that Navy guidance calls on to attend and certify gate reviews, such as the Assistant Secretary of the Navy (Financial Management and Comptroller) and the testing community. As a result, the Navy would not have received insight from several key stakeholders during the Gate 4 review for acquisition activities, such as the program life cycle cost estimate development and release of the draft request for proposal. These activities are generally relevant to this gate review, as Navy guidance notes program affordability as a focus and the Navy’s streamlining documentation indicates that the gate was focused on reviewing the FFG(X) system specification before releasing the draft request for proposal. Navy officials noted that stakeholders have regularly received insight into FFG(X) activities through other prior program reviews and will have additional opportunities to review program costs and sustainment plans leading up to Milestone B. We also found that some key stakeholders did not provide formal approval for the initial FFG(X) life cycle sustainment plan that was approved in March 2019. Specifically, only FFG(X) program officials and the Program Executive Officer for Unmanned and Small Combatants— the delegated approval authority—signed the plan. However, as stated in DOD guidance, representatives from the relevant sustainment command and the Program Executive Office for Integrated Warfare Systems are key stakeholders that should provide their signed concurrence when approving the life cycle sustainment plan. The FFG(X) life cycle sustainment plan is a key document outlining the Navy’s plans to address the program’s sustainment needs and costs, as typically around 70 percent of a weapon system program’s total cost is in the sustainment phase after procurement. Navy officials stated that the plan has been reviewed by the independent logistics assessment team members that are evaluating the FFG(X) program’s integrated product support activities, and noted that the Program Executive Office for Integrated Warfare Systems has separate life cycle sustainment plans for government furnished equipment systems included in the FFG(X) design. Navy officials also said that FFG(X) sustainment plans would be reviewed by stakeholders as part of Gate 5 and the Milestone B independent logistics assessment. Budget Request for FFG(X) Lead Ship Preceded the Completion of Key Cost Estimation Activities That Should Inform Funding Decisions The FFG(X) acquisition approach required the Navy to submit its nearly $1.3 billion budget request for lead ship construction before the program had established a comprehensive understanding of the potential ship designs and estimated cost for the program. Our shipbuilding and acquisition best practices call for resource decisions to be timed to align with the availability of requisite cost, schedule, and technical knowledge in order to inform key program decisions. Navy officials stated that they had sufficient knowledge to inform key program decisions based on cost estimation and conceptual design efforts that had previously been completed. Navy officials said this included development of an FFG(X) cost estimate by November 2018 to support a realistic budget request for the lead ship. However, at the time of the Navy’s fiscal year 2020 budget request to fund detail design and the lead ship, the Navy had not completed its component cost position, which will formalize the life cycle cost expectations for FFG(X). Further, CAPE had not completed the independent cost estimate for the program. The GAO Cost Estimating and Assessment Guide says that comparing the component cost position with an independent cost estimate to validate methodologies produce similar results reinforces the credibility of a cost estimate. In addition to key cost estimating best practices that had not been completed, the Navy had not received final design review information from the industry teams participating in the conceptual design phase before requesting lead ship funds from Congress. Figure 7 reflects the budget request timeline for the FFG(X) detail design and lead ship contract award, as well as notable cost and design-related program activities that were planned to be completed after the request. The considerable cost growth that we have previously reported is common to many shipbuilding programs, as well as challenges in deviating from shipbuilding plans once a program has begun procuring ships, emphasize the importance of having a strong understanding of program expectations to back the initial procurement decision for FFG(X). Given the timing of the Navy’s budget request for lead ship funding, Congress faces a decision on whether to authorize funding for FFG(X) detail design and lead ship based on a budget request that was not informed by key cost and design information. If Congress authorizes and appropriates FFG(X) funding as the Navy requested in March 2019, it will be critical that the Navy demonstrate the program’s acquisition program baseline reflects the results of the component cost position and independent cost estimate before awarding the detail design and construction contract. Doing so before the contract award will help ensure a more reliable acquisition program baseline upon which future costs and variances are measured and funding decisions are made. Further, it will help mitigate remaining risk that stems from the Navy not being able to account for the actual FFG(X) design and associated estimated cost for ship construction until after the planned July 2020 contract award. Specifically, as currently planned, the Navy’s budget requests for fiscal years 2020 and 2021—which are intended to fund the first 3 ships—will be made before the Navy has agreed to contract pricing for FFG(X). Navy officials stated that they have completed a robust program life cycle cost estimate. They noted that the estimate was informed by Navy modeling of a notional ship design that leveraged data received from industry during conceptual design and reflected ship design elements needed to meet program requirements Navy officials also said that, as of May 2019, some additional work remains for the cost estimate to account for training and military construction considerations, as well as address any needed changes related to the final industry design reviews for the conceptual design phase. They also said that the program life cycle cost estimate informed the Gate 4 review in February 2019, and an updated version of the estimate will provide a basis for the Navy’s efforts to establish the component cost position in October 2019. As of the issuance of this report, we have requested the program life cycle cost estimate from the Navy, including the estimate’s criteria and underlying assumptions, but have not yet received this information. Recent Navy Changes in Cost Estimation Policy and the FFG(X) Program Schedule Create Uncertainty for Remaining Cost Estimation Activities Recent policy changes by the Navy related to cost analysis and estimation have created some uncertainty for Navy cost estimation activities going forward. Specifically, a March 2019 Secretary of the Navy instruction for acquisition program cost analysis shifts the Naval Center for Cost Analysis’s role and responsibilities for Navy cost estimation to the Navy’s systems commands. Previously, the Naval Center for Cost Analysis—organizationally residing completely outside of the systems command structure—would provide an independent cost assessment of the program life cycle cost estimate. The Naval Center for Cost Analysis and the acquisition program, in coordination with the relevant systems command, would discuss and adjudicate any differences between the program life cycle cost estimate and the independent cost assessment to produce the Navy’s component cost position. This independent cost assessment by the Naval Center for Cost Analysis was an important verification of the program office estimates, which were often found to be too optimistic, prior to the Navy finalizing its component cost position. The Navy’s recent changes for cost estimation and analysis may pose a risk of overly optimistic estimates carrying forward in programs. Navy officials stated that they believe Naval Sea Systems Command cost estimators can provide an independent cost estimate, as they are intended to provide technical support to acquisition programs independent of programmatic authority and report to a separate chain of command. However, as stated by the Naval Sea Systems Command, the collective mission of its organizations is to build, buy, and maintain the Navy’s ships. Based on this, we believe, as do CAPE officials with whom we spoke, that shifting independent cost assessment activities to the systems commands diminishes the Navy’s ability to independently verify a program life cycle cost estimate. As a result, the program life cycle cost estimate essentially will become the component cost position based on the lack of additional cost estimation input, such as what the Naval Center for Cost Analysis previously provided. Furthermore, CAPE officials stated that having a systems command execute cost analysis responsibilities for an acquisition program within the same system command effectively eliminates the Navy’s capacity to perform independent cost estimates for its programs based on their shared overarching mission. This position is consistent with the GAO Cost Estimating and Assessment Guide, which states that an independent cost estimate should be conducted by an organization independent of the acquisition chain of command. The Director of CAPE is required to conduct or approve independent cost estimates and cost analyses for all major defense acquisition programs. As noted by CAPE officials, CAPE has previously delegated certain cost estimation responsibilities to the Naval Center for Cost Analysis. With the recent Navy policy changes, CAPE may no longer choose to delegate independent cost estimation activities to Navy cost estimators. For FFG(X), CAPE intends to complete an independent cost estimate to verify the Navy’s component cost position. These plans include site visits and data collection from the shipyards participating in the conceptual design contracts. CAPE confirmed that the final independent cost estimate will reflect the content of the winning proposal, indicating that any FFG(X) proposals that the Navy receives from contractors not involved in the conceptual design phase will be evaluated to ensure the independent cost estimate accounts for those cost and design plans. CAPE officials also stated that their timeline for finalizing the independent cost estimate for FFG(X) is tied to when the Navy decides on the winning proposal for detail design and construction and communicates this information to CAPE. Specifically, CAPE’s final independent cost estimate will reflect only the winning FFG(X) design, so completion of the estimate will occur after the Navy informs CAPE about the FFG(X) design for which it intends to pursue a contract award. CAPE officials said that because the Navy’s decision may not be made in advance of the planned February 2020 Milestone B review for FFG(X), CAPE would likely just provide input to support the milestone and complete the independent cost estimate after that review. The Navy Has Taken Steps to Reduce Design and Technical Risk, but Technology Integration and Testing Will be Key to Meeting Program Expectations The Navy’s decision to pursue a parent ship design for FFG(X) was intended to reduce design uncertainty for the program. The Navy’s planned use of existing technologies for the ship’s mission and combat systems also supports reduced technical risk, though further maturation of some key systems and successful integration and testing will be critical to demonstrate the ship provides required capability within cost and schedule expectations. Use of a Parent Ship Design Was Intended to Increase Design Certainty Adopting a parent design requirement for FFG(X) provided the conceptual design industry teams with a proven baseline ship design. This enabled them to focus on incorporating modifications to meet the Navy’s specific FFG(X) requirements rather than designing a new ship. The Navy did not set any limitations on the extent contractors could modify or deviate from the parent design. However, Navy officials stated they actively reviewed parent design modifications through contract deliverables, technical exchange meetings, and design reviews with industry teams. The design reviews included an interim report in October 2018 and a final report in May 2019 from each industry team on their design progress. FFG(X) program officials noted that the design maturity reviews provided sufficient information to support the Navy’s decision that the designs were mature enough to release the request for proposals for the detail design and construction contract award. In addition, some industry officials told us that the conceptual design work on parent designs enabled them to develop more mature and refined designs than typical for this stage of the shipbuilding acquisition process. They also noted that continuing work in response to the pending competition should move at least some design elements closer to a detail design-level of maturity, and may provide the Navy with greater confidence in the contract proposals it receives from industry. Technology Re-Use Should Reduce Some Risk, but Integration and Testing Remain to Demonstrate Critical Systems The FFG(X) program’s design concept requires the use of many existing, more mature combat and mission systems to reduce technical risk. As stated in the approved acquisition strategy for FFG(X), the program has a requirement for all integrated systems to have achieved maturity of a technology readiness level (TRL) 6 or higher. TRL 6 is defined by GAO as the capability to produce a prototype system in a production-relevant environment. Program officials confirmed that, as of May 2019, many but not all FFG(X) integrated systems were at TRL 6 or higher. For selected key systems planned for FFG(X), Navy officials stated they will have achieved TRL 7 or higher by the planned July 2020 detail design and construction contract award. Doing so would be consistent with our acquisition best practices, which include maturing new key ship technologies into actual system prototypes and demonstrating them in a realistic environment—achieving a TRL 7—before the award of the contract for lead ship design and construction. This practice helps reduce the likelihood of costly design changes later. Technology Re-Use Many of the systems planned for FFG(X) have been demonstrated and are in use on other Navy ship classes, which helps the program fulfill capability needs while avoiding developmental risks. Table 3 provides an overview of some of the key existing systems planned for the ship. In addition to the systems that have been utilized by other Navy ships, the FFG(X) program plans to incorporate some systems that are still in development, such as the Enterprise Air Surveillance Radar (EASR) and a new version of the Aegis Weapon System. Navy officials stated that EASR—a complex radar system expected to provide long-range detection and engagement of advanced threats— is critical to FFG(X)’s air and surface warfare missions. It is a scaled down version of the Navy’s Air and Missile Defense Radar that is in production and scheduled for initial integration with the Aegis combat system on a DDG 51 Flight III destroyer in fiscal year 2020. In early 2019, the Navy began testing a full-scale, single-face EASR array engineering developmental model—the full system planned for FFG(X) will have three array faces—at a land-based test site to further demonstrate its functionality. The Navy expects to complete land-based testing of the EASR engineering development model by February 2020. The Navy also plans to integrate a rotating version of EASR and a fixed-face version on other ship classes prior to integrating the radar on the lead FFG(X). The Navy’s results from planned EASR developmental testing at the land-based site will be integral to achieving a TRL 7 and reducing risk prior to the start of FFG(X) detail design. The Navy is developing a new version of the Aegis Weapon System— FFG(X)’s combat management system—to coordinate radar and weapons system interactions from threat detection to target strike. For example, the system will support the ship’s ability to employ the Naval Strike Missile for over-the-horizon offensive capability as well as a 32- cell vertical launch system to employ missiles for air defense. The Aegis Weapon System for FFG(X) will leverage the Aegis common source software that supports the combat systems found on the Navy’s DDG 51-class destroyers and CG 47-class cruisers. Navy officials noted that they anticipate at least 70 percent of the Aegis Weapon System software for FFG(X) will be common to the Aegis software used for DDG 51 Flight III ships. Rigorous testing of the Aegis Weapon System with EASR will be critical for FFG(X), as the radar and combat management system must work in concert for the ship to detect, track, and assess possible targets. Given the radar and software commonalities, the risk level for both of these FFG(X) systems should be reduced once the DDG 51 Flight III radar and Aegis system baseline, upon which the FFG(X) integrated system is based, have been demonstrated through testing on a ship beginning in 2022. Specific to the Aegis Weapon System for FFG(X), software development is expected to run from fiscal year 2022 to late fiscal year 2024. The system’s integration and testing with EASR is scheduled to occur through fiscal year 2024. Integration and Testing While the Navy is planning to use many already mature systems on FFG(X), integration and testing of those systems will be critical to demonstrate systems fit and work together as intended on the ship. The Navy completed a technology readiness assessment in spring 2019 to identify potential technical risks, and concluded that FFG(X) does not have any critical technology elements. DOD generally defines a critical technology element as one that may pose major technological risk during development. Navy officials who completed the assessment stated that they reviewed about 150 systems as part of their activities and found none composed of new or novel technologies for which the Navy has insufficient knowledge to demonstrate maturity. The assessment noted one technology—the New Advanced Integrated Line-of-Sight Equipment System (nAILES) multi-coupler for antennas—as a watch item. The Navy would like to utilize nAILES for FFG(X), but according to Navy officials, it is not considered a critical technology because the Navy has identified alternative, proven technologies that will be used to meet the ship’s needs if nAILES is not available for use. The findings of the technology readiness assessment are consistent with the FFG(X) program’s decision to use existing systems that do not require technological innovation to deliver desired capability. However, the findings do not necessarily equate to the program having no technology risk for planned systems. For example, the Aegis Weapon System for FFG(X) did not qualify under the parameters of the technology readiness assessment as a critical technology element. Still, as already discussed, the Aegis Weapon System will carry technical risk for several years until the Navy completes development and demonstrates the system works as intended for FFG(X). The Next Generation Surface Search Radar is another system that is relatively mature—FFG(X) program officials confirmed in May 2019 it is nearing a TRL 6—but requires further development to reduce risk. The FFG(X) test and evaluation master plan and independent technical risk assessment are significant documents yet to be completed that will help to further define risks and plans to address them. The test and evaluation master plan serves to outline the program’s integrated test program and master schedule of major test events or phases. Navy officials expect the test plan to be approved in December 2019 to support the Milestone B decision. They noted that the plan may need to be updated once the FFG(X) design is selected based on the additional information that will be available to inform test planning. The independent technical risk assessment is intended to categorize risks that cover a broad range of factors, including technology maturity, integration needs, and testing. If these factors are not sufficiently accounted for, a program is likely to have difficulty meeting cost, schedule, and performance objectives. An official from the Office of the Under Secretary of Defense for Research and Engineering who is participating in the technical assessment for FFG(X) stated they plan to complete their work to identify any risks in March or April 2020. The official added that at this early stage of their activities, the potential for integration risks associated with the FFG(X) combat system is an area of interest because of the extensive number of existing systems that will need to be integrated into the new ship design. Navy test officials as well as DOD systems engineering and test officials noted potential advantages and risks related to FFG(X) program’s plans for using existing technologies. Similar to what we previously discussed about the use of a parent design, the officials stated that the use of existing systems can increase understanding of the ship and its systems, which may help the FFG(X) program achieve its planned accelerated timeline between development and delivery. However, systems engineering and test officials also indicated that, regardless of maturity, challenges typically arise when DOD takes systems from other platforms and attempts to integrate and use them in new ways on a new platform. They cautioned that programs like FFG(X) that plan to use a lot of government-furnished equipment or non-developmental systems often underestimate the amount of integration challenges they will face. The officials told us this may occur because of overconfidence that the maturity of systems demonstrated through use on other platforms eliminates most technical risk, whereas experience confirms that it is always challenging to get systems to fit and work together as intended on a new platform. Officials from the office of the Director, Operational Test and Evaluation said that the parent design approach for FFG(X) may enable the Navy to reduce some developmental testing activities; however, operational testing expectations would largely be unaffected because there will still be substantial integration to be completed and tested in order to demonstrate mission capabilities. Contracting Plans for FFG(X) May Help Mitigate Some Risk, and Use of Warranties Could Potentially Further Reduce Costs The draft FFG(X) request for proposal indicates that the Navy plans to use a fixed-price incentive contract to help control ship costs and special performance incentive fees. In addition, the Navy plans to use guarantees with limited liability for the shipbuilder to correct defects after ship deliveries. Our prior work has found that using comprehensive ship warrantees instead of guarantees could reduce the Navy’s financial responsibility for correcting defects. Use of Fixed-Price Incentive Contract Provides Benefits, but Planned Contract Structure Results in the Navy Absorbing More Cost Risk After completion of a full and open competition for FFG(X) detail design and construction, the Navy plans to use a fixed-price incentive contract in combination with additional special performance incentive fees to procure the lead and follow-on ships. As we have previously reported, full and open competition allows all responsible sources—or prospective contractors that meet certain criteria—to submit proposals for a contract. The use of competition in contracting is a critical tool for achieving the best possible return on investment for taxpayers. Competitively awarded contracts can save the taxpayer money, improve contractor performance, and promote accountability for results. The fixed-price incentive contracting approach for FFG(X) is intended to incentivize the contractor to control costs and meet performance requirements. This contracting strategy represents a significant departure from previous surface combatant programs in which the Navy negotiated cost-reimbursement contracts for construction of the lead ship. Under cost-reimbursement contracts, the Navy assumes the cost risk because the shipbuilder is reimbursed for its allowable incurred costs to the extent prescribed in the contract, regardless of whether the work is performed to the exact level desired by the Navy. For example, our prior work found that the Navy’s decisions to accept the first two LCS in incomplete, deficient conditions complied with federal acceptance provisions, largely due to the cost- reimbursement type contracts in place to construct these ships. Fixed-price incentive contracts provide an incentive for the shipbuilder to control costs in order to maximize profit. Fixed-price incentive contracts generally include a profit adjustment formula referred to as a shareline, as well as a price ceiling, target cost, and target profit. The structure of the shareline establishes how cost overruns or underruns in relation to a target cost are shared between the government and shipbuilder. For example, the 70/30 shareline that the Navy is planning for FFG(X) lead ship overruns means that the government pays 70 percent of cost and the shipbuilder pays 30 percent when the cost exceeds the target cost up to the price ceiling. Generally, the shareline functions to decrease the shipbuilder’s profit as actual costs exceed the target cost. The price ceiling is generally the maximum the government will pay under the contract and is typically negotiated as a percentage of the target cost. The target cost generally informs the shareline and price ceiling. Given the unknowns associated with design and construction, the Navy plans to account for these unresolved risks by assuming responsibility for cost growth above DOD recommended guidance. As we reported in March 2017, when the Navy assumes a greater share of cost overruns above the target cost, accepts a higher price ceiling, or both, the fixed- price incentive elements may not provide sufficient motivation for the shipbuilders to control costs. Figure 8 depicts the how risk changes as the Navy departs from a 50/50 shareline for cost overruns and a ceiling price of 120 percent. As we previously noted, for the FFG(X) lead ship the Navy is planning to have a shareline of 70/30 for target cost overruns. The Navy also plans to have a 60/40 target cost overrun shareline for the second ship, and a 50/50 overrun shareline for the remaining seven ships included in the detail design and construction contract award. Based on this plan, the first two FFG(X) ships will depart from DOD’s guidance recommending a 50/50 point of departure for negotiations between the government and shipbuilder for cost overruns up to the price ceiling. This results in more cost risk to the government for two ships in the detail design and construction contract. The Navy’s planned price ceiling for the 10 ships included in the contract award may deviate from DOD’s guidance recommending a ceiling price set at 120 percent of target cost as a point of departure for fixed price incentive contracts. Specifically, Navy officials stated that the maximum ceiling price could be as high as 125 percent for all of the ships. However, Navy officials stated that the request for proposal will provide incentive for industry to propose the minimum price ceiling that sufficiently accounts for the proposal’s level of risk, meaning that industry may propose price ceilings below 125 percent. The Navy also plans to include options for a special performance incentive fee for each of the FFG(X) ships, which will be established for the final request for proposal. These incentives have the potential to increase shipbuilder profitability. FFG(X) Plan for Guaranty Use Is More Robust than Recent Shipbuilding Programs, but Use of Warranties Could Provide More Value to the Government As outlined in the FFG(X) draft detail design and construction request for proposal and confirmed by program officials, each frigate will have a guaranty period that commences at ship delivery and is expected to end 18 months after delivery. Navy officials stated the guaranty is intended to formalize a period of responsibility during which the shipbuilder must correct defects, with the cost to the government and the contractor based on the contract terms (cost shareline and price ceiling) associated with the ship. During the guaranty period, the shipbuilder would be required to correct all defects for which it is responsible, with proposals required to include a minimum limitation of liability of $5 million per ship. Once the total cost to correct identified defects reaches $5 million, the government would pay the full cost to correct any additional guaranty period defects. The $5 million minimum limitation of liability planned for FFG(X) has a higher dollar value and covers a longer period of time than other recent shipbuilding programs. For example, we previously found that for the Navy’s LPD 25 amphibious transport dock construction, the contract initially included a $1 million limitation of liability. Navy officials stated that the final request for proposal also will include a provision allowing industry to propose a higher liability limit, up to and including no limitation of liability. Navy officials said that any additional liability amount proposed beyond the $5 million guaranty will be assessed as part of the technical evaluation criteria used to select the winning FFG(X) design. We found in March 2016 that the use of a guaranty did not help improve cost or quality outcomes for the Navy and Coast Guard ships we reviewed. We also found that commercial ship buyers and Coast Guard officials stated that warranties foster quality performance because the shipbuilder’s profit erodes as it spends money to correct deficiencies after delivery, during the warranty period. We further reported that the Coast Guard has improved cost and quality by requiring the shipbuilder to pay to repair defects by following Federal Acquisition Regulation warranty provisions. For example, the Coast Guard paid up front for the Fast Response Cutter warranty. The cost of the warranty amounted to 41 percent of the total defect correction costs. Although this ship does not have the size and advanced systems planned for FFG(X), it serves to demonstrate the potential value to the government presented by the use of warranties. The Coast Guard also used a fixed-price incentive contract with a warranty on its Offshore Patrol Cutter—a ship of comparable size to FFG(X). The first Offshore Patrol Cutter has a 2-year warranty, and follow-on ships will have 1-year warranties. The Coast Guard pays a set amount for these warranties, and in return, the shipbuilder must fix all applicable defects identified within the agreed-upon time period regardless of cost. Rather than using guarantees for the FFG(X) contract to provide for the correction of defects, the Navy could help control costs to the government through the use of warranties. Under warranties, the government generally receives a contractual right for the correction of all defects for which the shipbuilder is responsible at the shipbuilder’s expense. The use of warranties is typically not mandatory, but federal and defense acquisition regulations instruct contracting officers to consider various factors when deciding whether a warranty is appropriate for an acquisition. The regulations also instruct contracting officers to use a warranty when it is practicable and cost-effective to do so. We previously found that, unlike a warranty, the Navy almost exclusively paid for defects that were the shipbuilder’s responsibility under a guaranty because of the contract type and terms in contracts that we reviewed. Such conditions limit the incentive to discover every deficiency during the guaranty period, and may negatively affect quality improvements over time. The Navy’s FFG(X) plans suggest that the Navy may be prematurely discounting warrantees as a mechanism to improve ship quality and decrease cost to the government. Navy officials told us that mandating that industry propose a warranty could result in additional costs to the government because the initial cost of the ship could be raised substantially to include the cost of the warranty. Additionally, Navy officials said a requirement for warranty pricing could serve to limit industry participation in the FFG(X) competition if offerors are unwilling to accept the risk associated with a warranty and unable to provide reasonable pricing. The Navy provided no analysis to support these claims and confirm a clear understanding of whether a warranty could provide greater value than the $5 million guaranty the Navy is proposing for FFG(X). As part of the competitive proposal process for FFG(X) detail design and construction, the Navy could maintain its plans to require a guaranty but also seek ship warranty pricing. The full and open competition for the FFG(X) contract award may increase the potential for receiving warranty pricing that provides a cost-effective alternative to the Navy’s guaranty plans. By limiting the request for proposal to guarantees, the Navy misses an opportunity to obtain information on what comprehensive warranty coverage against defects would cost, and use it to evaluate whether warranties could further reduce risk for the FFG(X) program. Conclusions As the Navy approaches the Milestone B review for FFG(X), it is critical that funding and other major programmatic decisions are fully informed by the knowledge necessary to support them. This is especially important to help ensure that the FFG(X) program does not face some of the same cost, schedule, and performance shortfalls that have been faced by the LCS program. The Navy’s fiscal year 2020 budget request to authorize and appropriate funding for the lead frigate was developed and submitted without the benefit of key cost and design information, such as the independent cost estimate and the final results from conceptual design. As a result, it is necessary that the Navy provide Congress with a clear understanding of FFG(X) cost expectations, including CAPE’s independent cost estimate, prior to awarding the detail design and construction contract. This will help ensure that the FFG(X) program is grounded in cost and design expectations that reflect the specific aspects of the ship that the Navy selects for construction. With the start of the planned $20 billion FFG(X) procurement approaching, the Navy has limited time left to position the government to obtain the best deal possible to fix any deficiencies discovered upon delivery of the first 10 ships. The Navy’s guaranty plan for FFG(X) offers some improvements compared to recent shipbuilding programs, but does not offer the degree of coverage that could potentially be provided by a warranty. The competitive qualities of the FFG(X) acquisition approach present an opportunity for the Navy to, at a minimum, obtain warranty pricing from industry so that the program may use that input to evaluate whether a warranty would be a cost-effective means of reducing the government’s cost risk. Recommendations for Executive Action We are making two recommendations to the Secretary of the Navy: Ensure that the Assistant Secretary of the Navy for Research, Development, and Acquisition provides to Congress the finalized independent cost estimate prior to award of the detail design and construction contract and demonstrates that the estimate is consistent with the fiscal year 2020 budget request for the lead ship. (Recommendation 1) Ensure that the Assistant Secretary of the Navy for Research, Development, and Acquisition directs the FFG(X) program office to request pricing for warranties for the lead ship and the nine follow-on ship options planned for FFG(X) as part of the detail design and construction request for proposals. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of this report to DOD for comment. DOD provided written comments, which have been reproduced in appendix I. In responding to the draft report, DOD concurred and described the actions it planned to take to address our two recommendations. In response to the second recommendation to request pricing for warranties for the lead ship and the nine follow-on ship options planned for FFG(X) as part of the detail design and construction request for proposals, DOD acknowledged that the Navy will receive guaranty rather than warranty pricing, but stated that the solicitation allows industry to propose a higher limitation of liability amount, up to an unlimited limitation of liability, in its guaranty pricing for FFG(X). While this could allow for a better value to the government than has been typical for recent shipbuilding programs, permitting higher limitation of liability guaranty pricing but not requesting warranty pricing from offerors means the Navy will not have complete information on whether a warranty could be more cost-effective than a guaranty. Our prior work found that the use of Federal Acquisition Regulation warranty provisions improved shipbuilding program cost and quality outcomes. As a result, we maintain our belief that the FFG(X) program office should implement this recommendation by seeking warranty pricing as part of the detail design and construction request for proposals. The full and open competition for the FFG(X) contract award may increase the potential for receiving warranty pricing that provides a cost-effective alternative to the Navy’s guaranty plans. DOD stated that modifying the solicitation to incorporate a warranty pricing component would cause an unacceptable delay to the FFG(X) program, but did not provide an analysis to support this assertion or specify the extent of delay associated with adding a warranty pricing request. The current FFG(X) schedule has roughly 10 months between the request for proposals deadline and the contract award, and the program originally had been planning for the solicitation period to end in December 2019 before moving the deadline to September 2019 shortly before its release. We recognize the substantial effort the proposal development and review process requires, but we continue to believe that the government would benefit from adding a request for warranty pricing to the detail design and construction solicitation. While DOD stated that the Navy will support the recommendation after award by requesting pricing for an unlimited warranty before exercising the first ship option, doing so would eliminate any potential warranty pricing advantages that would occur as a result of the competitive conditions that currently exist for the current detail design and construction contract. In addition to DOD’s written response to the report, DOD officials and industry representatives associated with the FFG(X) conceptual design activities provided separate technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, and the Secretary of the Navy. This report will also be available at no charge on GAO’s website at http://www.gao.gov. If you or your staff members have any questions regarding this report, please contact me at (202) 512-4841 or oakleys@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 the report are listed in appendix II. Appendix I: Comments from the Department of Defense Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Shelby S. Oakley, (202) 512-4841 or oakleys@gao.gov. Staff Acknowledgments In addition to the contact named above, the following staff members made key contributions to this report: Diana Moldafsky (Assistant Director), Lori Fields, Kurt Gurka, Stephanie Gustafson, Chad Johnson, Jennifer Leotta, Sean Merrill, Miranda Riemer, Jillena Roberts, Hai Tran, and Alyssa Weir.

In response to the shortcomings of the Navy's Littoral Combat Ship program and evolving threats, the Navy began the FFG(X) program. With FFG(X), the Navy intends to deliver a multi-mission ship that will provide anti-surface, anti-submarine, and air warfare capabilities. DOD approved FFG(X) requirements in February 2019.The Navy plans for a competitive contract award to support final FFG(X) design and construction. The program is expected to cost over $20 billion for 20 ships. The House report accompanying the National Defense Authorization Act for Fiscal Year 2019 included a provision for GAO to review the FFG(X) program. This report addresses, among other things, the FFG(X) acquisition approach and contracting plans. GAO reviewed requirements, acquisition, design, and cost-related documentation. GAO interviewed Navy and other defense officials, and conducted industry site visits to each shipyard participating in FFG(X) conceptual design activities. GAO also leveraged prior GAO reports and best practices guides. The Navy undertook a conceptual design phase for the FFG(X) Guided Missile Frigate program that enabled industry to inform FFG(X) requirements, identify opportunities for cost savings, and mature different ship designs. The Navy also streamlined the FFG(X) acquisition approach in an effort to accelerate the timeline for delivering the ships to the fleet. As shown in the figure, however, the Navy has requested funding for the FFG(X) lead ship even though it has yet to complete key cost estimation activites, such as an independent cost estimate, to validate the credibility of cost expectations. Department of Defense (DOD) cost estimators told GAO the timeline for completing the independent cost estimate is uncertain. Specifically, they stated that this estimate will not be finalized until the Navy communicates to them which FFG(X) design is expected to receive the contract award. GAO-identified best practices call for requisite cost knowledge to be available to inform resource decisions and contract awards. The Navy plans to use a fixed-price incentive contract for FFG(X) detail design and construction. This is a notable departure from prior Navy surface combatant programs that used higher-risk cost-reimbursement contracts for lead ship construction. The Navy also plans to require that each ship has a minimum guaranty of $5 million to correct shipbuilder-responsible defects identified in the 18 months following ship delivery. However, Navy officials discounted the potential use of a warranty—another mechanism to address the correction of shipbuilder defects—stating that their use could negatively affect shipbuilding cost and reduce competition for the contract award. The Navy provided no analysis to support these claims and has not demonstrated why the use of warranties is not a viable option. The Navy's planned use of guarantees helps ensure the FFG(X) shipbuilder is responsible for correcting defects up to a point, but guarantees generally do not provide the same level of coverage as warranties. GAO found in March 2016 that the use of a guaranty did not help improve cost or quality outcomes for the ships reviewed. GAO also found the use of a warranty in commercial shipbuilding and certain Coast Guard ships improves cost and quality outcomes by requiring the shipbuilders to pay to repair defects. The FFG(X) request for proposal offers the Navy an opportunity to solicit pricing for a warranty to assess the cost-effectiveness of the different mechanisms to address ship defects.

CRS_R45940

Introduction The long-term objective of the World Trade Organization's (WTO's) Agreement on Agriculture (AoA) is to establish a fair and market-oriented agricultural trading system. The principal approach for achieving this goal is, first, to achieve specific binding commitments by all WTO members in each of the three pillars of agricultural trade policy reform—market access, domestic support, and export subsidies—and second, to provide for substantial progressive reductions in domestic agricultural support and border protection from foreign products. As a signatory member of the WTO agreements, the United States has committed to abide by WTO rules and disciplines, including those that govern domestic farm policy as spelled out in the AoA. Since the WTO was established on January 1, 1995, the United States has generally met its WTO commitments, including spending limits on market-distorting types of farm program outlays. What Is the Issue? Direct payments to producers under U.S. farm support programs are cumulative, and compliance with WTO commitments is based on annual spending levels. The addition of large, ad hoc trade assistance payments to producers in 2018 and 2019, on top of existing farm program support, has raised concerns by some U.S. trading partners, as well as market watchers and policymakers, that U.S. domestic farm subsidy outlays in those two years might exceed the annual spending limit of $19.1 billion agreed to as part of U.S. commitments to the WTO. Report Objectives This report examines whether the United States might exceed its WTO spending limit. As background, this report briefly reviews the WTO rules and disciplines on farm program spending. Then, it reviews the types of U.S. farm programs that are subject to WTO disciplines—in particular, it focuses on programs that make direct payments to producers based on agricultural production activities. The review of farm programs includes a discussion of how U.S. compliance may be affected by changes made to U.S. farm programs under the 2018 farm bill (the Agricultural Improvement Act of 2018, P.L. 115-334 ), as well as by the two rounds of ad hoc direct payments made under the Market Facilitation Program initiated by the Secretary of Agriculture in 2018 and 2019 under other statutory authorities. The nature and timing of U.S. farm support program outlays are discussed in the context of relevant WTO commitments—in particular, how different types of program outlays are notified to the WTO and how they might count against the aggregate U.S. spending limit. Finally, this report examines current projections about farm program outlays for 2018-2019 and assesses the possibility of whether U.S. farm program spending might exceed the $19.1 billion spending limit in those years. WTO Disciplines on Farm Program Spending Farm support programs can violate WTO commitments in two principal ways: first, by exceeding spending limits on certain market-distorting programs, or second, by generating market distortions that spill over into the international marketplace and cause significant adverse effects for other market participants. In general, U.S. farm support outlays should be evaluated against both of these criteria for a potential violation of WTO commitments. However, this report focuses on the first potential pathway for a violation: excessive spending. AoA Defines Spending Disciplines WTO member nations have agreed to limit spending on their most market-distorting farm policies. The WTO's AoA spells out the rules for countries to determine whether their policies are potentially trade-distorting, how to calculate the costs of any distortion, and how to report those costs to the WTO in a public and transparent manner. (See the text box "WTO Classification of Domestic Support" below. More detail on WTO classifications of domestic support is provided in two appendices to this report: Appendix A , "WTO Domestic Support Commitments," and Appendix B , "U.S. Domestic Support Notifications.") Domestic farm subsidies under the AoA are measured using a specially defined indicator, the "Aggregate Measure of Support" (AMS). AMS encompasses two types of support provided as a benefit to agricultural producers: product-specific support (that is, benefits linked to a specific commodity) and non-product-specific support (general benefits not linked to a specific commodity). This distinction is important for evaluating compliance, as discussed below. In addition, some types of programs are not subject to spending limits under WTO commitments. The United States, along with 27 other original members of the WTO, agreed to establish ceilings for their non-exempt AMS, referred to as the amber box. The U.S. ceiling for amber box spending has been fixed at $19.1 billion since 2000. If the United States were to exceed its WTO annual spending limit, then U.S. farm support programs could be vulnerable to challenge by another WTO member under the WTO's dispute settlement rules. Some Program Spending May Be Exempt from Disciplines Not all farm support program outlays count against amber box spending limits. Certain domestic support outlays may be exempt from counting against the amber box spending limit if they meet one of four possible conditions ( Appendix A ). First, if a program's outlays are considered to be minimally or non-trade distorting (in accordance with specific criteria listed in Annex 2 of the AoA), then they may qualify as green box programs and not be included in the AMS. Second, if program spending is market-distorting but has offsetting features that limit the production associated with support payments, then they may qualify as blue box programs and not be included in the AMS. Finally, if AMS outlays are sufficiently small relative to the value of the output—measured as a share of either product-specific or non-product-specific output—then they are not included in the amber box. In addition to these exemptions, the timing of outlays across crop, calendar, or marketing years may also influence the calculation of total AMS spending for any given year and help avoid exceeding the amber box spending limit during a particular time period. U.S. Farm Support Programs The U.S. Department of Agriculture (USDA) implements four general types of farm programs that provide payments (classified as AMS) directly to individual producers: Traditional farm p rograms authorized under Title I of the 2018 farm bill ( P.L. 115-334 ). These include the Market Assistance Loan (MAL), Agricultural Risk Coverage (ARC), Price Loss Coverage (PLC), Dairy Margin Coverage (DMC), and sugar programs. Payments under these programs during crop years 2014-2018 were authorized by the 2014 farm bill ( P.L. 113-79 ). These programs were modified by the 2018 farm bill and include payments made for crop years 2019-2023. Because of the way their payments are triggered, outlays under the MAL, DMC, and sugar programs are notified as product-specific AMS, whereas ARC and PLC payments are notified as non-product-specific AMS. Permanent disaster assistance programs include the Livestock Forage Disaster Program (LFP), Livestock Indemnity Program (LIP), Tree Assistance Program (TAP), and Emergency Assistance for Livestock, Honeybees, and Farm-Raised Fish Program (ELAP). Payments under all of these permanent disaster assistance programs are coupled to producer choices and notified as product-specific AMS. The federal crop insurance program provides premium subsidies to producers. Premium subsidies are statutorily defined as a percentage of a policy's total premium, and premiums vary with insured units, coverage levels, and crop values. Since 2012, USDA has notified crop insurance premium subsidies to the WTO as product-specific AMS, since they are coupled to producer crop choices. A d hoc programs may be authorized by the Secretary of Agriculture, outside of Congress, using authority under the Commodity Credit Corporation (CCC) Charter Act to make payments in support of U.S. agriculture. Two such programs are the trade assistance programs of 2018 and 2019. USDA has not yet notified any trade assistance payments to the WTO, nor has USDA announced the WTO classification it intends to use for such payments. Payments under U.S. conservation programs are generally deemed non-market-distorting and are notified as green box, where they are not subject to any spending limit. The traditional revenue support programs, as well as the disaster assistance and ad hoc payment programs, are implemented by USDA's Farm Service Agency (FSA) using mandatory CCC funding. The federal crop insurance program is implemented by USDA's Risk Management Agency (RMA) using mandatory funding from the Federal Crop Insurance Corporation. Farm Program Changes Under the 2018 Farm Bill The United States has instituted several farm program changes since early 2018 that could bring increased scrutiny from other WTO members. With respect to the current incarnation of traditional farm support programs, most were established under previous farm bills. They were reauthorized by the 2018 farm bill but with some modifications that might alter their treatment under WTO disciplines. In general, the 2018 farm bill incrementally shifts farm safety net outlays away from decoupled programs and toward coupled (and more market-distorting) programs. This was done by raising support levels for certain existing coupled programs, removing several of the coupled programs from individual farm payment limit requirements, and expanding the potential pool of family-farm payment recipients, thus weakening payment limit restrictions. Similarly, federal crop insurance coverage was expanded under the 2018 farm bill, thus increasing the potential for greater premium subsidy outlays. Coupled, Product-Specific Support Levels Raised for Selected Commodities The 2018 farm bill increased statutory, product-specific MAL rates for several program crops. MAL payments are coupled directly to actual harvested production (subject to a producer's participation choice). MAL payments may be triggered when the local market price for a MAL commodity falls below its statutory MAL rate. Raising the MAL loan rate has two effects: It increases the probability of triggering a coupled MAL payment when market prices are declining, but it decreases the maximum potential payment under the decoupled PLC program associated with that commodity. The potential for increased MAL payments has become more relevant under the 2018 farm bill, because all MAL benefits were removed from counting against annual USDA producer payment limits. Furthermore, the 2018 farm bill raised support levels for participating dairy producers under the DMC program. DMC payments are triggered when the monthly average of a formula-determined margin, between milk prices and feed costs per unit, falls below a producer-selected margin coverage level. DMC payments are made on a farm-level historical milk production base. Milk producers must participate in the DMC to be eligible for payments. Thus, DMC payments are treated as coupled. DMC, like its predecessor—the Margin Protection Program—operates without any limit on payments received. Coupled payments can influence producer production choices in favor of those farm activities expected to receive larger support payments. If such payments represent a significant share of a commodity's farm value and result in surplus production that moves into international markets, then they could attract the attention of competitor nations. Such spillovers, if measurably harmful to foreign export competitors or producers, could lead to challenges under the WTO's dispute settlement process. Decoupled, Non-Product-Specific Support Potentially Expanded Under ARC and PLC Of the direct payment programs, the ARC and PLC programs are partially decoupled from producer behavior: Payments are made to a portion (85%) of historical base acres irrespective of current-year plantings. However, ARC and PLC payment calculations use current market-year prices to determine if a payment has been triggered, thus partially coupling them to market conditions. The partial decoupling of both ARC and PLC is in deference to WTO rules that view decoupled payments as less distorting of markets than coupled payments. Furthermore, ARC's use of a moving average formula based on historical prices and yields is also in response to a WTO panel finding (under dispute settlement) to consider market conditions in setting program support levels. In contrast, PLC's use of a statutorily fixed reference price ignores market conditions. Similarly, ARC's revenue formula uses the PLC reference price as a floor price. Thus, ARC only reflects market conditions when prices are above PLC reference prices. As a result, both ARC and PLC could be market distorting when market prices are below the statutory reference prices for prolonged periods. By basing ARC and PLC payments on historical acres rather than current planted acres (i.e., current crop choices), the payments are partially decoupled, and USDA notified them as non-product-specific. As a result, ARC and PLC payments have been excluded from counting against amber box spending limits in the WTO since their origin in 2014 under the non-product-specific de minimis exclusion. PLC Program Changes That Expand Potential Payments Two changes to the PLC program under the 2018 farm bill include the option for producers to update their program yields (used in the PLC payment formula) and an escalator provision that could potentially raise a covered commodity's effective reference price (used in both the PLC and ARC payment rate) by as much as 115% of the statutory PLC reference price based on 85% of the five-year Olympic average of farm prices. Both of these options would likely be used by producers only when they offer the potential to expand program payments. ARC Program Changes That Expand Potential Payments The 2018 farm bill also specifies several changes to the ARC program. Among the changes, ARC will use a trend-adjusted yield to calculate its revenue guarantee. In addition, the five-year Olympic average county yield calculations will increase the yield floor (substituted into the formula for each year where the actual county yield is lower) to 80%, up from 70%, of the transitional county yield. This yield calculation is used to calculate the ARC benchmark county revenue guarantee. Both of these yield modifications have the potential to raise ARC revenue guarantees for producers, thus increasing the potential for payments when actual current-year yields or prices turn downward. Joint ARC and PLC Changes The 2018 farm bill offers producers the option in 2019 of switching between ARC and PLC coverage, on a commodity-by-commodity basis, effective for both 2019 and 2020. Beginning in 2021, producers again have the option to switch between ARC and PLC but on an annual basis for each of 2021, 2022, and 2023. This flexibility could allow producers to benefit from current market information to select the program, ARC or PLC, that offers the greatest potential to make payments. Both ARC and PLC payments are subject to annual USDA farm payment limits under the 2018 farm bill (unchanged from the 2014 farm bill). Several Product-Specific Payment Programs Exempted from Payment Limits In a change from previous farm policy, the 2018 farm bill removed several coupled, direct payment programs from annual farm payment limit requirements. These include benefits under MAL and the three permanent disaster assistance programs: LIP, TAP, and ELAP. DMC, like its predecessor—the Margin Protection Program—operates without any farm payment limit. All of these programs make product-specific amber box payments. The absence of a limit on benefits received by an individual farmer under these programs represents the potential for unlimited, fully coupled outlays that count against the U.S. amber box limit unless exempted under the PS de minimis exemption. Higher DMC and MAL support levels increase the potential for higher program payments during a market downturn when prices are lower. Weak market conditions and relatively low commodity prices (below MAL loan rates) would be needed to trigger payments under MAL. DMC payments are triggered by weak farm milk prices relative to feed costs. In contrast, disaster payments are triggered by natural disasters or other qualifying perils occurring at the farm level. Potential Pool of Payment Beneficiaries Expanded The 2018 farm bill made no changes to the "actively engaged in farming" criteria used to determine whether an individual is eligible for farm program payments. However, it modified the criteria for farm program eligibility. The definition of family farm is expanded to include first cousins, nieces, and nephews, thus increasing the potential pool of individuals eligible for individual payment limits on family farming operations. With respect to payment limits and the adjusted gross income (AGI) criteria, the 2018 farm bill left both the payment limit of $125,000 per individual ($250,000 per married couple) and the AGI threshold of $900,000 unchanged. Minor Increase to Sugar MAL Rate The U.S. sugar program does not rely on direct payments from USDA, and no changes were made to this status under the 2018 farm bill. Instead, USDA provides indirect price support via MAL loans to processors at statutorily fixed prices (which were raised 5% by the 2018 farm bill), while limiting both the amount of sugar supplied for food use in the U.S. market and the amount of sugar that may enter the United States under a series of tariff rate quotas. In its 2016 notification of domestic support to the WTO (the most recent notification year), USDA notified the implicit cost of the sugar program at $1.5 billion in market price support. The change in the sugar MAL rate is not expected to influence the United States' implicit sugar cost notification. Federal Crop Insurance Direct Support Expanded Federally subsidized crop insurance is available for over 100 agricultural commodities—including both program commodities and others. Federal crop insurance is permanently authorized by the Federal Crop Insurance Act (7 U.S.C. 1501 et seq. ) but is periodically modified by new farm legislation. The principal subsidy component of federal crop insurance is a premium subsidy that has paid for an average of 63% of the cost of buying crop insurance since 2014. Premiums (and premium subsidies) vary with the type of policy, insured unit, and coverage level selected. Thus, both the premium and its subsidy component are coupled to producer behavior. In its annual notifications to the WTO of domestic support outlays, USDA has declared the premium subsidies as product-specific direct payments to producers (i.e., product-specific AMS). The 2018 farm bill expanded the federally subsidized crop insurance program. In addition, the 2018 farm bill extended the authority for catastrophic policies to forage and grazing crops and grasses. It allows producers to purchase separate crop insurance policies for crops that can be both grazed and mechanically harvested on the same acres and to receive independent indemnities for each intended use. Annual USDA premium subsidies—which have averaged $6.2 billion per year since 2014—count against the U.S. amber box spending limit of $19.1 billion but are subject to potential exclusion at the commodity level under the product-specific de minimis exemption. Large Payments Expected Under Ad Hoc Trade Aid Programs During 2018 and 2019, the Secretary of Agriculture has used his authority under the CCC Charter Act to initiate two ad hoc trade assistance programs. USDA initiated the trade aid packages as part of the Administration's effort to provide short-term assistance to farmers in response to foreign trade retaliation targeting U.S. agricultural products. The first trade aid package was announced on July 24, 2018. It targeted production for selected agricultural commodities in 2018 and was valued at up to $12 billion. The second trade aid package was announced on May 23, 2019. It targeted production for an expanded list of commodities and was valued at up to an additional $16 billion. According to USDA, the two trade aid packages are structured in a similar manner and include three principal components ( Table 1 ): The Market F acilitation P rogram (MFP) provides direct payments to producers of certain USDA-specified commodities. MFP payments are administered by FSA. The Food P urchase and D istribution P rogram (FPDP) is intended to purchase unexpected surpluses of affected commodities such as fruits, nuts, rice, legumes, beef, pork, milk, and other specified products for redistribution through federal nutrition assistance programs. It is administered by USDA's Agricultural Marketing Service. The Agricultural Trade P romotion (ATP) program provides funding to assist in developing new export markets for affected U.S. farm products. It is administered by the USDA's Foreign Agriculture Service in conjunction with the private sector. The two years of trade assistance are valued at a combined $28 billion ( Table 1 ). The largest part of the aid is two years of MFP payments valued at a combined $24.5 billion. The United States has yet to notify spending to the WTO under any of the trade assistance programs, so the exact WTO spending classification is currently unknown. However, past practice can serve as a useful guide for the likely notification. The FPDP and ATP programs for 2018 and 2019 are expected to be implemented in a similar manner during both years. USDA outlays under food purchase and distribution programs have historically been notified to the WTO as green box compliant and thus not subject to any spending limit. Trade promotion programs, such as ATP, are not notified under domestic support, because they do not involve direct payments to producers. Thus, the FPDP and ATP programs are not expected to affect the United States' ability to meet its WTO commitments. However, the anticipated large outlays under the MFP programs have raised questions. Payments under the two MFP programs are structured differently during 2018 and 2019. As a result, they are likely to be notified under different WTO classifications. The specific manner of determining how payments are made to individual producers is likely to determine their WTO status. 2018 MFP Payments Are Likely to Be Notified as Product-Specific AMS USDA's MFP payments for 2018 are based on each farm's harvested production of eligible crops during 2018 times a fixed per-unit payment rate. Payments to dairy are based on historical production, while hog payments use midyear inventory data. Under this specification, 2018 MFP payments are likely to be notified as coupled, product-specific AMS and count against the U.S. annual spending limit of $19.1 billion (unless they are exempted under the product-specific de minimis exemption). USDA initially announced potential 2018 MFP payments of up to $10 billion. As of August 22, 2019, USDA reported that $8.59 billion in MFP payments had already been distributed to producers, including $7.07 billion to soybean producers, $483 million to cotton, $245 million to sorghum, $241 million to wheat, $182 million to dairy, $156 million to hogs, $133 million to corn, $42 million to fresh sweet cherries, and $20 million to shelled almonds. These MFP payments have to be added to all other non-exempt, product-specific payments for each of these commodities and then be evaluated against their individual product-specific de minimis exemptions. Both MFP payment caps and AGI criteria are relevant. However, the FY2019 Supplemental Appropriations for Disaster Relief Act ( P.L. 116-20 ) altered the AGI requirement as it applies to MFP payments such that it may be waived if at least 75% of AGI is from farming, ranching, or forestry-related activities. To the extent that producers expect similar MFP payments to occur in future years, product-specific payments can become market distorting in favor of those commodities with higher per-unit payments and subject to potential WTO challenge. 2019 MFP Payments Are Likely to Be Notified as Non-Product-Specific AMS USDA is making MFP payments for the 2019 trade assistance program under a different formulation that avoids identifying payments with a specific crop. Instead, the underlying product-specific MFP payment rates are weighted at the county level by historical planted acres and yields to produce a single per-acre MFP payment rate for the entire county. This county-specific rate is then applied to each producer's total planted acres for all eligible commodities within that county, irrespective of the share of planted acres for any particular crop. Thus, payments are coupled to a producer's having planted at least one eligible commodity within the county, but they are independent of which commodity or commodities were planted. Under this specification, the 2019 MFP payments would appear to be coupled to planted acres—a producer has to plant an eligible crop to get a payment—but non-product-specific, thus possibly notifiable as non-product-specific AMS. Will U.S. Farm Spending Comply with WTO Limits in 2018 and 2019? The United States has notified its farm program support outlays through the crop year 2016. Under a normal timeline, USDA would notify spending for the crop year 2017 in the fall of 2019. Notification of domestic support for crop year 2018 would not be expected before 2020. Similarly, notification of domestic support outlays for crop year 2019 is not expected before 2021. U.S. compliance with WTO spending limits for 2018 and 2019 cannot be definitively known until notifications for those crop years have been released. As a result, the delay in notification may inhibit or deter another WTO member from bringing a case, assuming that MFP payments are not extended beyond 2019. This section analyzes available data on U.S. farm program payments for crop years 2017, 2018, and 2019 to evaluate the potential for the United States to remain in compliance with its amber box spending limit of $19.1 billion, particularly with the addition of large MFP payments in 2018 and 2019. There are several questions that will largely determine whether the United States remains in compliance with its amber box spending limit. 1. How will USDA classify the MFP payments for 2018 and 2019 in its notifications to the WTO? 2. How will market conditions and commodity prices evolve in 2019 with respect to final crop values and product-specific de minimis exemptions? 3. What will be the final value of total U.S. farm output in 2019 for evaluating the 5% non-product-specific de minimis exemption threshold against total non-product-specific AMS outlays? 4. How will market conditions affect decoupled ARC and PLC payments and total non-product-specific outlays in 2019? 5. Will the U.S.-China trade dispute continue into 2020, and if so, will a third year of trade assistance be in the offing? In response to the first question, the 2018 MFP payments appear to be coupled, product-specific AMS, whereas 2019 MFP payments appear to be non-product-specific AMS. Thus, different de minimis exemptions will be important for these two programs when evaluating compliance in 2018 and 2019. Sources for Farm Program Outlay Data for 2018 and 2019 To conduct an analysis of the potential WTO compliance of U.S. farm program spending for 2017, 2018, and 2019, data are drawn from several sources. Whenever available, actual USDA program outlays are used. For example, FSA estimates DMC outlays for 2019 at approximately $300 million. Federal crop insurance premium subsidy outlays are available for the 2018 and 2019 crop years from USDA's RMA. When actual data are unavailable for any major farm program (most notably under ARC and PLC), then the projected spending data from the Congressional Budget Office (CBO) baseline for farm programs are used. Wherever values are not available from either USDA or CBO, then the 2017 value is repeated for 2018 and 2019. With respect to MFP program outlays, USDA has not released any official payment data on outlays under the 2018 or 2019 MFP programs, although some information has been released episodically to various news media (for example, see footnote 42 ). CRS relies on those media reports for information on 2018 MFP payments. Final MFP payments for 2018 are projected by CRS at $8.7 billion. The full $14.5 billion for 2019 MFP payments is incorporated into the WTO notification projection for 2019. Compliance Hinges on the Non-Product-Specific De Minimis Threshold According to this analysis, U.S. amber box spending for 2018, projected at over $14 billion, fits within the U.S. spending limit of $19.1 billion ( Table 2 ). However, if realized, this would be the largest U.S. amber box notification since 2001 ( Figure 1 ). Large product-specific outlays to soybeans (projected at $8.275 billion), wheat ($1.153 billion), cotton ($990 million), and peanuts ($231 million) in particular exceed their product-specific de minimis exemptions and contribute to the large amber box projection for 2018. A more uncertain result is found for 2019. The expansion of MFP payments to $14.5 billion in 2019, and their shift to a non-product-specific WTO classification, suggests that the United States may potentially approach or exceed its $19.1 billion amber box spending limit. In this analysis, U.S. compliance with WTO spending limits in 2019 depends on how eventual aggregate non-product-specific outlays compare with the final 5% non-product-specific de minimis threshold as evidenced by the two scenarios presented in Table 2 and discussed below. Scenario 1: Non-Product-Specific Outlays Not Exempted Under De Minimis Under scenario 1, the value of total U.S. farm output for 2019 is projected at $378 billion ( Figure 1 ). This is roughly equivalent to a three-year average of $377.954 billion for crop years 2014-2016. If realized, the $378 billion in total farm output would yield a 5% non-product-specific de minimis threshold of $18.9 billion. Total non-product-specific outlays for 2019 are projected at $18.92 billion—just in excess of the non-product-specific de minimis exemption threshold. As a result, the full $18.92 billion of non-product-specific AMS would count against the amber box spending limit. When combined with the projected $5.119 billion in product-specific, non-exempt AMS outlays, total U.S. amber box outlays in 2019 would be a projected $24.039 billion—in excess of the $19.1 billion spending limit. Scenario 2: Non-Product-Specific Outlays Exempted Under De Minimis Under scenario 2, an entirely different result is produced with only a minor increase in the projected value of total U.S. farm output at $380 billion ( Figure 2 ), up $2 billion from scenario 1. The choice of $380 billion in the total output value in scenario 2 highlights the sensitivity between compliance and noncompliance based on a small (0.53%) change in total output value between the two scenarios. In this scenario, the 5% non-product-specific de minimis threshold is $19 billion, and the entire projected non-product-specific AMS total of $18.92 billion would be exempted from counting against the amber box spending limit. As a result, total U.S. amber box outlays under scenario 2 would be equal to the projected product-specific, non-exempt AMS total of $5.119 billion—within the amber box spending limit. Other Potentially Influential Factors Other factors that could alter this analysis are the final realized 2019 market year average farm prices and county revenue values used to determine outlays for major program crops under the MAL, PLC, and ARC programs. Also, crop yields for corn and soybeans in 2019 are still uncertain due to the delayed planting and late crop progress in several important growing regions. Better-than-expected yields or higher-than-expected harvests could push market prices lower, whereas lower yield or harvest estimates could help to raise farm prices. Also, a continuation or possibly a deepening of the U.S.-China trade dispute could keep downward pressure on commodity markets. If the final price and revenue values are lower than currently projected, then program payments under ARC and PLC could be larger than those used in this analysis. This could increase aggregate non-product-specific outlays and increase the possibility of exceeding the 2019 amber box spending limit. At the same time, lower market values, if realized, would contribute to a lower total valuation for U.S. farm output and a subsequent lower 5% non-product-specific de minimis threshold for aggregate non-product-specific outlays to surpass, thus affecting the potential non-product-specific de minimis exemption status. In contrast, resolution of the U.S.-China trade dispute and an improved demand outlook could have the opposite effect of raising prices and commodity output values while lowering payments under countercyclical farm programs such as MAL, PLC, and ARC. Conclusion According to the scenarios developed in this analysis, including a projected set of market conditions, the United States may potentially exceed its cumulative amber box spending limit of $19.1 billion in 2019. Excessive amber box payments in 2019 could result from the addition of large MFP payments to the traditional decoupled revenue support programs ARC and PLC. However, this analysis found that U.S. compliance with WTO amber box spending limits was very sensitive to a change in market conditions and market valuations. Noncompliance hinges on many key market factors that are currently unknown but would have to occur in such a manner as to broadly depress commodity prices through the 2019 marketing year (which extends through August 31, 2020, for corn and soybeans). Another crucial uncertainty is how the U.S.-China trade dispute—with its deleterious effects on U.S. agricultural markets—will evolve. Resolution of the U.S.-China trade dispute and an improved demand outlook could lead to higher commodity prices and output values while lowering payments under countercyclical farm programs such as MAL, PLC, and ARC. Such a turn of events could help facilitate U.S. compliance with its WTO spending limits. Appendix A. WTO Domestic Support Commitments WTO member nations have agreed to limit spending on their market-distorting farm policies. With respect to farm program outlays, the AoA spells out the rules for countries to determine whether their policies are potentially trade-distorting, how to calculate the costs of any distortion, and how to report those costs to the WTO in a public and transparent manner. Aggregate Measure of Support (AMS) Domestic support is measured in monetary terms and expressed as the AMS. Domestic support includes both direct and indirect support in favor of agricultural producers—in other words, it includes any government measure that benefits producers, including revenue support, input subsidies, and marketing-cost reductions. Domestic subsidies include both budgetary outlays and revenue forgone by governments. Such support is measured at both the national and subnational level (i.e., state, county, or other local level). Producer-paid fees are deducted from the AMS. Domestic support should be calculated as closely as practical to the point of first sale of the basic agricultural product concerned—preferably at the farm gate. Support measures directed at processors should be included to the extent that such measures benefit producers. AMS encompasses two types of support provided as a benefit to agricultural producers: product-specific support (that is, benefits linked to a specific commodity) and non-product-specific support (a general benefit not linked to a specific commodity). Certain AMS outlays may be exempt from counting against any WTO spending limit if they comply with criteria defined under either the green or blue box or if their sum is sufficiently small as to be deemed benign under the de minimis exemption. (Exemptions are described below.) Amber Box Outlays Non-exempt AMS outlays are referred to (or classified) as "amber box" spending and subject to a strict spending limit. Under WTO commitments, cumulative U.S. amber box outlays are limited to $19.1 billion annually. Goal of AMS Exemptions By leaving no constraint on green or blue box compliant spending, while imposing limits on amber box spending, the WTO's AoA classification structure encourages countries to design their domestic farm support programs to be more green and blue box compliant and less market-distorting. Green Box Exemptions Green box programs are minimally or non-trade-distorting and are not included in the AMS—thus they are not subject to any spending limits. Examples of green box programs include domestic food assistance programs, conservation and environmental programs, and general services such as research, inspection services, and extension activities. In its most recent notification to the WTO, the United States declared $119.5 billion in outlays for programs that met green box criteria during the 2016 crop year. A key to evaluating whether a program's annual outlays qualify for the green box exemption is to assess how payments are triggered. If payments are fully decoupled from producer behavior and market conditions and instead are based on some other independent criteria such as historical planted acres, then they could potentially be excluded from the AMS under the green box criteria. For example, Direct Payment outlays under the 1996, 2002, and 2008 farm bills were fully decoupled and thus exempted from the AMS under green box criteria. If, instead, payments are coupled to current producer behavior (such as planted acres or harvested output) or to market conditions (such as price movements or trade levels), then they likely are not eligible for exemption from the AMS under green box criteria. Blue Box Exemptions Blue box programs are described as market-distorting but production-limiting. Blue box programs generally have a supply-control feature that partially offsets their trade-distorting effects. For example, payments may be based on either a fixed area or yield or a fixed number of livestock or are made on less than 85% of base production. As such, blue box programs are not included in the AMS—thus they are not subject to any spending limits. The United States has not notified any program spending under the blue box criteria since 1995. De Minimis Exemptions from AMS Programs outlays that fail to meet green or blue box criteria are part of the AMS. However, there are two additional exemptions that may prevent AMS outlays for certain programs from counting against the amber box spending limit. If AMS spending is sufficiently small (as described below), then it is deemed to be benign and excluded from counting under the AMS's amber box. There are two types of de minimis exemptions: product-specific and non-product-specific. Product-specific outlays include all coupled outlays that are linked to the current planting or production of a specific commodity. Under the product-specific de minimis exemption, if total product-specific program outlays for a commodity are less than 5% of the value of production for that commodity, then such spending may be excluded from the country's AMS. Product-specific outlays are evaluated on a commodity-by-commodity basis against the 5% de minimis threshold. N on- product -specific outlays include all AMS outlays that are decoupled from the specific commodities that are actually produced but are coupled to a non-commodity-specific measure such as market conditions or national average prices. All non-commodity-specific AMS outlays are aggregated and evaluated against 5% of the total value of U.S. agricultural output. Coupled, Product-Specific Payments If the payment is based on the planted or harvested area or output of a specific commodity during the crop year, then program payments would be coupled directly to farmer behavior. Such payments would likely be notified as product-specific AMS spending and would count against the amber box ceiling. However, product-specific payments could potentially be excluded from counting against the AMS total by the product-specific de minimis exclusion—if they are less than 5% of the value of that specific commodity's output during that crop year. Coupled or Partially Coupled, Non-Product-Specific Payments If the payment is based on a formula that pools the planted or harvested area or output of several commodities—for example, as a single county-level payment—but where the farmer need only have produced at least one of the pooled commodities to be eligible for the full county payment, then the payment could potentially be notified as coupled, non-product-specific AMS. Both ARC and PLC outlays on base acres are notified this way. However, ARC and PLC payments made on generic base under the 2014 farm bill were notified as commodity-specific payments, since the farmer had to plant the specific crop to receive a payment. If the payment is based on a historical measure such as planted or harvested acres or output for some past period of time, but where some production of an eligible crop must occur during the current crop year to be eligible for a payment, then the payments would likely be notified as partially decoupled, non-product-specific payments. Annual Notification of Compliance To provide for monitoring and compliance of WTO policy commitments, each WTO member is expected to submit annual notification reports of domestic support program spending within the context of the agreed-to WTO commitments. However, there is no enforcement mechanism or penalty for late notifications. The annual period used by each WTO member—calendar, fiscal, or marketing year—is specified in the "schedule of concessions" (also referred to as the country schedule). The WTO's Committee on Agriculture reviews the annual notifications. However, the notification reports are public documents—they are posted online by the WTO where they are available for review (and possible challenge) by any other member or third party. Appendix B. U.S. Domestic Support Notifications The most recent U.S. notification to the WTO of domestic support outlays (made on October 31, 2018) is for the 2016 crop year. The majority of U.S. domestic agricultural program outlays have been categorized as indirect support that adhere to green box criteria ($119.5 billion) and thus have not been subject to any payment limit. In addition, the United States has traditionally relied on the de minimis exemptions to exempt substantial program outlays from counting against the amber box spending limit. In 2016, the United States notified $16 billion in AMS outlays (prior to applying eligible exemptions), including $8.6 billion of product-specific spending and $7.4 billion of non-product-specific spending. However, the United States notified $12.2 billion in de minimis exemptions, thus reducing the original $16 billion AMS to just $3.8 billion in amber box spending to count against the $19.1 billion spending limit. With respect to the non-product-specific de minimis exemption, the total value of U.S. national agricultural output in 2016 was $355.5 billion. As a result, the 5% de minimis non-product-specific threshold was $17.8 billion. Since non-product-specific outlays of $7.4 billion were well below this threshold, they were exempted in total from counting against the amber box spending limit. In addition, the United States notified $4.8 billion in product-specific de minimis exemptions. An example of a product-specific de minimis exemption is corn. In 2016, U.S. corn production was valued at $51.3 billion. Thus the product-specific 5% value threshold for corn was $2.565 billion. The United States notified $2.345 billion in AMS for corn in 2016, but since it was less than the 5% threshold, the entire amount was exempted from counting against the amber box limit. Similarly, product-specific exemptions for other crops made up the difference for the $4.8 billion in total product-specific exemptions. The De Minimis Exemption Aids U.S. Compliance Since 1995, the United States has stayed within its amber box spending limits ( Figure B-1 ), but this compliance has hinged on use of the de minimis exemptions in a number of years (e.g., 1999-2001 and 2005) to exclude substantial AMS spending from counting against the amber box limit. Since the 2002 farm bill ( P.L. 107-171 ), the United States has designed several of its major farm revenue support programs to meet non-product-specific criteria. Since the non-product-specific de minimis exemption threshold is measured as a share of the total value of U.S. agricultural output, it is associated with a very large exemption threshold. From 2010 to 2016, the value of total U.S. agricultural output has averaged $376.8 billion, which implies an average non-product-specific 5% de minimis threshold of $18.8 billion. The manner by which the United States has notified its amber box outlays—that is, non-product-specific versus product-specific—has changed over the years (particularly for federal crop insurance subsidies) in such a way as to facilitate compliance with the amber box spending limit. Generally, non-product-specific de minimis exemptions are much larger than product-specific de minimis exemptions ( Figure B-1 ). Since 201 0, non-product-specific de minimis exclusions have averaged $4.8 billion annually, compared with average product-specific exclusions of $3.8 billion. The largest non-product-specific exemption was reached in 2011, when $7.5 billion in net crop insurance indemnities was exempted. In 2011, U.S. agricultural output value was $380.8 billion, which, in turn, yielded a non-product-specific 5% value threshold of $19.0 billion. Starting in 2012, USDA switched to notifying crop insurance premium subsidies for each individual insured commodity as product-specific. Since then, crop insurance premiums are evaluated at the individual crop level and eligible to be exempted under the product-specific de minimis exemption if they do not exceed 5% of the value of that commodity's output when combined with other PS outlays for that commodity. Since 2012, over $5 billion in product-specific crop insurance premium subsidies have been exempted each year. As a result of this crop insurance notification switch, coupled with relatively high farm prices during 2012 and 2013 that reduced payments on the non-product-specific revenue support programs, product-specific de minimis exemptions surpassed non-product-specific exemptions during those two years. Then, starting in 2014, under program changes authorized by the 2014 farm bill ( P.L. 113-79 ), the value of non-product-specific exemptions again surpassed product-specific exemptions. This was driven by large non-product-specific outlays under the new, decoupled revenue support programs ARC (which incorporated high farm prices into its payment formula) and PLC. Annual ARC and PLC outlays averaged a combined $6.7 billion during 2014-2016, including $4.7 billion for ARC and $2.0 billion for PLC.

As a member of the World Trade Organization (WTO) agreements, the United States has committed to abide by WTO rules and disciplines, including those that govern domestic farm policy as spelled out in the Agreement on Agriculture (AoA). Since establishment of the WTO on January 1, 1995, the United States has complied with its WTO spending limits on market-distorting types of farm program outlays (referred to as amber box spending). However, the addition of large, new trade assistance payments to producers in 2018 and 2019, on top of existing farm program support, has raised concerns by some U.S. trading partners, as well as market watchers and policymakers, that U.S. domestic farm subsidy outlays might exceed the annual spending limit of $19.1 billion agreed to as part of U.S. commitments to WTO member countries. CRS analysis indicates that the United States probably did not violate its WTO spending limit in 2018 but could potentially exceed it in 2019. A farm support program can violate WTO commitments in two principal ways: first, by exceeding spending limits on certain market-distorting programs, and second, by generating distortions that spill over into the international marketplace and cause significant adverse effects. Program outlays are cumulative, and compliance with WTO commitments is based on annual aggregate spending levels. Under the WTO's AoA, total U.S. amber box outlays (that is, those outlays deemed market distorting) are limited to $19.1 billion annually, subject to de minimis exemptions. De minimis exemptions are spending that is sufficiently small (less than 5% of the value of production)—relative to either the value of a specific product or total production—to be deemed benign. Since 1995, the United States has apparently stayed within its amber box limits. However, U.S. compliance has hinged on judicious use of the de minimis exemptions in a number of years to exclude certain amber box spending from counting against the amber box limit. These exemptions have never been challenged by another WTO member. According to CRS analysis, projected U.S. amber box spending for 2018 (inclusive of $8.7 billion in product-specific outlays under the 2018 trade assistance package) could exceed $14 billion. This would be the largest U.S. amber box notification since 2001. However, despite its magnitude, it still would fit within the U.S. spending limit of $19.1 billion. A more ambiguous result is projected for 2019. The expansion of direct payments under a second trade assistance package to $14.5 billion in 2019 and their shift to a non-product-specific WTO classification—when combined with currently projected spending under other non-product-specific programs such as the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs—could push U.S. amber box outlays above $24 billion. This would be in excess of the U.S. amber box spending limit of $19.1 billion. However, this projection hinges on several as-yet-unknown factors, including market prices, output values, and program outlays under traditional countercyclical ARC and PLC programs. If the final price and revenue values are higher than currently projected, then program payments under ARC and PLC could be smaller than those used in this analysis. This could decrease both aggregate non-product-specific outlays and the possibility of exceeding the amber box spending limit. If cumulative payments in any year were to exceed the agreed-upon spending limit, then the United States would be in violation of its commitments and could be vulnerable to a challenge under the WTO's dispute settlement mechanism. Furthermore, to the extent that such program outlays might induce surplus production and depress market prices, they could also result in potential challenges under the WTO.

GAO_GAO-19-564

Background School-age children can access the internet in a number of ways. Their households may subscribe to in-home fixed internet, which is generally provided by cable television or telephone companies. School-age children, and other users, can connect a variety of devices to in-home fixed service through a wired connection or a Wi-Fi connection. They may also access the internet through mobile wireless service, which is provided through cell towers, with data transmitted over radio frequency spectrum. Mobile service providers usually sell internet access as an option in mobile telephone-service plans. A number of devices may connect to mobile wireless, such as smart phones, tablets, and mobile devices that enable laptops to connect to mobile wireless service. Finally, school-age children and others may access the internet outside the home through other ways, including publicly available Wi-Fi access at places such as libraries and coffee shops. FCC has found that Americans in lower-income areas are less likely to have access to both in-home fixed and mobile wireless internet than those in higher-income areas. Similarly, according to our analysis of data from the November 2017 CPS: Computer and Internet Use Supplement, among all school-age children, those in lower-income households are less likely to use the internet at home than those in higher-income households (see fig. 1). A number of factors explain the digital divide, or the varying levels of access among different populations. For example, as we have reported in the past, rural areas tend to have conditions such as low population density or difficult terrain that can increase the costs for internet providers to deploy and maintain internet networks. Furthermore, lower-income households with access to the necessary infrastructure for internet service may not be able to afford it. (See fig. 2.) While some in-home fixed internet providers offer low-cost service for lower-income households with school-age children, according to a 2016 survey, an estimated 5 percent of households with school-age children ages 6 to 13 and incomes at or below the federal poverty guidelines had ever signed up for such programs. Lower rates of internet access by lower-income households may make it more difficult for school-age children in those households to do homework. According to a 2018 Pew Research Center survey, a higher percentage of surveyed teens in lower-income households said that the lack of a dependable computer or internet connection sometimes prevents them from finishing their homework compared to teens in higher- income households. In addition, according to the Consortium for School Networking, the lack of in-home access makes it more difficult for parents to support their children academically. Specifically, as much communication between schools and parents has moved online, the lack of access may make it difficult for parents to stay connected to teachers and be informed about school notices, homework assignments, and other important information. FCC, which regulates commercial and other nonfederal spectrum, conducts activities that affect the ability of schools to address the homework gap. Specifically, it plays a role in expanding internet access by assigning licenses for Educational Broadband Service (EBS) spectrum, which permits schools and other eligible entities to transmit educational materials electronically. Currently, EBS license holders are allowed to lease excess capacity to others, including commercial wireless providers, for up to 30 years as long as the license holder has 20 hours of educational use per week per licensed channel and reserve the right to access 5 percent of the capacity for educational use. Schools that have such leases may need to wait years to regain full use of their EBS license. Furthermore, the last opportunity for school districts to apply for new EBS licenses was in 1995, and according to FCC, EBS licenses cover about half the geographic area of the United States, with rural areas west of the Mississippi River generally lacking licenses. However, FCC recently adopted a Report and Order with rules that, once effective, will change the eligibility requirements for EBS licenses, among other things. In addition, FCC supports internet investments at schools through the E- rate program, which provides discounts on telecommunications and internet access services, internal connections, and basic maintenance of internal connections. This program provides schools with higher percentages of lower-income students greater discounts on these services; for example, the most disadvantaged schools, where at least 75 percent of students are eligible for free or reduced price school lunch, receive a 90 percent discount. All services supported by the E-rate program must be used primarily for “educational purposes,” which FCC has defined as meaning “activities that are integral, immediate, and proximate to the education of students.” Education’s Office of Educational Technology also plays a role related to internet access for students by developing national educational- technology policies and providing guidance to schools and school districts on technology use in schools. For example, in January 2017 the office issued a letter to schools and school districts about Education grant funds that could be used to support the use of technology to improve instruction and student outcomes. It also issued a report in 2017 on the use of technology in schools; the report provided guidance on how to modernize the technology needed for digital learning, such as schools’ internet networks and internet-enabled devices. Education also collects, analyzes, and reports on a range of data from schools and school districts. For example, every year from 1994 to 2005 (except 2004 due to a lack of funding according to Education officials), the department collected data on internet access in schools and classrooms. In 2008, Education conducted three similar surveys at the district, school, and teacher levels on the availability and use of a range of educational technology resources, such as networks, computers, devices that enhance the capabilities of computers for instruction, and computer software. Due to a lack of funding, Education did not conduct additional similar surveys. However, the department recently finished administering a different survey effort, funded from different sources, that we discuss later in this report. School-Age Children in Lower-Income Households Face Challenges in Doing Homework Involving Internet Access and May Be More Likely to Rely on Mobile Wireless According to our analysis of November 2017 CPS: Computer and Internet Use Supplement data, lower-income households with school-age children may be more likely than those in higher-income households to be reliant on mobile wireless service, such as through smart phones, for internet access. As seen in figure 3, among all households with school-age children, an estimated 22 percent with incomes of less than $25,000 per year use mobile wireless to access the internet but not in-home fixed high-speed internet service, in contrast to 8 percent with incomes of $75,000 or more per year. School-age children whose households only have mobile wireless internet access may face challenges in using it for homework, including: Device limitations. Students in mobile wireless-only households may have to rely on devices like smartphones that may not be well suited for academic tasks. A recent Pew survey found that an estimated 45 percent of teenagers in lower-income households say they sometimes have to do homework on a smartphone. However, most of the stakeholders we interviewed told us that smartphones are not adequate for doing homework for various reasons, including that they are too small for typing papers and that not all educational websites are compatible with smartphones. According to these stakeholders, other devices such as desktops or laptops are better suited for homework; however, among all school-age children, those in lower- income households are less likely than those in higher-income households to use these devices (see fig. 4). Data limitations. A majority of the stakeholders we interviewed said that wireless plans’ data caps—a limitation on the amount of data the subscriber can download and upload per month—could make it difficult for school-age children to do homework, because, for example, once the data cap is reached, the provider may decrease connection speeds or impose additional costs for further data use, which could hinder completion of homework. A 2016 survey found that an estimated 39 percent of lower-income households with school- age children—in this case those with incomes less than the federal poverty guidelines—had reached a data cap, compared to 25 percent of higher-income households. Varying service quality. Mobile wireless may be less reliable and slower than in-home fixed service, which can make doing homework more challenging. In 2018, FCC concluded that mobile wireless services are not full substitutes for in-home fixed service, because mobile wireless quality can be affected by user location, indoor obstructions, outdoor foliage, and weather, among other factors. In addition, we reported in 2015 that the availability and quality of mobile wireless service connections vary based on location and terrain. For example, according to officials with Albemarle County Public Schools in Virginia, while most students who participated in a recent survey indicate that they have mobile wireless internet access at home, that access may only offer poor quality connections and slow speeds due to mountainous terrain. As a result, mobile wireless access may have limited usefulness for homework purposes. A 2018 survey by the Pew Research Center found that about 20 percent of teens from lower-income households say that they sometimes have to use public Wi-Fi for homework given a lack of access at home. As shown in figure 5, stakeholders we interviewed and literature we reviewed identified a number of potential challenges students may encounter in using methods to access the internet outside the home to do their homework. Efforts by Selected School Districts to Increase Wireless Internet Access for Underconnected Students Varied, with Limited Federal Involvement School Districts, with Limited Federal Involvement, Have Taken Various Steps to Increase Wireless Internet Access for Underconnected Students The six selected school district projects we reviewed have taken various approaches to address the homework gap by providing wireless internet service to students who may lack access at home. Most of these projects provide wireless internet access to students who lack in-home fixed internet and do not necessarily limit it to students in lower-income households. In addition, all but one of these projects provide filtered access, meaning that students using these services are subject to the same usage restrictions as if they were on-site in school. Approaches included: Provide wireless hot-spot devices. The Green Bay Area Public School District in Wisconsin loans out mobile wireless hot-spot devices to students throughout the district who do not have access at home, providing them filtered internet access in their homes or elsewhere in the community. The hot-spot devices are available on loan from school libraries to any student who claims a need for one regardless of household income. Students may use district-issued Chromebooks or other internet-enabled devices, which then connect to the district’s internet resources via the hot-spot device using service provided by a commercial mobile-wireless provider. Build or use a private network. Some districts have built new or expanded existing networks to provide internet access to students using a variety of approaches. Albemarle County Public Schools in Virginia uses EBS spectrum to provide access to students in community centers in mobile home parks in this mountainous district where, according to school district officials, many students lack service at home. The district also plans to install wireless receiver devices in selected students’ homes through which those students will be able to connect internet-enabled devices via Wi-Fi. Desert Sands Unified School District in California also built out an EBS network to provide internet access to students who lack service at home. According to officials with that district, the benefit of this approach is that it involved only a one-time cost to build the network, rather than recurring annual payments to a commercial mobile-wireless provider for service. Two rural, low-income school districts in Virginia—Charlotte County Public Schools and Halifax County Public Schools—partnered with Microsoft to provide service through unlicensed white space devices (which operate on frequencies not being used by television broadcasters or 600 MHz wireless providers) to students who lack access at home, regardless of income . According to Microsoft, the use of unlicensed white space devices is a good solution to providing wireless access in rural areas where other technologies may be uneconomical and such frequencies tend to be available. Students who use this service receive a device that is installed in their home that wirelessly connects to the district’s network and transmits to other devices in the home via Wi-Fi. The Boulder Valley School District in Colorado allowed a local wireless provider to build antennas on some school buildings in order to serve its customers in exchange for providing free service to lower- income students, determined based on student eligibility for free or reduced price lunch. According to a school district official, the provider has installed antennas at three schools, providing access to students living within a 3-mile radius, and plans to install antennas at most remaining schools in the district. That official told us that this model may not work in many other school districts, as there may not be sufficient population density to make it economically beneficial for a commercial provider to agree to provide such service. Equip school buses with Wi-Fi. The Coachella Valley Unified School District, which covers a large geographic area in California where many students lack in-home fixed access, equipped its fleet of about 100 school buses with Wi-Fi in 2014, enabling students to do homework during long bus rides. A commercial mobile-wireless provider connected the Wi-Fi router on the bus to the district’s network. In order to access Wi-Fi on the buses, students had to use district-issued devices that they were allowed to bring home after school. The district also parked Wi-Fi-equipped school buses and other district vehicles overnight in neighborhoods with a high proportion of students who brought district-issued tablets home in order to provide access to students who likely lacked internet at home. However, the district stopped this initiative in 2017 due to limited funding and is now seeking out alternative funding sources to reactivate the program. While none of the projects described above used any funding from Education, the department has identified six existing grants that schools and districts could use under certain conditions to support internet investments, although not necessarily wireless investments specifically. While the purpose of each of these grant programs isn’t specific to internet investments, Education identified specific types of internet investments that these grant funds can be used for. We did not make a determination as to whether any of the grant funds could have supported the efforts we reviewed. Representatives of two of the school districts we met with stated that they would like to see additional information on Education grants that could be used to support internet investments. Education officials said the department has taken the first step to developing a strategy to share information about these grants by developing a coordinated communications strategy through its Office of Rural Engagement. They added that the department will then continue to build a broader strategy. Education is also finalizing data collection on a survey that will collect some data regarding the homework gap. As mentioned earlier, until 2008 Education collected survey data over a number of years about information technology and internet access in schools and classrooms. According to Education officials, the department stopped collecting such data due to a lack of funding. However, the department is now finalizing a survey that is collecting nationally representative data about public school teachers’ use of computers and the internet, and their knowledge of students’ access to computers and the internet outside the classroom. The survey is collecting data that pertain to the homework gap, including the extent to which schools provide wireless hot-spot devices to students to take home; the extent to which teachers think students access the internet outside of school, such as at home, libraries, or businesses; and the extent to which teachers think smartphones are useful for doing homework. According to Education, the department finished administering the survey in June 2019 and plans to release the results in April 2020. The survey data may provide Education and others, including FCC and Congress, with useful information that can inform policy and other decisions related to the homework gap, such as how best to support schools’ efforts to expand wireless access for underconnected students. FCC had a minor role in some of the school district projects by having previously granted EBS licenses to some districts that use EBS spectrum to provide wireless access. However, according to FCC documentation, many schools and school districts do not have EBS licenses—such as those in rural areas in the western United States—and some that have obtained a license now lease their capacity out on a long-term basis to commercial providers. As a result, school districts may be limited in using EBS to provide wireless access to students or have to take additional steps to use EBS. Desert Sands Unified School District officials said that the district did not have an EBS license and that the local license holder had leased it out to a commercial provider, so the district worked with that provider to build out its EBS network. Albemarle County Public Schools had leased out its EBS license to a commercial provider years ago, but because that provider was not utilizing that spectrum, the school district was able to reclaim it. FCC has taken recent steps that may affect the extent to which school districts are able to use EBS to provide wireless access. In May 2018, FCC issued a Notice of Proposed Rulemaking seeking comment on proposed changes to how it manages EBS to encourage and facilitate its efficient use. In July 2019, FCC adopted a Report and Order that makes a number of changes to the EBS spectrum and its use. Specifically, once effective, these rules will eliminate eligibility restrictions for EBS licenses and eliminate the educational use requirement of the spectrum. FCC Has Not Fully Evaluated the Possibility of Expanding the E-Rate Program to Include Off- Premises Wireless Access While FCC’s E-rate program supports schools’ connectivity by providing discounts for eligible services, program rules may limit the ability of schools and school districts to address the homework gap. Specifically, program rules specify that off-premises use of such services is not eligible for E-rate support and require that any off-premises traffic must be cost allocated out of school districts’ E-rate discounts. For example, any off- premises traffic supported by existing E-rate-supported products or services requires a reduction in the E-rate discount for those existing E- rate supported products and services. This reduction may increase costs for school districts as they would no longer receive all their potential E- rate discounts. Officials representing all six of the school district projects we reviewed suggested that program rules limiting eligibility for off- premises use and requiring cost-allocation may inhibit the ability of school districts to expand off-premises wireless access, and thus address the homework gap. For districts that do provide wireless access off-premises, E-rate program restrictions may still pose challenges. For example, according to an official with Desert Sands Unified School District, the district had to buy a separate line of internet access to avoid having that off-premises traffic travel through the district’s existing E-rate-supported network, which would have required cost-allocation and a reduction of the E-rate discount for that existing E-rate supported network. According to officials with Microsoft, Charlotte County Public Schools and Halifax County Public Schools had to separate their off-premises unlicensed white space device traffic from internet traffic that passed through E-rate-discounted access in the schools. An official with Boulder Valley School District said that the district had to terminate an earlier effort to extend access to students in a housing development after being told that it could not provide off- premises access with program-discounted equipment without cost- allocation. In September 2016, FCC issued a Public Notice requesting public comment on two petitions filed with the agency seeking to allow the petitioning school districts to use existing E-rate-program-supported services and equipment for off-premises access without having to cost- allocate that traffic out of their existing E-rate discounts. Cost allocating out that traffic would result in reduced E-rate discounts for school districts, and therefore higher costs, for existing services and equipment supported by E-rate. FCC rules allow parties to petition for waivers of rules if they can demonstrate that special circumstances warrant deviation from the existing rules and doing so serves the public interest. According to FCC officials, the petitions are pending and the agency has not yet taken further formal action on this Public Notice. The petitions are described in more detail below. In May 2016, the Boulder Valley School District filed a petition requesting a waiver of the cost allocation rules in order to use its E- rate-program-supported network to provide internet access to students at public housing facilities after school hours. In the petition, the district argued that because traffic on its E-rate program- supported network dramatically decreased after school hours, using that network to provide access during that time would not impose any additional costs on the E-rate program. Microsoft and others—including the school districts in Charlotte and Halifax counties—filed a petition in 2016 to obtain clarification that those school districts could provide wireless access to students’ homes for educational purposes by extending the districts’ existing E- rate-supported services using the districts’ unlicensed white space device network without cost allocating that traffic from the existing E- rate discounts. The petition stated that the infrastructure to provide service to unlicensed white space devices would not be funded with E-rate program funds, and that these districts were not well served by commercial internet providers. In comments filed with FCC, Microsoft argued that projects covered by both petitions would provide in-home access for students without imposing any additional costs to the E- rate program and that the projects would increase the productivity of E-rate by using existing resources more efficiently. Previously, FCC explored the possibility of making wireless off-premises access an allowable E-rate program expense—which would eliminate the requirement to cost-allocate such traffic—in a 2011 to 2012 pilot program. When establishing this pilot program, FCC noted commenter concerns regarding the potential administrative, legal, technological, and procedural challenges of expanding E-rate funding to off-campus premises. The pilot program provided funding from July 2011 to June 2012 and sought to “investigate the merits and challenges of wireless off- premises connectivity services” and to “gain a better understanding of operation and administrative issues associated with off-premises use and connectivity, as well as the financial impact on the E-rate program overall.” Furthermore, the pilot program sought to help FCC determine whether off-premises connectivity services “should ultimately be eligible for E-rate support.” FCC provided a total of $9 million in grants to 20 pilot-program participants—19 schools or school districts and one community library system—to implement projects enabling innovation in learning outside the boundaries of school buildings and the traditional school day, including those that provided off-premises wireless access and wireless devices to students. Recipients were not required to cost allocate the off-premises traffic as part of the pilot. FCC required all pilot participants to file interim and final reports that included information about project benefits, such as the extent to which students provided with wireless devices used them and the effect of increased internet access on academic outcomes; project costs; the effectiveness of measures to prevent project waste, fraud, and abuse, to filter content, and to ensure that students only used the devices for educational purposes; and lessons learned. According to FCC, those reports would allow it to assess the impact of selected pilot projects on the schools and to gather lessons learned that would help others implement similar projects in the future. In addition, FCC said it would evaluate the effectiveness of the pilot program to determine whether off- premises wireless access should be eligible for E-rate program support. While FCC received interim and final reports from most pilot participants, it did not determine a methodology for evaluating the data provided in those reports. Furthermore, FCC did not publish a report evaluating the effectiveness of the pilot program, including the potential costs, benefits, and challenges of off-premises wireless access to make a determination regarding whether off-premises access should be eligible for E-rate program support. Although the order establishing the pilot did not require FCC to determine an evaluation methodology and publish a formal analysis, according to FCC officials, staff reviewed the interim and final reports prior to the Commission adopting a 2013 Notice of Proposed Rulemaking that sought input on ways to modernize the E-rate program, including input on using E-rate-supported wireless hot-spots for community use. In two subsequent E-rate program modernization orders in 2014, the Commission did not expand the E-rate program’s support for off-premises access. FCC officials explained that given the changes in technology, costs, and student learning in recent years, the data collected from the pilot may have some limitations. FCC has not announced any plans to conduct another pilot program, and aside from its consideration of the petitions previously mentioned, FCC has not announced an intention to revisit whether off-premises wireless access should be eligible for E-rate support. Federal internal control standards state that agencies should use quality information to make decisions and communicate information to external parties. Specifically, agencies should collect data from reliable sources in a timely manner, process these data into quality information, and use that information to make informed decisions. Agencies should also communicate such information to external parties that can help the agencies achieve their objectives. Furthermore, in previous work we identified as pilot-program design best practices: determining a methodology for gathering and evaluating data, evaluating pilot results to make conclusions on whether to integrate pilot activities into broader efforts, and communicating with stakeholders—such as by publishing results. As discussed earlier, school districts we met with said that existing E-rate program rules that require cost-allocation of off-premises access to E-rate discounts limit their ability to address the homework gap and providing off-premises access remains a challenge for schools and school districts. Determining and executing a methodology for collecting and analyzing data on the potential costs, benefits, and challenges of making schools’ efforts to expand off-premises wireless access eligible for program funding could help inform FCC decisions regarding the two pending petitions and any future petitions. As petitions may only cover petitioning entities, determining and executing such a methodology could also help inform more widespread changes to E-rate rules regarding off-premises access that would affect all E-rate program recipients. FCC could collect such data through another pilot program or from school districts now providing off-premises wireless access. Publishing the results of this analysis could help FCC ensure that such information will be accessible to inform future related efforts and provide transparency to external stakeholders, including school districts. Conclusions The differences in internet access—and therefore in the ease of doing homework—between school-age children in lower-income households and those in higher-income households that are more likely to be well connected has resulted in a “homework gap” that could inhibit the academic success of underconnected students. While school districts have made efforts to address the homework gap, such efforts may be inhibited by existing restrictions in FCC’s E-rate program. Although FCC explored the possibility of making wireless off-premises access an allowable E-rate program expense in a 2011 to 2012 pilot program, FCC’s lack of an analysis of the data it collected at the time or since then means that it may not have sufficient and relevant information to make a decision on pending petitions from local school districts regarding off-premises access. Determining the best way to collect and analyze data on the potential benefits, costs, and challenges of making off-premises wireless access eligible for E-rate program support; conducting such analysis; and publishing the results could provide relevant information and transparency to external stakeholders. Doing so could also enable FCC to make a determination on whether it would be appropriate to ease restrictions on off-premises access, a step that may give school districts more flexibility in addressing the homework gap. Recommendation We are making the following recommendation to FCC: The Chairman of the Federal Communications Commission should determine and execute a methodology for collecting and analyzing data— such as conducting a new pilot program regarding off-premises wireless access or analyzing other data—to assess the potential benefits, costs, and challenges of making off-premises wireless access eligible for E-rate program support, and publish the results of this analysis. (Recommendation 1) Agency Comments We provided a draft of this report to FCC, Education, and the Department of Commerce for review and comment. FCC provided written comments, which are reproduced in appendix II. In these written comments, FCC stated that it agreed with our recommendation and noted steps it plans to take to assess the potential benefits, costs, and challenges of making off- premises broadband access eligible for E-Rate program support. FCC also provided technical comments, which we incorporated as appropriate. Education provided written comments, which are reproduced in appendix III and also provided technical comments that we incorporated as appropriate. The Department of Commerce reviewed our report and told us it did not have any comments. We are sending copies of this report to interested congressional committees, the Chairman of the FCC, the Secretary of Commerce, and the Secretary of Education. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or vonaha@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: Scope and Methodology Our objectives for this report were to examine: (1) challenges lower- income school-age children who lack in-home fixed internet face in doing homework that involves internet access and (2) what selected school districts are doing to expand wireless internet access for their students, and the federal role in such efforts. To examine challenges lower-income school-age children who lack in- home fixed internet face in doing homework that involves internet access, we analyzed data from the Census Bureau’s November 2017 Current Population Survey: Computer and Internet Use Supplement, which is sponsored by the National Telecommunications and Information Administration (NTIA). The Computer and Internet Use Supplement collected household information from all eligible Current Population Survey households, as well as personal information from household members age 3 and older. The supplement provided data about households’ computer and internet use, and about each household member’s use of the internet from any location during the previous six months. One member of a household was generally interviewed and answered questions on behalf of every other member. Interviews were conducted from November 12–18, 2017. The probability sample selected to represent the universe consisted of approximately 56,000 households. We included variables on ages of household members to determine if the household had one or more school-age children. We considered a household to have school-age children if it had any children between the ages of 6 and 17, an age range used in other analyses of internet use by school-age children, such as analyses by NTIA and Pew Research Center. We analyzed data on the use of in-home fixed and mobile- wireless internet, as well as of various computing devices. In our analysis we also included variables on household income, to allow us to report results based on different income ranges. When analyzing responses by household income, we grouped household income into similar ranges that NTIA publishes on its Data Explorer website, but we consolidated the top two ranges used by NTIA into one range. To determine the reliability of these data, we reviewed NTIA technical documentation on the survey, interviewed NTIA officials, and compared our estimates of selected variables with estimates presented by NTIA on its website. We found these data were sufficiently reliable for reporting on data on internet and computing device use by household income levels. In addition, we conducted a literature search to review challenges lower- income school-age children who lack in–home internet face in doing homework that involves internet access. We searched multidisciplinary databases using relevant terms such as “low-income,” “wireless,” “internet,” and “school-age children.” We searched for scholarly articles, including working and conference papers, government reports, think tank publications, and trade publications published between 2013 and 2018. We reviewed the abstracts of results from the search for publications most relevant to our work and fully reviewed publications that, based on their abstract, were most suited to this engagement. We used relevant publications to support findings we collected from other sources, including interviews. We also conducted semi-structured interviews with a range of stakeholders, including education industry associations, researchers, and advocacy organizations we selected based on literature, internet searches, and recommendations from those we interviewed. Specifically, we interviewed eight education or technology industry associations or advocacy organizations, one education researcher, one technology industry researcher, and representatives of one technology company that provides internet services and products to schools. In addition, we interviewed officials with the Federal Communications Commission (FCC) and Department of Education (Education). We also reviewed a non-generalizable sample of six projects involving seven local school districts taking steps to provide wireless internet access outside of school for students who may lack internet at home. We identified these projects based on keyword searches and recommendations from other interviewed associations and researchers, as well as officials with FCC, NTIA, and Education. From this list, we then selected those projects that were frequently cited in the press or by others we interviewed; that covered a variety of geographic locations, including those in both urban and rural areas; and that included a variety of approaches to addressing the homework gap. During these interviews, we asked interviewees about a range of topics, including the extent to which school-age children have access to in-home and wireless internet and challenges faced by students who may only have mobile wireless access. In total we interviewed 17 stakeholders, including the industry associations, researchers, and school districts detailed above. We analyzed the content of the interviews to identify key challenges identified by stakeholders. These interviews did not provide a complete list of all challenges, and the results of these interviews are not generalizable but do provide insight into a range of issues. To determine what selected school districts are doing to expand wireless internet access for their students and the federal role in such efforts, we conducted semi-structured interviews with officials at the school districts listed above and officials at Microsoft regarding its efforts to expand wireless access for students who may lack internet at home. During these interviews, we asked the districts about what steps they are taking to expand wireless access, the goals and challenges of the relevant project, and the federal role in the effort. We analyzed the content of the interviews to identify key themes. We also interviewed officials with FCC and Education to determine and review federal efforts related to school initiatives to expand wireless access for students. We reviewed documentation from FCC and Education regarding relevant federal efforts including rulemaking documents such as FCC’s 2018 Notice of Proposed Rulemaking and 2019 Report and Order regarding Educational Broadcast Service spectrum. We reviewed other relevant FCC documents related to the Schools and Libraries Universal Service Support Mechanism (also known as the E-rate program), which provides schools with discounts on telecommunications and internet services. E-rate documents we reviewed included reports related the 2011 E-rate pilot program exploring off- premises wireless access. We compared FCC efforts to federal internal control standards related to using quality information and communicating externally and pilot program design best practices. We reviewed information, provided to us by department officials, on existing Education grant programs that can be used by schools and school districts to support internet investments. We also reviewed information on Education’s relevant survey efforts. We conducted this performance audit from May 2018 to July 2019 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. Appendix II: Comments from the Federal Communications Commission Appendix III: Comments from the Department of Education Appendix IV: GAO Contact and Staff Acknowledgments GAO Contact Andrew Von Ah at (202) 512-2834 or vonaha@gao.gov. Staff Acknowledgments In addition to the contact above, Mark Goldstein (Director); Derrick Collins (Assistant Director); Matthew Rosenberg (Analyst in Charge); Dwayne Curry; Sherri Doughty; Rachel Frisk; Hayden Huang; Gina Hoover; Dan Luo; Josh Ormond; Cheryl Peterson; Matt Ray; Hai Tran; and Laurel Voloder made key contributions to this report.

School-age children without internet access may have difficulty in completing homework. Those without in-home fixed access may go online wirelessly outside the home to do homework. A provision was included in statute for GAO to review wireless internet access for school-age children in lower-income households. This report examines (1) challenges lower-income school-age children who lack in-home fixed internet face in doing homework involving internet access, and (2) selected school district efforts to expand wireless access for students and the federal role in those efforts. GAO analyzed 2017 CPS data; reviewed six local projects that were selected based in part on education industry stakeholders' recommendations, that included a range of geographic locations, and that took steps to address the homework gap; compared FCC efforts to federal standards for internal controls and pilot-program design best practices; reviewed FCC and Department of Education documents; and interviewed 17 stakeholders, including school districts. According to GAO's analysis of 2017 Census Bureau Current Population Survey (CPS) data, children ages 6 to 17 in lower-income households are more likely than peers in higher-income households to lack high-speed in-home internet and rely on mobile wireless service. GAO found that students who use mobile wireless for homework may face challenges, including slower speeds and limitations smartphones present in completing tasks like typing papers. These “underconnected” students may seek out ways to access wireless internet outside of the home to do homework; however, these methods also pose challenges (see figure). The inequity in internet access—and therefore in the ease of doing homework involving access—between students of varying income levels is known as the “homework gap.” Efforts by six selected projects involving seven school districts expanding wireless access for students who may lack it at home varied. According to officials with most school district projects GAO reviewed, rules for the Federal Communications Commission's (FCC) E-rate program, which allows schools to purchase discounted internet equipment, may limit schools' ability to provide wireless access off-premises. Specifically, off-premises access is not eligible for E-rate support, and schools that provide such access using existing services supported by E-rate must reduce their E-rate discounts. FCC conducted a pilot project in 2011 and 2012 to help decide whether to make wireless off-premises access eligible for E-rate support, but FCC did not determine and execute a methodology to assess the potential costs, benefits, and challenges of doing so. In 2016, FCC received two requests from school districts seeking waivers of rules to allow them to use E-rate program support to provide off-premises access, but FCC has not made a decision on the waivers. Determining and executing a methodology to analyze data about the potential benefits, costs, and challenges of easing E-rate rules on off-premises use and publishing the results could provide transparency to stakeholders such as school districts. This step could also help FCC act on pending and future waiver-of-rule requests and broader changes to rules that may help schools address the homework gap.

GAO_GAO-19-478

Background VA’s Community Care Programs and Planned Consolidation VA has purchased health care services from community providers since as early as 1945. In general, veterans may be eligible for community care when they are faced with long wait times or travel long distances for appointments at VA medical facilities, or when a VA medical facility is unable to provide certain specialty care services, such as cardiology or orthopedics. In general, community care services must be authorized in advance of when veterans access the care. Currently, there are several community care programs through which VA purchases hospital care and medical services for veterans, including the Choice Program. In implementing the VA MISSION Act, VA plans to consolidate four of its community care programs for veterans under the Veterans Community Care Program, which is expected to go into effect by June 2019. (See table 1.) VA also provides health care services to veterans and other eligible beneficiaries through community providers under additional benefit programs. These benefit programs include the Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA) and the Camp Lejeune Family Member Program, among others. After implementing the VA MISSION Act, VA will continue to operate the community care programs for other eligible beneficiaries, such as CHAMPVA and others, as it has historically done. Appendix I contains more information about VA’s community care programs. Developing a Budget Estimate for VA Health Care The amount of funding VA receives to provide its health care services is determined during the annual appropriations process. In preparation for the process, VA develops an estimate of the resources needed to provide its health care services—known as its health care budget estimate—for two fiscal years. This budget estimate is one step in a complex, multistep budget formulation process, which culminates in an appropriation request for VA health care that updates the earlier, advance appropriation request for the upcoming fiscal year and an advance appropriation request for the next fiscal year in the President’s annual budget request to Congress. VA’s health care budget estimate includes the total cost of providing health care services, including direct patient costs, as well as costs associated with management, administration, and maintenance of facilities. VA uses its Enrollee Health Care Projection Model (EHCPM) to estimate the majority of resources needed to meet the expected demand for health care services, and uses other methods for the remaining services. VA uses the EHCPM to make projections 3 and 4 years into the future for budget purposes based on data from the most recent fiscal year. For example, in 2017, VA used data from fiscal year 2016 to develop its health care budget estimate for the fiscal year 2019 request and advance appropriation request for fiscal year 2020. The EHCPM’s estimates are based on three basic components: (1) the projected number of veterans who will be enrolled in VA health care, (2) the projected quantity of health care services enrollees are expected to use, and (3) the projected unit cost of providing these services. Each component is subject to a number of complex adjustments to account for the characteristics of VA health care and the veterans who access VA’s health care services. (See fig. 1.) VA uses other methods to estimate resources needed for the remaining portion of its budget estimate. This portion of the budget includes the state home per diem program, CHAMPVA, and other health care programs for veterans and other eligible beneficiaries, as well as health- care-related initiatives proposed by the Secretary of Veterans Affairs or the President. (See app. II for more information about the other methods VA uses in developing its health care budget estimate.) VHA generally starts to develop a health care budget estimate approximately 10 months before the President submits the budget to Congress, which should occur no later than the first Monday in February. The budget estimate changes during the 10-month budget formulation process, in part, due to successively higher levels of review in VA and OMB before the President’s budget request is submitted to Congress. (See table 2.) The Secretary of Veterans Affairs considers the health care budget estimate developed by VHA when assessing resource requirements among competing interests within VA, and OMB considers overall resource needs and competing priorities of other agencies when deciding the level of funding requested for VA’s health care services. OMB passes back decisions, known as a “passback,” to VA and other agencies on their budget estimate, along with funding and policy proposals to be included in the President’s budget request. VA has an opportunity to appeal the passback decisions before OMB finalizes the President’s budget request. Concurrently, VA prepares a congressional budget justification that provides details supporting the policy and funding decisions in the President’s budget request. As of fiscal year 2017, VA primarily receives funding for all health care it provides or purchases through the following appropriation accounts: Medical Services: health care services provided to eligible veterans and other beneficiaries in VA facilities and non-VA facilities, among other things. Medical Community Care: health care services that VA authorizes for veterans and other beneficiaries to receive from community providers. Medical Support and Compliance: the administration of the medical, hospital, nursing home, domiciliary, supply, and research activities authorized under VA’s health care system, among other things. Medical Facilities: the operation and maintenance of VHA’s capital infrastructure, such as the costs associated with nonrecurring maintenance, leases, utilities, facility repair, laundry services, and groundskeeping, among other things. Separate from VA’s health care appropriation accounts, the Veterans Access, Choice, and Accountability Act of 2014 provided $10 billion in funding for the Choice Program, which was implemented in early fiscal year 2015 and authorized until funds were exhausted or through August 7, 2017, whichever occurred first. However, VA received additional authority and funding to maintain the Choice Program through June 6, 2019, when the new Veterans Community Care Program is expected to go into effect. VA expects that the new Veterans Community Care Program will be primarily funded through the Medical Community Care appropriation account. VA Obligations for and Number of Veterans Authorized to Use Community Care Have Grown from Fiscal Year 2014 through Fiscal Year 2018 VA’s Obligations for Community Care Increased by Over 80 Percent from Fiscal Years 2014 through 2018, and VA Estimates Obligations Will Grow an Additional 20 Percent through 2021 Our analysis of VA budget justification data shows that from fiscal year 2014 through fiscal year 2018, the total amount VA actually obligated for community care increased 82 percent, from $8.2 billion to $14.9 billion. Since VA implemented the Choice Program in fiscal year 2015, the share of VA’s obligations for community care relative to VA’s total obligations for health care services increased through fiscal year 2018, from about 14 to 19 percent of VA’s total obligations for health care services. By fiscal year 2021, VA estimates that the total amount obligated for community care will increase to $17.8 billion, an increase of about 20 percent from the $14.9 billion in actual obligations for fiscal year 2018. (See fig. 2.) As figure 2 shows, the largest increase in actual obligations for community care occurred from fiscal years 2015 through 2016, when they increased by $3.4 billion, from $8.9 billion to $12.3 billion. According to VA officials, this increase in obligations during this period reflected veterans’ expanded use of community care through the Choice Program, as more providers participated in the provider networks established by third-party administrators or entered into provider agreements with VA facilities. (Fig. 3 provides information on VA’s obligations for community care by the Choice Program and by other community care programs.) The increase in actual obligations for community care from fiscal year 2016 through fiscal year 2017 was also largely due to expanded use of community care through the Choice Program. VA officials attributed this increase to efforts to obligate as much of the available Choice Program funding as possible before the anticipated end of the Choice Program in August of 2017. From fiscal years 2017 through 2018, obligations for community care continued to increase, but the increase was partially due to greater use of other community care programs, according to VA officials. From fiscal years 2014 through 2018, the increases in total actual obligations for VA community care were driven largely by increases in obligations for outpatient and inpatient services. Over this time period, VA’s actual obligations for outpatient services increased by $2 billion, from $2.3 billion to $4.3 billion, and actual obligations for inpatient services increased by $818 million, from $1.8 billion to $2.7 billion. Figure 4 illustrates how outpatient and inpatient services accounted for most of VA’s total community care obligations for fiscal year 2018. VA estimated that from fiscal years 2019 through 2021, obligations for community care will increase to $17.8 billion, which VA officials said are attributable to the new eligibility criteria under the VA MISSION Act. The authority for the Choice Program ends June 6, 2019, after which the new Veterans Community Care Program—which consolidates VA’s community care programs under the VA MISSION Act—will be expected to begin. For comparison purposes, the largest increase in obligations for services provided at VA medical facilities is estimated to occur between fiscal years 2020 and 2021. VA officials said this increase is attributable, in part, to efforts related to hiring and telehealth in response to the eligibility criteria under the VA MISSION Act. The Number of Veterans Authorized to Use Community Care Increased about 40 Percent from Fiscal Years 2014 through 2018 Our analysis of VA data on authorizations for community care shows that the number of veterans authorized to use community care increased 41 percent from fiscal years 2014 through 2018. (See fig. 5.) The approximately 1.8 million veterans authorized to use community care in 2018 represented about 30 percent of all veterans accessing VA health care services that year (approximately 6.2 million veterans). By fiscal year 2021, VA officials told us that they estimate that at least 1.8 million veterans will still use community care. Our analysis of VA data also shows that after being authorized for care, veterans’ utilization of certain community care services increased from fiscal years 2014 through 2018. Over this time period, a number of outpatient services experienced increases of more than 200 percent in utilization, especially chiropractic visits (418 percent, from 143,000 to 743,000 visits), physical therapy visits (252 percent, from 857,000 to 3 million visits), and non-mental health related office visits (243 percent, from 651,000 to 2.2 million visits). In comparison, our analysis found relatively smaller increases in veteran utilization for certain inpatient services. For example, the utilization for surgical inpatient stays increased about 39 percent—from 253,000 to 352,000 bed days. VA Updated Its Projection Model to Develop Most of Its Community Care Budget Estimate; Subsequent Changes Reflect More Current Information and Other Factors VA first developed a separate budget estimate for community care to inform the President’s fiscal year 2017 budget request. Beginning with the President’s fiscal year 2018 budget request, VA updated its EHCPM to develop over 75 percent of its community care budget estimate and used other methods to develop the remainder. Subsequent changes were made to the community care budget estimates developed by the EHCPM for fiscal years 2018 and 2019 through successively higher levels of review in VA and OMB. VA First Developed a Separate Budget Estimate for Community Care as Part of the President’s Fiscal Year 2017 Budget Request for VA VA first developed a separate budget estimate of the resources it would need for community care—as distinct from the care provided in VA medical facilities—in order to inform the President’s fiscal year 2017 budget request for VA. Prior to this fiscal year 2017 budget request, VA developed a single budget estimate of the resources needed to provide all VA health care services, regardless of whether these services were purchased from community providers or delivered in VA medical facilities, because all these services were to be funded through the same appropriation account. According to VA officials, at the time a separate community care appropriation account and budget estimate were unnecessary, because community care accounted for a relatively small portion of VA’s overall health care budget. However, once the medical community care appropriation account was established in fiscal year 2017, VA began developing a separate budget estimate for community care, as required by law. To develop its first estimate of the resources needed for community care for fiscal year 2017, VA made adjustments to existing estimates for total demand for care—both in VA medical facilities and community care combined—developed by the EHCPM. At the time, VA used the EHCPM to estimate the resources needed to provide VA health care services to veterans, including inpatient, outpatient, and long-term care. However, the EHCPM did not make separate estimates for community care and care provided at VA facilities; according to VA officials, VA adjusted the EHCPM estimates by assuming that for each service, the share of total utilization and costs devoted to community care would be the same as they had been in the most recently completed fiscal year. In addition, after this adjustment, VA made additional changes to the community care budget estimate, which resulted in a net increase of $2.5 billion. Nearly all of this increase reflected an anticipated impact of the expanded access under the Choice Program, according to VA officials. Overall, this approach accounted for about 75 percent of the $12.3 billion community care budget estimate that informed the President’s budget request for fiscal year 2017. To develop the remaining portion of its community care budget estimate, VA used methods other than the EHCPM that, according to VA officials, were used historically to develop estimates of the resources needed for the state home per diem program and benefit programs. For example, VA develops budget estimates for certain services under the state home per diem program by creating projections of the amount of care to be provided using information about the size and demographic characteristics of the enrolled veteran population and projections of the unit cost of providing one day of care using recent cost experience. According to VA officials, VA was able to continue using these other methods, because the services under these programs have been provided through community providers and not VA medical facilities. While methods for each program vary, in general, these methods are based on each program’s historical utilization and costs. (See app. II for additional information on the methods VA uses to develop the budget estimates for each of these community care programs.) Beginning with the President’s Fiscal Year 2018 Budget Request, VA Updated Its Projection Model to Develop over 75 Percent of Its Community Care Budget Estimate Beginning with the President’s fiscal year 2018 budget request, VA updated its EHCPM directly to estimate most of the resources needed to purchase community care for veterans. Specifically, VA updated the EHCPM to estimate the amount of resources needed to purchase a set of more than 40 community care services that have accounted for over 75 percent of VA’s total community care budget estimates of $12.6 billion for fiscal year 2018 and $12.4 billion for fiscal year 2019. These health care services were grouped into seven service types and include outpatient care, inpatient care, and long-term care. (See app. III for a list of the health care services). Of these services, outpatient services typically accounted for the largest share of VA’s community care budget estimate. For the remainder of community care services—including services provided under the state home per diem program and benefit programs— VA did not use the EHCPM and instead continued to use the other methods it has historically used to develop budget estimates for these services. (See fig. 6.) VA made several changes to the EHCPM to develop most of its community care budget estimate. Historically, the EHCPM estimated resources needed to meet the total expected demand for VA health care—a combination of care provided in VA medical facilities and through community care programs. VA updated the EHCPM to determine the proportion of demand met by community care by projecting enrolled veterans’ expected utilization of community care and the expected costs of purchasing these services. In what follows, we describe five major changes made to the EHCPM allowing VA to estimate the budgetary resources needed for community care. 1. Reliance on community care services. The EHCPM has historically accounted for the extent to which enrolled veterans would be projected to obtain health care services through the VA as opposed to other health care programs or insurers—referred to as reliance on VA health care. VA updated the EHCPM so that it can further account for the extent to which enrolled veterans would be expected to use VA’s community care programs as opposed to using care in VA’s medical facilities. Each year, the EHCPM determines reliance on VA community care based on a combination of historical experience—or the extent to which community care was used in prior fiscal years— and on the projected impact of new VA policies and operational guidance. For example, for the fiscal year 2019 budget estimates, the EHCPM projected reliance on VA care to be about 38 percent, of which 14 percent would be met through community care. Thus, the EHCPM projected reliance on VA’s community care programs to be about 5.3 percent for all care enrolled veterans are projected to use in fiscal year 2019. 2. Accounting for difference in community providers’ efficiency delivering inpatient services. VA also updated the EHCPM so that community care utilization projections account for the fact that veterans receiving inpatient care through community providers generally have relatively shorter lengths of inpatient stays compared with veterans receiving care at VA medical facilities. According to officials from VA and its actuarial consultant, community providers on average have historically performed better than VA providers on national benchmarks measuring how well providers manage the length of inpatient stays, while not affecting quality of care. To account for this difference, VA uses an adjustment factor when projecting utilization of inpatient services based on potentially avoidable days of care for community providers. 3. Comparing projected utilization with actual utilization for community care services. VA developed an adjustment factor for the EHCPM’s utilization estimates to account specifically for the differences between projected utilization and actual utilization of community care for the most recently completed fiscal year of data. According to VA officials, the difference typically reflects utilization behavior among providers or patients that are difficult to estimate based solely on historical data—such as changes in local practice patterns (e.g., providers choosing to use magnetic resonance imaging versus x-rays). To account for this behavior, VA compares projected and actual utilization and creates an “actual-to-expected” adjustment factor for each health care service to account for the difference. 4. Projecting unit costs for community care services. VA updated the EHCPM so that it could estimate what are known as the unit costs of purchasing community care services for veterans. In general, the unit cost of a community care service comprises the payment made to the provider (known as direct patient costs), as well as the indirect costs associated with administration and overhead. Indirect costs include (1) the fees paid to the contractors for administrative responsibilities for the Choice Program, (2) VA billing and processing costs and care coordination costs associated community care programs, and (3) certain costs associated with the VA Central Office that support community care (e.g., the salaries for officials from the Office of Community Care and other VA Central Office officials). 5. Accounting for community care service complexity and inflation. VA made other changes to the EHCPM’s unit cost projections for community care. For example, VA updated the EHCPM so that it accounts for costs associated with changes in the complexity—that is, the level of resources required to deliver—of health care services VA purchases from community providers. Officials from VA and its actuarial consultant noted that more complex services require relatively more resources to deliver, such as more expensive equipment (e.g., magnetic resonance imaging); more provider time; or higher-cost providers, such as surgeons. Officials anticipate that most services that VA purchases in the community will increase in complexity, leading to higher projected unit-costs for community care. VA also updated the EHCPM so that its unit cost estimates for community care account for inflation in the cost of labor and equipment. VA’s Community Care Budget Estimates Projected by the Model for Fiscal Years 2018 and 2019 Were Subsequently Changed to Reflect More Current Information, Among Other Factors VA’s community care budget estimates are reviewed at successively higher levels at VA and OMB to inform the President’s budget request for VA. VA identified several changes made during the review process to its estimates projected by the EHCPM for fiscal years 2018 and 2019; these changes were due to the availability of more current information related to utilization and costs, among other factors. For fiscal year 2018, changes resulted in a budget request for VA community care in the President’s budget request that was approximately $1 billion lower than VA’s original EHCPM budget estimate of $10.7 billion. These changes included the following: A $996 million decrease reflecting the availability of more current information showing that an anticipated increase in utilization due to the Choice Program was too high. A $600 million decrease reflecting the availability of more current information showing that overhead costs initially allocated to community care in the data used in the EHCPM were too high. A $180 million decrease accounting for VA’s implementation of a new law that reduces VHA’s use of community care for examinations determining veterans’ disability ratings. A $500 million increase accounting for a court ruling that affected veteran eligibility for reimbursement of emergency community care, which was expected to increase utilization. A $250 million increase reflecting the availability of more current information that indicated administrative costs for the Choice Program in the data used in the EHCPM were too low. For fiscal year 2019, changes resulted in a budget request for VA community care in the President’s budget request that was nearly $1 billion higher than VA’s original EHCPM budget estimate of $8.6 billion. These changes included the following: A $1.7 billion increase reflecting more current information indicating that community care administrative costs and the utilization levels in the data used in the EHCPM were too low. A $1 billion increase accounting for a delay in the timing of the implementation of community care network contracts. According to VA officials, this resulted in the continued use of reimbursement rates in community care that were higher than Medicare reimbursement rates. A $1.8 billion decrease that reflected VA’s implementation of a new policy that changed the timing of community care obligations from when a veteran is authorized to use community care to the when a claim for actual services is paid. VA’s Actual Obligations for Community Care in Fiscal Years 2017 and 2018 Were Higher than Estimated and Included Additional Funding Received for the Choice Program VA’s Actual Obligations for Community Care in Fiscal Years 2017 and 2018 Were $1.2 Billion and $2.2 Billion Higher than Estimated, Respectively Our analysis of data included in VA’s budget justifications shows that in fiscal years 2017 and 2018, VA obligated $1.2 billion and $2.2 billion more for community care than originally estimated at the time of the President’s budget requests for those years. In both years, VA’s actual obligations for both the Choice Program and other community care programs were higher than estimated. (See table 3.) According to VA officials, the higher-than-estimated obligations for the Choice Program for fiscal year 2017 were driven, in part, due to changes in Choice Program policies and a large increase in the cost per authorization for care. In the case of other community care programs, VA officials told us that the higher-than-estimated obligations for both fiscal years 2017 and 2018 were driven, in part, by local practice patterns (e.g., providers choosing to use magnetic resonance imaging versus x-rays) and the capacity of VA medical facilities to provide services. As discussed later in this report, VA also received and reallocated additional funding to purchase community care in fiscal years 2017 and 2018, which contributed to actual obligations being higher-than-estimated obligations. Our analysis of VA’s obligations by service type shows that in fiscal year 2017, VA’s higher-than-estimated obligations for community care were primarily for outpatient and inpatient services, as shown in table 4. In fiscal year 2018, the higher-than-estimated obligations for community care were primarily for outpatient services, while there was an overall decrease in obligations for inpatient services. (See table 5.) Additionally, for some service types, VA’s actual obligations were lower than estimated in fiscal years 2017 and 2018. VA’s Higher-Than- Estimated Obligations for Community Care Included Additional Funding VA Received for the Choice Program Outside of the Annual Appropriations Process To obligate $13.6 billion for community care in fiscal year 2017 and $14.9 billion in fiscal year 2018—amounts that were $1.2 billion and $2.2 billion higher, respectively, than what VA originally estimated for its budget request, and what VA received in its annual appropriation—VA requested and received additional Choice Program funding outside of the annual appropriations process. VA also reallocated funding from other sources, including unobligated funding from a prior fiscal year and collections, to pay for the other community care programs. Specifically, the $13.6 billion and $14.9 billion VA obligated for community care in fiscal years 2017 and 2018, respectively, came from the following sources: Choice Program. For both fiscal years, VA obligated from its remaining funding and prior-year recoveries from the previous fiscal years, and requested and received additional funding three times outside of the annual appropriations process. (Table 6 below summarizes the time frames during which VA requested and received additional appropriations for the Choice Program outside of the annual appropriations process for fiscal years 2017 and 2018.) Other community care programs. For both fiscal years, VA obligated from its annual appropriation and transferred a portion of its overall collections from its Medical Care Collections Fund to the medical community care account. In addition, for fiscal year 2018, VA used unobligated funding and prior-year recoveries from fiscal year 2017. Agency Comments We provided a draft of this product to VA and OMB for comment. VA provided technical comments, which we incorporated as appropriate. OMB had no comments. We are sending copies of this report to the Secretary of Veterans Affairs, the Director of the Office of Management and Budget, appropriate congressional committees, and other interested parties. This report is also available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or silass@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 V. Appendix I: The Department of Veterans Affairs’ Community Care Programs for Veterans and Other Eligible Beneficiaries While the majority of veterans utilizing Department of Veterans Affairs’ (VA) health care services receive care in VA-operated medical facilities, veterans may also obtain services from non-VA providers in the community—known as community care—through one of several community care programs aimed at helping to ensure that veterans receive timely and accessible care. In implementing the VA MISSION Act, VA plans to consolidate four of its community care programs for veterans—dialysis contracts, individually authorized care, the Patient- Centered Community Care Program, and the Veterans Choice Program— under the Veterans Community Care Program, which is expected to go into effect by June 2019. In addition, VA has several other community care programs that serve veterans and programs that provide health care services to other eligible beneficiaries, including a veteran’s spouse or dependent child. Community Care Programs for Veterans that VA Plans to Consolidate Dialysis contracts. When dialysis services—a life-saving medical procedure for patients with permanent kidney failure—are not feasibly available at VA medical facilities, veterans may be referred to one of VA’s contracted dialysis providers, and veterans may receive dialysis at local clinics on an outpatient basis, or at home (if the contractors offer home- based dialysis services). Individually authorized care. When a veteran cannot access a particular specialty care service from a VA medical facility—either because the service is not offered, the veteran would have to wait too long for an appointment, or the veteran would have to travel a long distance to a VA medical facility—VA medical facility staff may request an individual authorization for the veteran to obtain the service from a community provider who is willing to accept VA payment. Patient-Centered Community Care. VA contracted with two third-party administrators to develop regional networks of community providers of specialty care, mental health care, limited emergency care, and maternity and limited newborn care when such care is not feasibly available from a VA medical facility. To be eligible to obtain care from Patient-Centered Community Care providers, veterans must meet the same criteria that are required for individually authorized care. Veterans Choice Program. VA modified its Patient-Centered Community Care contracts with the two third-party administrators to implement the Veterans Choice Program. This program allows eligible veterans to obtain health care services from community providers if the veteran meets certain criteria, including when a veteran cannot receive care within 30 days from the veteran’s or physician’s preferred date, or face an unusual or excessive burden in traveling to a VA medical center. Other Community Care Programs for Veterans Agreements with federal partners and academic affiliates. When services are not available at VA medical facilities, VA may obtain specialty, inpatient, and outpatient health care services for veterans through different types of sharing agreements—those with other federal facilities (such as those operated by the Department of Defense and the Indian Health Service), those with Tribal Health Programs, and those with university-affiliated hospitals, medical schools, and practice groups (known as academic affiliates). Emergency care. When emergency community care is not preauthorized, VA may reimburse community providers for emergency care for eligible veterans for a condition related to a service-connected disability, and for eligible veterans for a condition not related to a service- connected disability. Foreign Medical Program. The Foreign Medical Program is VA’s health care benefits program for eligible veterans who are residing or traveling abroad and have a service-connected disability. State Home Per Diem Program. Under the State Home Per Diem Program, states provide care for eligible veterans in three different types of programs: nursing home, domiciliary, and adult day health care. Community Care Programs for Other Beneficiaries Camp Lejeune Family Member Program. The Camp Lejeune Family Member Program is for family members of veterans that lived or served at U.S. Marine Corps Base Camp Lejeune, North Carolina, for no fewer than 30 days between January 1, 1957, and December 31, 1987, and were potentially exposed to drinking water contaminated with industrial solvents, benzene, and other chemicals. The program provides health care to veterans who served on active duty at Camp Lejeune and to reimburse eligible Camp Lejeune family members for health care costs related to one or more of 15 specified illnesses or medical conditions specified in law. Children of Women Vietnam Veterans Health Care Benefits Program. This program provides health care benefits to female Vietnam veterans’ birth children who the Veterans Benefits Administration has determined to have a covered birth defect. This program is not a comprehensive health care plan and only covers those services necessary for the treatment of a covered birth defect and associated medical conditions. Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA). CHAMPVA is a comprehensive health care program that provides health care coverage for spouses, children and primary caregivers of veterans who are permanently and totally disabled from a service-connected disability. CHAMPVA functions similarly to traditional health insurance, with most care in the program delivered using non-VA community providers. Spina Bifida Health Care Benefits Program. This program provides health care benefits to certain Korea and Vietnam veterans’ birth children who have been diagnosed with spina bifida. Appendix II: Budget Formulation Process for the State Home Per Diem Program and Non- Veteran Community Care Programs The Department of Veterans Affairs (VA) and its actuarial consultant use the Enrollee Health Care Projection Model to develop most of the department’s estimate of the resources needed to meet the expected demand for VA’s health care services. VA uses other methods to estimate the remaining resources needed. This remaining portion includes community care programs for veterans and other eligible beneficiaries, including the State Home Per Diem Program and the Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA). State Home Per Diem Program. This program pays per diem for state- provided care for eligible veterans in three different types of programs: domiciliary, nursing home, and adult day health care. For state home domiciliary and nursing care, categorized as institutional care, VA creates budget projections based on historical funding data. For state home adult day health care, categorized as non-institutional care, VA’s budget estimates are based on projections of the amount of care provided— which is known as workload—and the unit cost of providing a day of this care. VA projects the demand for non-institutional care services using information about the size and demographic characteristics of the enrolled veteran population. VA projects unit cost for non-institutional care services by calculating unit-cost increases observed from recent experience and then using this information to project future unit costs. VA multiplies the workload estimates, unit-cost estimates, and the number of days in the fiscal year to develop an estimate of the amount of resources needed for non-institutional care. CHAMPVA. CHAMPVA provides health care coverage for spouses and children of veterans who are permanently and totally disabled from a service-connected disability. CHAMPVA functions similarly to traditional health insurance—most care within CHAMPVA is delivered using non-VA community providers. Therefore, developing estimates of the resources needed for CHAMPVA requires factoring in utilization patterns and cost inflation that are generally outside of VA’s control. Budget estimates for CHAMPVA are developed using a formula that computes the predicted number of users and costs per-member per-year. VA works with its actuarial consultant to generate projections of CHAMPVA users that incorporate changes related to the population of disabled veterans and projections of expected increases and decreases in the CHAMPVA- eligible population. In addition, the actuarial consultant projects the costs per-member per-year, which is calculated by dividing the most current fiscal year data on total CHAMPVA expenditures by the number of actual users. Trends are then incorporated to predict the future costs per- member per-year, which is multiplied by projections of the number of CHAMPVA users to develop CHAMPVA budget estimates. Appendix III: Health Care Services included in the Enrollee Health Care Projection Model for Fiscal Year 2019 Using its Enrollee Health Care Projection Model (EHCPM), the Department of Veterans Affairs (VA) developed estimates for 79 health care services—available in VA medical facilities or through community care—for the fiscal year 2019 President’s budget request. As shown in table 7, VA developed separate estimates for the 43 services that were available through community care. Some of these 43 services were only available through community care. These services were primarily long- term care, including nursing home care provided at community nursing homes, home hospice care, home respite care, homemaker or home health aid programs, and purchased skilled nursing care. Appendix IV: Community Care Data Sources in the Department of Veterans Affairs’ Enrollee Health Care Projection Model The Department of Veterans Affairs (VA) and its actuarial consultant use the Enrollee Health Care Projection Model (EHCPM) to develop most of the department’s budget estimate to meet the expected demand for VA’s health care services. This estimate includes the services that VA purchases from non-VA community providers through its various community care programs, including the Veterans Choice Program (Choice Program). Based on our interviews with various VA officials, VA’s Office of Enrollment and Forecasting provided utilization and cost data from fiscal year 2016 community care claims from four different sources for use in the 2017 EHCPM, which was used to project the fiscal year 2019 budget estimate. (See fig. 7.) Specifically, the Office of Enrollment and Forecasting—which is responsible for compiling the claims data used in the EHCPM—obtained community care claims data, including Choice Program claims, from VA’s Fee Basis Claims System. In addition, the Office of Enrollment and Forecasting worked with VA’s Allocation Resource Center to gather additional utilization and cost data from Choice Program claims processed outside the Fee Basis Claims System, and other data needed for the 2017 EHCPM. Specifically, the Allocation Resource Center compiled claims data for those Choice Program claims paid through expedited payments. The Allocation Resource Center also pulled data on dual eligible veterans, from the Department of Defense’s Medical Data Repository, and indirect costs associated community care claims (for example, costs associated with care coordination or claims processing) from VA’s Managerial Cost Accounting system. Appendix V: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, Rashmi Agarwal (Assistant Director), Aaron Holling (Analyst-in-Charge), Chad Clady, and Kate Tussey made key contributions to this report. Also contributing were Krister Friday, Jacquelyn Hamilton, and Muriel Brown. Related GAO Products Veterans Choice Program: Further Improvements Needed to Help Ensure Timely Payments to Community Providers. GAO-18-671. Washington, D.C.: September 28, 2018. Veterans Choice Program: Improvements Needed to Address Access- Related Challenges as VA Plans Consolidation of its Community Care Programs. GAO-18-281. Washington, D.C.: June 4, 2018. VA’s Health Care Budget: In Response to a Projected Funding Gap in Fiscal Year 2015, VA Has Made Efforts to Better Manage Future Budgets. GAO-16-584. Washington, D.C.: June 3, 2016. Veterans’ Health Care: Proper Plan Needed to Modernize System for Paying Community Providers. GAO-16-353. Washington, D.C.: May 11, 2016. Veterans’ Health Care Budget: Improvements Made, but Additional Actions Needed to Address Problems Related to Estimates Supporting President’s Request. GAO-13-715. Washington, D.C.: August 8, 2013. Veterans’ Health Care: Improvements Needed to Ensure That Budget Estimates Are Reliable and That Spending for Facility Maintenance Is Consistent with Priorities. GAO-13-220. Washington, D.C.: February 22, 2013. Veterans’ Health Care Budget: Better Labeling of Services and More Detailed Information Could Improve the Congressional Budget Justification. GAO-12-908. Washington, D.C.: September 18, 2012. Veterans’ Health Care Budget: Transparency and Reliability of Some Estimates Supporting President’s Request Could Be Improved. GAO-12-689. Washington, D.C.: June 11, 2012. VA Health Care: Estimates of Available Budget Resources Compared with Actual Amounts. GAO-12-383R. Washington, D.C.: March 30, 2012. VA Health Care: Methodology for Estimating and Process for Tracking Savings Need Improvement. GAO-12-305. Washington, D.C.: February 27, 2012. Veterans’ Health Care Budget Estimate: Changes Were Made in Developing the President’s Budget Request for Fiscal Years 2012 and 2013. GAO-11-622. Washington, D.C.: June 14, 2011. Veterans’ Health Care: VA Uses a Projection Model to Develop Most of Its Health Care Budget Estimate to Inform the President’s Budget Request. GAO-11-205. Washington, D.C.: January 31, 2011. VA Health Care: Challenges in Budget Formulation and Issues Surrounding the Proposal for Advance Appropriations. GAO-09-664T. Washington, D.C.: April 29, 2009. VA Health Care: Challenges in Budget Formulation and Execution. GAO-09-459T. Washington, D.C.: March 12, 2009. VA Health Care: Long-Term Care Strategic Planning and Budgeting Need Improvement. GAO-09-145. Washington, D.C.: January 23, 2009. VA Health Care: Budget Formulation and Reporting on Budget Execution Need Improvement. GAO-06-958. Washington, D.C.: September 20, 2006.

VA continues to focus on the use of community care to address challenges with veterans' access to health care services at VA medical facilities. In fiscal year 2019, VA plans to consolidate the Veterans Choice Program and several other community care programs under a single new Veterans Community Care Program. GAO and others have previously reported on past challenges VA has faced regarding the reliability, transparency, and consistency of its budget estimates for health care. GAO was asked to review VA's use of community care and efforts to develop budget estimates for this care. This report describes (1) trends in obligations for and utilization of VA's community care programs since fiscal year 2014, (2) how VA develops its community care budget estimate and any subsequent changes made to this estimate, and (3) how VA's actual obligations for community care compared with estimated obligations for fiscal years 2017 and 2018. GAO reviewed actual obligation and utilization data for fiscal years 2014 through 2018, as well as estimated obligations for fiscal years 2019 through 2021. GAO also reviewed available VA documentation on the methods and data used to develop VA's community care budget estimate that informed the President's budget request for fiscal years 2017 through 2019. GAO also interviewed VA officials and contractors responsible for developing these estimates, and OMB staff responsible for the federal budget. VA and OMB reviewed a draft of this report. VA's technical comments were incorporated as appropriate. To help ensure that veterans are provided timely and accessible health care services, the Department of Veterans Affairs (VA) may purchase care from non-VA providers, known as community care. VA obligated $14.9 billion for community care in fiscal year 2018, an increase of $6.7 billion (about 82 percent) since fiscal year 2014. The number of veterans authorized to use community care increased from 1.3 million to 1.8 million during this period. By fiscal year 2021, VA estimated obligations to increase to $17.8 billion, and officials estimate at least 1.8 million veterans will continue to use this care. Note: VA estimated obligations for fiscal year 2019 to reflect $1.8 billion in anticipated savings as a result of a VA policy change regarding the timing of certain community care obligations. VA uses a projection model to estimate the majority of resources needed to provide health care services. Beginning with the President's fiscal year 2018 budget request, VA updated its model to estimate the resources needed to purchase over 40 community care services accounting for over 75 percent of VA's community care budget estimate. These services include outpatient and inpatient care, among others. For the remainder of its community care budget estimate, which includes nursing care in state-operated homes, VA uses other methods based on historical utilization. VA's budget estimate is successively reviewed at VA and the Office of Management and Budget (OMB) to inform the President's budget request. VA identified several changes made during the review process to its budget estimate for fiscal years 2018 and 2019 to reflect more current information related to utilization and costs, among other factors. VA's actual obligations for community care for fiscal years 2017 and 2018 were $1.2 billion and $2.2 billion higher, respectively, than originally estimated. According to VA officials, this occurred for several reasons, including policy changes and increased costs for the Veterans Choice Program. To support higher obligations, VA requested and received additional funding for the Veterans Choice Program outside the annual appropriations process and used other funding sources, such as unobligated amounts from prior fiscal years.

GAO_GAO-20-112

Background The Foreign Narcotics Kingpin Designation Act The Kingpin Act authorizes Treasury to identify and apply sanctions to significant foreign narcotics traffickers and their organizations worldwide to protect the national security and economy of the United States. According to officials from OFAC and other partner agencies, key goals of the Kingpin Act include disrupting and dismantling drug trafficking organizations and blocking designees’ access to the U.S. financial system. Treasury and Other U.S. Partner Agencies The Kingpin Act mandates the participation of certain agencies in the Kingpin designation process. The Secretary of the Treasury, after consulting with partner agencies, is authorized to designate a foreign national or entity as a Specially Designated Narcotics Trafficker. The partner agencies participating in Kingpin Act designations are the Department of Justice (DOJ), State, DHS, DOD, CIA, FBI, and DEA. For Treasury to designate a foreign individual or entity under the Kingpin Act, it must identify that individual or entity as either a significant foreign narcotics trafficker or part of a designee’s network. The following offices in Treasury are involved in identifying designation targets, and managing and assessing the impact of sanctions: The Office of Terrorism and Financial Intelligence (TFI) has the twin aims of safeguarding the U.S. financial system against illicit use and combatting national security threats, including drug kingpins. TFI includes OFAC, the Office of Intelligence and Analysis (OIA) and the Office of Terrorist Financing and Financial Crimes (TFFC). OFAC is Treasury’s primary office for sanctions implementation and enforcement. OIA is responsible for TFI’s intelligence functions and performs some assessment of the impact of Treasury’s sanctions programs. TFFC works across the national security community and with the private sector and foreign governments to identify and address the threats presented by illicit finance to the international financial system. Kingpin Act Identification and Designation Treasury can designate a foreign individual or entity under the Kingpin Act if it identifies an individual or entity as either a significant foreign narcotics trafficker or part of a designee’s network. OFAC and its partner agencies have grouped these Kingpin Act designation categories into two tiers, Tier 1 and Tier 2, based on the procedures required for identification and designation under the act. (See tab. 1.) All identifications and designations under the Kingpin Act are subject to the same asset blockings and penalties. The names of persons and entities designated are published in the Federal Register and incorporated into Treasury’s Specially Designated Nationals and Blocked Persons List (SDN List). The majority of Tier 1 Kingpin Act designations are individuals and entities from countries in the Western Hemisphere, as shown in figure 1. Kingpin Act Sanctions and Other Consequences Treasury is authorized to block assets of and prohibit transactions with designated individuals and entities and to impose penalties on individuals and entities that engage with designees. Blocking assets. Treasury blocks (i.e., denies access to) a designated individual or entity’s property and interests in property within the United States, or within the possession or control of any United States individuals or entities that are owned or controlled by the blocked individual or entity. Prohibiting transactions. Treasury generally prohibits United States individuals and entities from engaging in transactions in property or interests in property of designees. Denying visas. Treasury provides information to State so it can decide whether to cancel existing visas and deny visa applications of Kingpin Act designees. Penalties for nondesignees. Treasury may enforce criminal and civil penalties for any U.S. person who willfully violates the prohibitions in the Kingpin Act, associated regulations, or license rules. Penalties for violations of the Kingpin Act range from civil penalties of up to $1.5 million per violation to more severe criminal penalties. Criminal penalties for corporate officers in violation may include up to 30 years in prison and fines up to $5 million for individuals and $10 million for corporations. Annual Kingpin Act Reporting Requirements Treasury is required to report to Congress on the status of sanctions imposed under the Kingpin Act, including the personnel and resources directed toward imposing such sanctions during the preceding fiscal year. On July 1st of each year, the OFAC Director, as delegated by the Secretary of the Treasury, is required to submit a report to the Permanent Select Committee on Intelligence of the House of Representatives and the Select Committee on Intelligence of the Senate on the status of sanctions imposed under the Kingpin Act, the personnel and resources directed toward imposing sanctions under the Kingpin Act during the preceding fiscal year, and background information with respect to the newly identified significant foreign narcotics traffickers and their activities. Treasury is also required to report on foreign persons who are sanctioned under the Kingpin Act to the Director of the Office of National Drug Control Policy (ONDCP); ONDCP is the Executive Branch office responsible for issuing an annual National Drug Control Strategy and coordinating the efforts of the National Drug Control Program agencies implementing any aspects of the strategy. OFAC Leads a Flexible Interagency Process to Designate Narcotics Kingpins and Their Networks, and Partner Agencies Generally Find OFAC Guidance Sufficient to Understand Their Roles OFAC Leads a Six Step Kingpin Act Designation Process Treasury’s OFAC leads a process generally involving six steps to designate Kingpin Act targets. This process allows OFAC to coordinate its investigations and designations with U.S. partner agencies and foreign governments. (See fig. 2.) We determined the designation process through interviews with OFAC and partner agency officials, and selected nine cases to review the implementation of the designation process. OFAC’s Kingpin Act designation process includes the following six steps: 1. Identify potential targets. OFAC first identifies potential targets for investigation and Kingpin Act designation. OFAC’s partner agencies can submit recommendations for potential targets. According to OFAC officials, they consider information provided about potential Tier 1 targets from the recommending agency, such as whether the targets are on the U.S. multiagency list of priority drug trafficking targets, what unique identifiers the recommending agency can provide to minimize the chance of investigating the wrong target, and which drug(s) and quantities the targets traffic and to which markets. Additionally, OFAC considers (1) the likelihood that the target would meet the legal criteria for designation and have an impact, (2) the expectation that designation would complement rather than hinder law enforcement and foreign counterpart investigations and operations, (3) any unintended negative consequences on third parties, and (4) the current availability of OFAC resources. According to OFAC officials, Tier 2 targets are generally identified as part of the investigation of a Tier 1 target or designee. Officials said the decision to pursue designation depends on whether there is sufficient evidence to demonstrate that the target satisfies the designation criteria in the act. As early as at this step, but at some point before designation, OFAC coordinates with partner agencies to ensure that they do not have an ongoing investigation or other diplomatic interactions that will be adversely affected by a Kingpin Act designation. 2. Gather evidence. OFAC gathers evidence on the identified target to determine whether it meets the criteria for identification or designation and whether there is a network associated with the target. OFAC requests information on the target from other partner agencies. According to OFAC officials, they do not request information from all of OFAC’s partner agencies during the investigation of each target if they deem the information provided by a subset of the partner agencies to be sufficient evidence. OFAC also conducts its own research and uses all sources—including public and classified—to develop an evidentiary package. OFAC works with partner agency headquarters, and domestic and international field offices (as needed for each case) to collect information on either a person’s drug trafficking activities or activities that support drug trafficking organizations. OFAC and partner agency officials said they also collect information about targets from their foreign government partners and counterparts, as appropriate. OFAC also ensures that the derogatory information collected is linked to the target and not, for example, another person with the same name. 3. Assemble evidentiary package. OFAC compiles the collected information into an evidentiary package maintained in its electronic case management system. According to OFAC officials, the case management system documents the date when each step is completed and contains sign off by an approving official. In addition, OFAC officials said the case management system contains a summary of the evidence OFAC gathered to justify designating an individual or entity, and links to the source documents provided by partner agencies. Because the information in the evidentiary package may be sensitive, classified, and compiled from multiple sources, OFAC typically does not share the evidentiary packages with its partner agencies, with the exception of DOJ for legal review purposes. However, under certain circumstances, OFAC may allow partner agencies to review portions of an evidentiary package after ensuring that there is a specific need to know and that there is adherence to rules for disclosure to another agency. 4. Legal review. OFAC provides the evidentiary package first to Treasury’s Office of General Counsel and then to DOJ’s Civil Division for legal review. Treasury’s Office of General Counsel reviews the package for legal sufficiency, while DOJ assesses the risks associated with potential future litigation resulting from the identification or designation. According to OFAC and DOJ officials, attorneys often seek clarification or additional evidence from OFAC at this stage. In those cases where Treasury’s Office of General Counsel deems the basis for designation or identification to be legally sufficient and DOJ determines that the identification or designation presents an acceptable level of litigation risk, they give OFAC clearance to finalize the evidentiary package and proceed with the action. 5. Consult with partner agencies. Once the evidentiary package passes legal sufficiency, OFAC consults with all of its partner agencies to obtain concurrence. OFAC presents the names of individuals or entities it has decided to designate and a high-level summary of the reasons for designation to its partner agencies for final consultation and concurrence. According to officials from each of the partner agencies, this allows them the opportunity to identify if OFAC’s plan to designate a target will damage any of their operations or ongoing investigations or cause unacceptable damage to diplomatic relations with the host government in the country where the target resides or maintains citizenship. This consultation phase also allows for OFAC and other Treasury offices, such as the Office of Terrorist Financing and Financial Crimes (TFFC), as well as partner agencies to develop an engagement plan for outreach with relevant parties, including foreign governments and the press, as appropriate. While partner agencies at the U.S. embassy in the country of the proposed designation are given the opportunity to concur with OFAC’s decision to designate, agency representatives in headquarters give final agency concurrence. OFAC does not designate anyone unless all partner agencies concur. If an agency tells OFAC at any point during the process that designating a target would damage the agency’s investigation or operations, OFAC officials said they coordinate with the partner agency to determine how to proceed. For example, OFAC may delay the Kingpin Act designation until the partner agency has completed its investigation and can take simultaneous action against the target. 6. Designate the target(s). If all partner agencies concur with OFAC’s designation proposal, OFAC takes action to identify the Kingpins and designate any affiliated targets. The evidentiary package is provided to the OFAC Director who, if concurring with the designation, signs a memorandum that identifies or designates the targets. At this time, OFAC also adds the individuals and entities to the SDN List. OFAC announces the actions publicly and records them in the Federal Register. Figure 3 provides an example of an OFAC announcement of a Kingpin Act designation. According to Treasury officials, OFAC also coordinates with other Treasury offices and partner agencies at headquarters and U.S. embassies to execute an outreach and engagement plan. Once OFAC has taken these steps, it begins to monitor and enforce compliance with the sanctions it imposes against Kingpin Act designees. Flexibility in Designation Process Allows OFAC to Coordinate with Partner Agencies and Foreign Governments OFAC and U.S. partner agency officials said flexibility built into the process can affect the length of time it takes to investigate a target and the sequence of steps taken. For example, OFAC’s coordination with multiple U.S. partner agencies and foreign governments throughout the process may influence the sequence of steps taken. In addition, drug traffickers often change their organizations and operations in an attempt to evade investigators, which can contribute to the length of time to complete an investigation. According to OFAC officials, the process is intended to ensure that: designations do not jeopardize other agencies’ ongoing investigations, OFAC’s actions are coordinated with other planned civil or criminal actions against each target to maximize the disruption to the drug trafficking organization, and investigators can collect sufficient evidence to designate targets despite targets’ constantly changing efforts to evade detection. Coordination with partner agencies. Multiple U.S. agencies may have concurrent investigations of a Kingpin Act target, requiring coordination between OFAC and U.S. partner agencies to include decisions about how sharing information could affect their own investigations. When agencies withhold information about a target to ensure that their own investigation of the target is not compromised, it may take longer for OFAC to develop an evidentiary package that satisfies the Kingpin Act’s designation criteria. In addition, the length of the designation process and the sequence of steps also depend on how far along other agencies’ investigations of a target are. For example, if a law enforcement agency is able to provide enough evidence when the potential target is first identified and OFAC officials think little additional investigation is needed to further develop an evidentiary package, they may complete more than one of the designation steps concurrently in order to designate the target as quickly as possible. According to OFAC and partner agency officials, the coordination allows them to agree to and plan the civil and criminal actions to be taken to maximize the U.S. government’s efforts to disrupt the drug trafficking organization. Coordination with foreign government officials. According to OFAC and U.S. partner agency officials at headquarters, in Mexico, and in Colombia, foreign government officials determine whether to share derogatory information about Kingpin Act targets on a case-by-case basis. OFAC and partner agency officials in Colombia credited host government information sharing as a primary factor in OFAC’s ability to complete evidentiary packages for Colombian targets and one reason why OFAC has been able to investigate and designate more individuals and entities in Colombia than in other countries. Coordination with foreign partners also allows OFAC to time designations strategically to coincide with civil and criminal actions against the target by foreign governments. For example, on May 17, 2019, the Under Secretary for TFI and a Mexican government official announced coordinated, sanctions-related actions. The Under Secretary announced the Kingpin Act designation of seven individuals and six entities affiliated with the Cartel de Jalisco Nueva Generacion (CJNG) and its close ally, the Los Cuinis drug trafficking organizations. Treasury coordinated closely for months with the Mexican Financial Intelligence Unit, the Mexican Attorney General’s Office, and the Mexican Federal Police on this action. The Mexican Financial Intelligence Unit froze the Mexican bank accounts held by all of the designees, according to Treasury officials. Although actions like this sometimes require them to delay a designation, OFAC officials noted that the results of coordination can increase the impact of Kingpin Act designations. Changes to drug trafficking organizations. According to OFAC and partner agency officials, drug traffickers attempt to evade investigators by being unpredictable and making changes to their organizational structure and operations. Changes to the organization may result in the need for longer investigations if information gathered about an individual trafficker or a trafficking organization becomes outdated or irrelevant. Operational changes include such things as using shell companies or virtual assets, which several OFAC and partner agency officials said complicate their attempts to gather evidence of proceeds from drug trafficking, and can also lengthen the designation process. Based on our analysis of nine Kingpin Act designations, we found that the duration and sequence of steps leading to designations varied. According to OFAC officials, each investigation includes a unique set of circumstances that affect the length and sequence of steps. From initiation to designation, the nine cases we reviewed ranged from 6 months to 38 months (See fig. 4.) Time spent preparing the evidentiary packages for the cases ranged from 3 months to 31 months. Although OFAC got partner agency concurrence for seven cases after attorneys had begun the legal review of evidentiary packages, OFAC documented completion of this step before legal review had begun for two cases. The timing for submitting the case to partner agencies for initial designation consideration varied, including one case that OFAC did not submit until the month that attorneys completed legal reviews of the evidentiary package. For one case, OFAC followed most of the steps twice before designating the target. OFAC officials told us that if the decision is made to delay a designation after they have completed all of the steps leading up to designation, it may be necessary to go through the steps again to determine whether there is new derogatory information about the target and whether the information in the evidentiary package is still current and legally sufficient before designating the target. OFAC Has Informed Partner Agencies of the Designation Process in Several Ways, Which Partner Agencies Generally Find Sufficient to Understand Their Roles OFAC officials reported that they disseminate information about the designation process and agencies’ roles and responsibilities for the process in several ways. Treasury’s website includes Frequently Asked Questions that explain how agencies should interact with OFAC and each other and a hotline number that agencies can use if they need additional information. OFAC has provided presentations and memos to its partner agencies that further explain the Kingpin Act designation process. Treasury has also issued Kingpin Act regulations, which, among other things, define key terms related to the act and clarify prohibited activities. Because DEA is involved in the majority of OFAC’s Kingpin Act investigations, OFAC and DEA have signed a memorandum of understanding that further clarifies how they work together and share information related to Kingpin Act cases. Among other things, it establishes the terms for OFAC to have a staff person co-located at DEA and to have access to DEA files that support Kingpin Act investigations. According to OFAC officials, it does not have a similar formal collaboration mechanism with its other partner agencies. OFAC’s partner agencies reported that they generally understand their responsibilities under the Kingpin Act and how to find answers to their questions about the Kingpin Act designation process. Several officials stated that their responsibilities include recommending potential targets, participating in interagency group meetings, deciding whether to concur with OFAC’s decisions to investigate or designate persons, and responding to specific requests for information from OFAC. Officials from the headquarters of each of the Kingpin Act partner agencies said they found the information available from OFAC about the designation process sufficient to help them understand their roles. Most partner agencies in Colombia and Mexico, where the majority of Kingpin Act designations have taken place, reported that the presence of an OFAC Attaché in those countries made it easy for them to ask for clarification on the process as needed. OFAC and Partner Agencies Monitor and Enforce Kingpin Act Financial and Nonfinancial Sanctions, but OFAC Does Not Ensure Consistency and Transparency of Mandated Personnel and Resource Reporting OFAC Works with Federal Banking Agencies to Monitor and Enforce Kingpin Act Financial Sanctions OFAC monitors and enforces financial sanctions against Kingpin Act designees implemented by U.S. financial institutions. OFAC regulations and a memorandum of understanding with Federal Banking Agencies (FBA)—such as the Federal Reserve and the Office of the Comptroller of the Currency (OCC)—establish sanctions compliance and information sharing responsibilities. For example, OFAC regulations require banks to report all blockings of designee property to OFAC within 10 days of the occurrence and recommend that banks designate a Compliance Officer responsible for monitoring compliance with its programs, and an officer responsible for overseeing blocked funds. According to the memorandum, each FBA will provide OFAC the following types of information to help OFAC monitor bank compliance with sanctions programs, including Kingpin Act sanctions: Notification of any apparent unreported sanctions violations discovered during their examinations of financial institutions. Information on their examinations into a bank’s OFAC compliance policies, procedures, and processes. Notification of any deficiencies in a bank’s compliance programs, such as cases when a bank failed to respond to supervisory warnings concerning OFAC compliance violations. FBAs have established a schedule for regular examinations of U.S. banks, which generally include their OFAC compliance programs. Federal Reserve and OCC officials stated that their legal and bank examiner staff address sanctions compliance regimes as part of their general examination duties. They are not responsible for determining sanctions violations, but assess the bank’s compliance program as a whole for soundness. Both FBAs said they perform bank examinations every 12 to 18 months, and determine the extent to which they should review the bank’s OFAC compliance program during the examination. For example, OCC officials said that, in accordance with the guidelines, they review banks’ internal testing of their OFAC compliance programs. According to OCC and Federal Reserve officials, banks have compliance programs to identify and block OFAC designees, including Kingpin Act designees, from accessing the U.S. financial system. According to OFAC and FBA officials, the U.S. banks with the most international branches and non-U.S. clients are most likely to hold assets or facilitate financial transactions of foreign nationals. FBA examinations confirm that bank programs include procedures for ensuring compliance with OFAC sanctions, including Kingpin Act sanctions. We met with officials from the five U.S. banks that FBA officials said have the largest presence in Latin American countries, and bank officials reported that their compliance programs check daily for evidence they are maintaining any customer relationship or allowing any transactions involving designated individuals. OFAC has imposed a range of penalties on banks that have violated the terms of Kingpin Act sanctions. OFAC and bank officials said that a bank is noncompliant when it either fails to freeze a Kingpin Act designee’s assets at that bank or processes a transaction involving a Kingpin Act designee. According to Treasury officials, Treasury makes public any civil monetary penalties it imposes and OFAC has imposed monetary penalties on banks for Kingpin Act compliance violations in 12 cases for a total of $17 million since 2000. Officials from the five banks we spoke with said they self-report cases of noncompliance with OFAC sanctions against Kingpin Act designees as required. For example, one of the banks stated that they identify and report between six and 12 cases of noncompliance to OFAC each year. OFAC officials said when a bank self-reports a violation OFAC often issues them a cautionary letter. According to OFAC officials, they issue this as a warning when they have no reason to believe that the bank committed the violation intentionally or that it is evidence of a systematic problem that the bank has not taken steps to address. The OFAC officials said the letter may or may not include a required response from the bank. State and OFAC Enforce Non-financial Kingpin Act Consequences, Including Denying Visas and Blocking Property State has denied visa applications and revoked visas of Kingpin designees, prohibiting them from traveling to the United States after they were designated. According to both OFAC and State’s Consular Affairs officials, State contacts OFAC whenever a visa adjudicator finds information in State’s Consular Affairs database regarding a possible OFAC concern about a visa applicant. State’s officials use their Consular Lookout and Support System database to identify any information entered by U.S. government agencies, including OFAC, to indicate that an individual does not qualify for a U.S. visa. Although the consular database does not specify that OFAC’s concern is specifically related to a Kingpin Act designation, they do not issue a visa without discussing with OFAC whether the applicant’s designation disqualifies them from a visa. The consular database does not specify which OFAC flags are related to the Kingpin Act, and State was unable to provide us the number of visas that have been revoked or denied under the program. OFAC has also blocked (or denied access to) designees’ U.S. property as part of Kingpin Act sanctions. According to OFAC officials, they seek to identify U.S. property that designees own or control as part of their investigation of designees both before and after they are designated. As a result of those investigations, OFAC officials said they have blocked 15 U.S.-incorporated companies, nine real estate properties, and 21 other “tangible” properties (such as automobiles, aircraft, and boats), which remained blocked as of August 2019. An individual’s property is no longer blocked if that individual is removed from the SDN list. U.S. citizens, corporations, and financial institutions are not permitted to do business with blocked companies. OFAC Meets Annual Reporting Requirement, but Provides Limited Guidance to Partner Agencies on Expenditure Data and Does Not Disclose Data Limitations OFAC has met the mandated requirement to report to Congress on agencies’ personnel and resources expended on the imposition of Kingpin Act sanctions, but provided limited guidance to partner agencies that has resulted in inconsistent data on Kingpin Act–related expenditures. Furthermore, OFAC has not disclosed limitations to the consistency or reliability of the expenditure data in its reports. The Kingpin Act requires Treasury, no later than July 1 each year, to provide the Permanent Select Committee on Intelligence of the House of Representatives and the Select Committee on Intelligence of the Senate a report describing the status of sanctions imposed, including the personnel and resources directed towards the imposition of such sanctions during the preceding fiscal year, and providing background information with respect to newly-identified significant foreign narcotics traffickers and their activities. OFAC has submitted annual reports to Congress since 2003. Each report includes information from OFAC on both agencies’ expenditures and on designations announced during the year. To prepare the report, OFAC requests partner agency expenditures. OFAC sends annual emails requesting the amount agencies spent on personnel and resources for their Kingpin Act activities. For at least the last 3 years, OFAC has sent the partner agencies a memo stating that for personnel expenses, agencies could estimate the percentage of time spent by staff members on activities directly attributable to implementing the Kingpin Act during the year covered in the report and multiply by the staff members’ salaries during the year. However, the guidance does not clarify or provide examples of types of personnel expenditures that agencies should consider as attributable to implementing the Kingpin Act. As a result, agencies must interpret for themselves what to include in their estimated personnel expenditure submissions to OFAC. The memo listed some examples of what agencies could include as resource expenditures related to the implementation of the Kingpin Act, such as research materials and information access, travel, equipment, supplies, outside services, and security. OFAC officials said they are not more prescriptive with their guidance because the Kingpin Act is not specific about which expenses to report. Agencies reported different methods for determining expenditure amounts and the information on agency personnel expenditures varied substantially from year to year. Officials from some of the partner agencies reported calculating estimates of personnel expenditures based on the paygrades of personnel engaged in Kingpin Act investigations or interagency meetings, while others stated that they did not report expenditures because they determined that their level of engagement was minor and did not warrant reporting. According to DEA officials, they do not report on personnel expenditures for the time they spend investigating Kingpin Act targets because the investigations simultaneously support their own cases against the targets. According to officials from some agencies, such as DHS, they only reported personnel expenditures for cases on which they were the lead investigative agency. As a result, DHS reported $2.4 million in personnel expenditures in fiscal year 2015, $0 between fiscal years 2016 and 2018, and then about $2 million in fiscal year 2019. Other partner agencies, such as DOD and State, report personnel expenditures even though they do not lead specific Kingpin Act investigations. As a result, the reported expenditures of agencies may not be consistent and may not represent a reliable total for Kingpin Act activities across the U.S. government. See figure 5 for the Kingpin Act–related personnel expenditures reported by Treasury and its partner agencies. Agencies’ determinations of what they include as resource expenditures vary as well. For example, several agencies have reported no resource expenditures for the last 3 years, but State has reported a small resource expenditure that, according to State officials, accounts for transportation expenses for Kingpin Act interagency meetings. OFAC officials said they do not know what agencies are including in their annual expenditure reports because OFAC does not seek information from agencies explaining their annual expenditure submissions and OFAC reports them as submitted. Moreover, OFAC officials said they did not verify the amounts reported to confirm, for example, why DHS and DOD reported personnel expenditures in some years many times greater than DOJ personnel expenditures, even though DOJ is the lead investigative agency for the majority of Kingpin Act cases. The Kingpin Act requires OFAC to report on the personnel and resources expended on the imposition of Kingpin Act sanctions each year. Additionally, federal internal control standards require entities to ensure that they are using quality information to achieve their objectives. Although Treasury reported in the most recent annual report from July 2019 that OFAC’s significant increase in resource expenditures was due to the addition of overseas costs and database contracts, the annual reports do not account for significant changes in agencies’ expenditures from year to year. Because OFAC does not provide guidance that clarifies what agencies are required to include in their annual expenditure submissions or disclose the limitations in the consistency and reliability of expenditure data from partner agencies, OFAC cannot provide assurance that its annual reports to Congress on Kingpin Act interagency expenditures contain quality information that is transparent and consistent across all reporting agencies. As a result, Congress may not be able to provide informed oversight of personnel and resources expended on implementing the Kingpin Act. Agencies Noted Challenges That Impede Their Assessment of the Effectiveness of Kingpin Act Sanctions, but OFAC and Its Partners Report a Range of Results Agencies Reported Challenges in Assessing Effectiveness of Kingpin Act Sanctions in Achieving Policy Goals, but Treasury Has Assessed Some Individual Designations OFAC and partner agency officials identified challenges that make it difficult—or impossible—to assess the overall effectiveness of the Kingpin Act sanctions in achieving U.S. policy goals to reduce illicit narcotics within the United States. These officials noted that the primary challenge in assessing the effectiveness of Kingpin Act sanctions is that they cannot isolate the impact of Kingpin Act sanctions from those of multiple other efforts and factors. For example, whether the estimates of the amount of drugs entering the United States is increasing or decreasing depends upon the sum total of activities of counternarcotics programs managed by organizations in the United States, other countries, and the international community. In addition, we have previously reported other challenges that agency officials have stated can make it difficult to assess the effectiveness of economic sanctions, including frequent shifts in policy goals and objectives, and a lack of reliable data. Treasury officials noted that sanctions are often used in conjunction with other policy tools, such as diplomatic engagement and export controls. According to Treasury officials, distinguishing the impact of each tool leveraged is exceedingly difficult due to the limited information available via intelligence and law enforcement channels. Moreover, while Treasury’s partner agencies said Kingpin Act designations contribute to their counternarcotics goals, these agencies’ are unable to quantify contributions specifically related to the Kingpin Act in measuring progress toward their own agencies’ goals. Partner agency officials said they do not consider the Kingpin Act to be a government program for which effectiveness can be assessed; rather, they stated that the Kingpin Act is one tool among many that U.S. government agencies can use where appropriate in their efforts to combat drug trafficking. According to partner agency officials, effectiveness of sanctions in achieving policy goals is often discussed at an interagency level, which allows the U.S. government to consider these issues in the larger policy context, because sanctions are often only one element of broader government-wide strategies to achieve U.S. policy goals. Treasury conducts some assessment of both the potential and observed impacts of specific Kingpin Act designations. The Office of Intelligence and Analysis (OIA), Treasury’s intelligence component, conducts both predesignation and postdesignation assessments. OIA officials noted that they consider it part of their mission to inform Treasury policymakers of potential impact before a designation occurs. According to OIA officials, OIA’s predesignation assessments are narrowly focused and can be delivered in any number of formats, including emails, spreadsheets, and briefings. OFAC officials said they provide OIA with name and summary evidentiary information on a potential target. According to OIA officials, they use the information to assess the potential level of impact (e.g., negligible or significant) a Kingpin Act designation may have on the target, its network, or other third parties, based on a variety of factors. For example, OIA may determine that a Kingpin Act designation can result in significant impact if evidence indicates that a designation will impose high costs and obstacles for a target to continue drug trafficking activity. According to OIA officials, such assessments have been required by the Under Secretary since 2018 and OIA has completed predesignation assessments on all Kingpin Act designations during that time period for senior Treasury officials’ consideration. Additionally, since 2018, OIA has completed two postdesignation assessments. OIA officials said they share these assessments with OFAC so it can incorporate the lessons learned into future investigations or to develop new designations. OIA officials said that the decision to conduct postdesignation assessments of Kingpin Act designations is based on resources and the availability of information to assess impact. OFAC officials said they have not undertaken formal, systematic assessments on the impact of Kingpin Act designations because OFAC’s staffing resources are primarily assigned to designation investigations and reviewing of petitions for Kingpin Act designation reconsideration. OFAC and Its Partner Agencies Have Reported Results, Including That Kingpin Act Sanctions Have Frozen Assets and Aided in Drug Trafficking Investigations OFAC and its U.S. partner agencies reported on various results related to Kingpin Act sanctions. OFAC reported that it had designated more than 2,000 individuals and entities under the Kingpin Act as of June 2019. (See fig. 6 for the number of individuals and entities designated by year.) These designations are about evenly split between designations of individuals and designations of entities across the four designation classifications. OFAC reported 195 Tier 1 designations (B1 and B4 classification), and 2,033 Tier 2 designations (B2 and B3 classification). OFAC also reported that it has frozen more than half a billion dollars of sanctioned individuals’ or entities’ assets under the Kingpin Act between 2000 and 2019. According to OFAC data, almost 80 percent of the total assets frozen were from one individual in 2017. For the remaining years, the amount frozen fluctuated between $1.7 million and $36.4 million without a clear upward or downward trend. Further, law enforcement partner agencies cited the Kingpin Act as an important tool in aiding their investigations that may result in actions such as indictment or arrest of designees. For example, in one of our nine cases, a federal grand jury indicted Raul Flores Hernandez—the suspected leader of a Guadalajara-based drug trafficking organization—in August 2017 for moving large quantities of cocaine from South America to Mexico for distribution and further transportation into the United States. OFAC designated him (as well as 21 of his alleged criminal associates and 42 businesses and other entities affiliated with his drug trafficking organization) under the Kingpin Act concurrent with the indictment. According to OFAC and DEA officials, sharing information about Flores Hernandez was essential to both the designations and the indictment. According to these officials, disrupting the access of significant narcotics traffickers and their networks to the U.S. financial system and barring them from travel to the United States has been helpful in motivating several designees to cooperate with law enforcement investigations. Moreover, U.S. agencies report that the ability to sanction entire drug trafficking networks increases pressure on traffickers to cease involvement with illicit narcotics. OFAC officials stated that removing designees from the OFAC list is, in some cases, evidence of disruption of drug trafficking organization or other positive behavior change. To be removed, designees must petition OFAC and demonstrate that they no longer meet the criteria to be designated under the Kingpin Act. As of June 2019, OFAC had removed 399 individuals and entities previously designated under the Kingpin Act, of which five were Tier 1 designations (B1 and B4 classification), and 394 were Tier 2 designations (B2 or B3 classification). Foreign government officials also reported that Kingpin Act sanctions have assisted them in imposing penalties on drug traffickers. Foreign government officials we met with in Colombia reported that their Supreme Court issued a ruling that permits their countries’ banks to terminate accounts of, and deny service to, Kingpin Act designees because of the risk the banks would face if they continued those business relationships. According to Mexican government officials, a bankers’ association, the Financial Intelligence Unit, and the bank regulator in Mexico issued guidance supporting Mexican banks’ rights to deny service to Kingpin Act designees. Mexican government officials also stated that once the United States publicly identifies a Mexican national as a drug trafficker by designating him or her under the Kingpin Act, Mexican law enforcement entities face less public opposition when they arrest, imprison, or extradite the individual. According to government officials we met with in Colombia, information that OFAC and other U.S. agencies share as part of their Kingpin Act investigations help them justify seizing designees’ assets. For example, according to OFAC officials, OFAC, DEA, and Colombian authorities led a joint investigation that led to the October 2018 Colombian asset seizure of 202 assets of two individuals in Colombia valued at over USD $500 million. The Colombian seizure included farms, land, houses, hotels, apartments, businesses, commercial properties, emerald mines, horses and vehicles. Some Kingpin Act designations have had unintended consequences for foreign persons other than those targeted by the sanctions. The Congressional Research Service has reported that some designations have been associated with significant economic losses and unemployment by individuals not involved in illicit narcotics when large companies are liquidated in the process. Treasury officials stated that foreign drug trafficking organizations often attempt to integrate their illicit proceeds into the legitimate economy by owning or controlling businesses that may employ individuals who are not associated with drug trafficking activities. According to Treasury officials, it is imperative that Treasury designate businesses that are owned or controlled by drug trafficking organizations, despite the employment of individuals who may not have knowledge of the illicit activities. They said that prior to designating such foreign businesses, Treasury coordinates closely with other U.S. government agencies, the relevant U.S. embassy, and with the relevant foreign counterparts to minimize the impact on employees who lack knowledge of the illicit activities. According to the Congressional Research Service, some designations have also been associated with upticks in drug trafficking–related violence when, in combination with law enforcement action, drug trafficking organizations are dismantled and competing groups vie for abandoned territory. Furthermore, some designations have negatively affected public perceptions of the United States within the designee’s country of residence, according to OFAC and partner agency officials. For example, OFAC and State officials stated that there was significant public criticism of U.S. intervention when OFAC designated a Mexican celebrity in conjunction with a significant narcotics trafficker. OFAC officials said it can be difficult to address public opposition to a Kingpin Act designation because the information in the evidentiary package is sensitive and cannot be revealed publicly. Conclusions The Kingpin Act enables the U.S. government to sanction significant international narcotics traffickers and their networks worldwide by designating foreign individuals and entities, resulting in the freezing of their U.S. assets and an inability to conduct transactions, including financial transactions, with U.S. businesses. OFAC and its partner agencies consider the Kingpin Act a valuable tool as part of U.S. counternarcotics strategy, but have noted that the plethora of counternarcotics efforts make it difficult to isolate the effects of the Kingpin Act. OFAC has reported on personnel and resources directed toward imposing Kingpin Act sanctions annually to Congress. However, OFAC provided limited guidance to agencies about what expenditure data to report. As such, we observed considerable inconsistencies in resource expenditures reported by various partner agencies, and also determined that methods for determining expenditures varied by agency. Moreover, OFAC does not disclose agency data limitations, such as explaining why the data may vary from year to year, before reporting the information to Congress. Without consistent agency data and disclosure of data limitations regarding information on agency resources devoted to Kingpin Act activities, Congress may be limited in its ability to conduct oversight of implementation of the Kingpin Act. Recommendation for Executive Action We are making the following 2 recommendations to the Department of the Treasury: The Secretary of the Treasury should ensure that the Office of Foreign Assets Control provides its partner agencies more specific guidance regarding Kingpin Act–related expenditure data to improve the consistency of data submitted by these agencies. This could include, for example, how agencies account for expenditures that support Kingpin Act investigations when they are not the lead and for what types of activities resource expenditure data are required. (Recommendation 1) The Secretary of the Treasury should ensure that the Office of Foreign Assets Control discloses information about limitations in the consistency and reliability of the agency expenditure data in its annual reports to Congress. (Recommendation 2) Agency Comments We provided a draft of this report to Treasury, DHS, State, DOD, DOJ, CIA, the Federal Reserve, and ONDCP for comment. We received technical comments from Treasury, DHS, and the Federal Reserve, which we incorporated as appropriate. The remaining agencies informed us that they had no comments. Treasury did not agree or disagree with our recommendations. 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 to the Secretary of the Treasury, the Acting Secretary of Homeland Security, the Secretary of State, the Secretary of Defense, the Assistant Attorney General for Administration, the Director of the Central Intelligence Agency, the Chair of the Board of Governors of the Federal Reserve System, and the Deputy Director of the Office of National Drug Control Policy. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2964 or GurkinC@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 II. Appendix I: Objectives, Scope, and Methodology Our objectives were to examine (1) how U.S. agencies designate individuals and entities under the Foreign Narcotics Kingpin Designation Act (Kingpin Act); (2) the extent to which U.S. agencies monitor, enforce, and report on sanctions under the Kingpin Act; and (3) what agencies have done to assess the effectiveness of the Kingpin Act. To examine the process for designating individuals and entities under the Kingpin Act, we interviewed officials from the mandated partner agencies—the Departments of the Treasury (Treasury), State, Homeland Security (DHS), and Defense; the Federal Bureau of Investigation (FBI); and the Drug Enforcement Administration (DEA)—and reviewed documents, including the statutes that comprise the Kingpin Act. We also reviewed documentation on collaboration and information-sharing agreements between Treasury’s Office of Foreign Assets Control (OFAC) and its partner agencies to determine the ways in which agency participation has been formalized in the designation process. In addition, we received responses from the Central Intelligence Agency to questions we sent. We selected and reviewed a nongeneralizable sample of Kingpin Act designations made since 2015 to understand OFAC’s designation process and the extent of the variation in the timing and sequence of the steps leading to the designations. From the countries with the most designations, we considered only B1 and B4 designations. Additionally, we only considered designations that occurred after May 2015, when the authority to designate was delegated from the President to the Secretary of the Treasury, so that the process followed for designation would most closely resemble the current process. We considered cases with a range in number of B2 and B3 designations affiliated with the B1 or B4 designee. Furthermore, we ensured that we selected cases from both Western Hemisphere countries where most of the designations have occurred (including cases in Colombia and Mexico where we performed fieldwork), and non–Western Hemisphere countries to learn whether the process differs geographically. To account for those criteria, we selected nine cases to review. OFAC provided data on the milestone dates and results associated with the cases from its electronic case management system. We were unable to independently assess the data provided against the system, but we were able to corroborate some dates, such as designation dates, with public documents such as press releases. In addition, OFAC officials answered our questions about the variance in case data they provided by explaining factors that contributed to the length or sequence of investigative steps of each case. As a result, we deem the case study data provided by OFAC to be sufficiently reliable for the purposes of this report. To examine the extent to which U.S. agencies monitor, enforce, and report on Kingpin Act sanctions, we interviewed officials from OFAC and its partner agencies regarding their roles in sanctions implementation. We also interviewed officials from some of the Federal Banking Agencies (FBA) that OFAC officials said had responsibilities to help monitor bank programs for compliance with OFAC sanctions, including the Kingpin Act financial sanctions—the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System—and five U.S. banks recommended by the FBAs as having the largest presence in Latin American countries to assess implementation of economic sanctions, including any penalties incurred for sanctions violations. In addition, we met with officials from financial regulator agencies and the national banking associations in Colombia and Mexico to understand how U.S. enforcement of Kingpin Act sanctions affected their operations. To assess the extent to which OFAC included information required by the Kingpin Act for Treasury’s reports to Congress, we also reviewed the annual reports OFAC submitted to Congress from 2003 to 2019 and OFAC guidance sent to partner agencies from 2017 through 2019 seeking their input into the reports. We interviewed officials from each partner agency about the methodology they used to calculate their annual resource and personnel expenditures. Because we found that the agencies calculate their personnel expenditures differently and OFAC does not verify the amounts reported, we did not find the data reliable and are presenting the data to illustrate the problems with their reliability. To examine what agencies have done to assess the effectiveness of the Kingpin Act, we interviewed OFAC and U.S. partner agency officials in Washington, D.C., Colombia, and Mexico, regarding their efforts to assess effectiveness and results of Kingpin Act designations and any challenges in measuring effectiveness. We also held telephone interviews with U.S. partner agency officials in Panama. We interviewed OFAC and Office of Intelligence and Analysis (OIA) officials regarding the type of assessments being done on the Kingpin Act. We reviewed strategic planning documents from the partner agencies to identify their counternarcotics objectives and, if available, related performance measures they track. We also used information from the nine designation cases we selected and interviewed U.S. partner agency officials as well as host government, financial industry, international organization, and nonprofit officials in Colombia and Mexico, to get perspectives on the results of Kingpin Act designations. To report on designations and removals of the Kingpin Act, we used OFAC’s official brochure detailing the complete listing of Kingpin designations as of June 11, 2019. The data in the brochure are taken from OFAC’s Specially Designated Nationals and Blocked Persons (SDN) List. The data include designations from years 2000-2019 categorized by type of designation. We compared the data in the brochure against the SDN List for accuracy and asked OFAC officials about their efforts to ensure the reliability of the SDN List data. We determined the data were sufficiently reliable for the purposes of our report. To report the amount of foreign designees’ assets frozen, we collected available data from OFAC for calendar years 2008-2018. To obtain the types and number of U.S. assets that have been blocked under the Kingpin Act, we interviewed OFAC officials and reviewed their published data. It was beyond the scope of this engagement to independently verify the number of U.S. assets blocked. We conducted this performance audit from May 2018 to December 2019 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. Appendix II: GAO Contact and Staff Acknowledgements GAO Contact Staff Acknowledgements In addition to the contact named above, Jennifer Grover, Mona Sehgal (Assistant Director), Jeffrey Baldwin-Bott (Analyst in Charge), Travis Cady, Marisela Perez, and Barbara Shields made key contributions to this report. Ashley Alley, Martin De Alteriis, Neil J. Doherty, Toni Gillich, Jeff Harner, John Hussey, and Triana McNeil also contributed to this report.

Drug deaths in the United States have been rising for years. According to the Centers for Disease Control and Prevention, in 2017 there were over 70,000 U.S. drug overdose deaths. This national emergency results in part from the activities of international narcotics traffickers and their organizations. The Kingpin Act, enacted in 1999, allows Treasury to designate and sanction individuals and entities that contribute to illicit narcotics trafficking. Sanctions and other consequences include blocking a designee's property and assets, denying U.S. travel visas to designees, and penalizing U.S. persons who violate the prohibitions in the Kingpin Act. Treasury is required to submit an annual report to Congress on agencies' Kingpin Act–related personnel and resource expenditures and sanctions activities. This report examines (1) how U.S. agencies designate individuals and entities under the Kingpin Act; (2) the extent to which U.S. agencies monitor, enforce, and report on sanctions under the Kingpin Act; and (3) what agencies have done to assess the effectiveness of the Kingpin Act. GAO reviewed documents from and interviewed officials at Treasury, the Department of State, and other partner agencies. GAO also performed fieldwork in Colombia and Mexico. Under the Foreign Narcotics Kingpin Designation Act (Kingpin Act), the Department of the Treasury's (Treasury) Office of Foreign Assets Control (OFAC) leads a flexible interagency process to designate and sanction foreign individuals and entities that contribute to illicit narcotics trafficking. OFAC identifies potential Kingpin Act designees, compiles evidence, submits it for legal review, and seeks concurrence from partner agencies on designation decisions. OFAC and U.S. partner agencies monitor and enforce Kingpin Act sanctions, but OFAC has not ensured consistency and transparency of the expenditure data it has reported to Congress. Federal Banking Agencies monitor the OFAC compliance programs of U.S. banks through regular bank examinations. Additionally, OFAC handles enforcement through warnings, monetary penalties, and other methods. As required, OFAC reports annually to Congress on Kingpin Act designations and corresponding agency expenditures, but it has provided limited guidance to partner agencies on expenditure data they report. As a result, agencies use different methods to calculate the personnel and resource costs associated with their Kingpin activities. For example, the Department of Homeland Security said it only reports personnel expenditures when it is the lead investigative agency, but the Department of Defense reports personnel expenditures when it is not the lead. Furthermore, OFAC has not reported the limitations in agency data in its congressional reports. This lack of clear expenditure information could hinder oversight of the Kingpin Act. OFAC officials noted challenges to assessing the overall effectiveness of the Kingpin Act, but they and their U.S. and international partners track and report a range of results. The primary challenge cited is the difficulty of isolating the effect of the Kingpin Act from multiple other programs combating drug trafficking organizations. Results reported by OFAC and its partners include, for example, from 2000-2019, OFAC reported that it had designated more than 2,000 Kingpins and their supporters, and frozen more than half a billion dollars in assets under the act. In addition, host government officials reported that Kingpin Act sanctions assist them in imposing penalties on drug traffickers.

GAO_GAO-20-80

Background DOD uses military and commercial satellite communications (SATCOM) to meet its global communications requirements. DOD acquires wideband capacity through two methods: DOD purpose-built: DOD obtains some of its SATCOM through its purpose-built systems, which include Wideband Global SATCOM (WGS) satellites. While DOD awards contracts to commercial companies to build these systems, the department is responsible for the systems’ procurement, operations and sustainment; therefore, they are considered purpose-built. Commercial contracts: DOD also purchases commercial SATCOM services to supplement its purpose-built systems, such as for satisfying users who have needs beyond available military satellite resources, supporting training on ground systems, or meeting the needs of unique users. In these cases, DOD acquires commercial SATCOM bandwidth through several competitively selected vendors, who are responsible for operating and sustaining their own systems. Military SATCOM architectures fall into three types: protected, which provides secure, assured communications; wideband, which supports worldwide capacity for high data rate communications, including high-quality voice and imagery; and narrowband, which provides reliable and secure communications less vulnerable to adverse weather conditions or other physical limitations, such as distance, dense foliage, and terrain. DOD’s primary wideband satellite communications system, WGS, currently provides a portion of DOD’s required SATCOM bandwidth, but the Air Force estimates its satellite constellation’s capabilities will begin to degrade in the late 2020s. The Air Force is adding at least one more satellite to the WGS constellation and plans for an enhanced WGS-11 to provide the capacity of two satellites. During the Wideband AOA, DOD estimated that adding this satellite to the constellation would extend the availability of wideband communications to 2031. According to the Air Force, there is potential for adding a 12th WGS satellite to the constellation. Like other types of space systems, DOD’s wideband SATCOM systems generally involve four types of interrelated segments that make a space capability fully functional. As illustrated in figure 1, they include (1) the space segment—namely the satellites; (2) the ground segment, with network services and also including satellite and payload control systems and data processing subsystems and facilities; (3) user equipment, such as radios, terminals, and routers needed by the warfighter to use the capability; and (4) launch vehicles and facilities. Within the space segment, satellites operate in several different types of orbits to meet different communication and mission needs, as shown in figure 2. The orbital location of a satellite can affect its capacity to transmit data, or what parts of the Earth can receive its signal. For example, highly elliptical orbits are necessary for providing long dwell times over northern latitudes due to the curvature of the Earth, while other orbits cover remaining latitudes. Wideband satellites operate in different radio frequency spectrum bands. DOD typically relies on C, X, Ku, and Ka-bands to provide wideband connectivity, determined by where and how users are operating. Each of these frequency bands has advantages and disadvantages for various applications. Satellite transponders operating at the lower C-band frequencies are less susceptible to degradation from rain than other bands. In the United States, the X-band is specifically designated for use by the U.S. government and the North Atlantic Treaty Organization. The Ku-band operates at higher frequencies and can communicate with smaller antennas and offer more flexibility. The still-higher-frequency Ka- band satellites can transmit more data than C, X, and Ku-band satellites, but their signals are more susceptible to degradation from water vapor and rain than satellites in lower frequency bands. Commercial satellite communication providers have historically operated primarily in the Ku- band but are now expanding services in the Ka-band to offer higher data rates. AOA Process and Best Practices An AOA is a key first step in DOD’s acquisition process and assesses alternative solutions for addressing future needs. DOD acquisition guidance provides the purpose and procedures associated with conducting an AOA to support decision making. DOD experts in areas such as cost estimating, technological analysis, and acquisitions, along with military and commercial stakeholders, comprise the AOA study team. The study team is involved in the day-to-day work of the AOA process and conducts the analyses that form the foundation of the assessment. During the AOA study period, the study team develops alternatives to satisfy capability gaps that they assess against pre-established performance requirements. We have identified 22 best practices for an AOA process. Of these, 6 best practices are associated with a “comprehensive” AOA. Comprehensive means that the AOA process ensures that the mission need is defined in a way to allow for a robust set of alternatives, that no alternatives are omitted, and that each alternative is examined thoroughly for the project’s entire life cycle. Without a clearly defined mission need and comprehensive list of alternatives, the AOA process could overlook the alternative that best meets the mission need. Furthermore, without considering the complete life cycle of each alternative, decision makers will not have a comprehensive picture of the alternatives analyzed. DOD Conducted a Comprehensive Analysis of Wideband SATCOM Alternatives DOD completed its analysis of wideband SATCOM alternatives in June 2018 and identified 11 alternatives that represent several possible approaches to SATCOM acquisitions. We found the Wideband AOA to be a comprehensive assessment. DOD Developed Alternatives to Inform Future SATCOM Decisions The Office of the Secretary for Defense for Acquisition and Sustainment completed the Wideband AOA in June 2018 to support decision making for future wideband architectures. Several subsystems comprise a SATCOM architecture and can include the number, type, orbital location, and capacity of satellites and associated ground or user segments. WGS constellation satellites will begin reaching their end of life in the early 2030s, which means DOD will need to begin launching replacement system satellites in the late 2020s. DOD satellite systems take, on average, over 7 years to develop and launch the first satellite of a purpose-built system. Given these time frames, the Wideband AOA study team focused on possible alternatives DOD could begin developing as early as 2019. In October 2016, the Office of the Secretary of Defense- Cost Assessment and Program Evaluation developed the Wideband Communications Services Analysis of Alternatives Study Plan. This Study Plan provided the schedule and tasks to be conducted for the Wideband AOA. These tasks included identifying study questions to be addressed and listing measures of performance and effectiveness. The Study Plan also described the organizational structure and methodology for executing the Wideband AOA. The Wideband AOA study team developed 11 alternatives that broadly represented three different acquisition approaches: legacy DOD SATCOM procurement focused on purpose-built systems with some commercially-contracted services; commercial-focused SATCOM procurement; and a strategy that would transition from a mainly purpose- built system to a more commercial SATCOM-oriented model. Historically, DOD has bought purpose-built SATCOM assets, including satellites and supporting ground systems, while contracting for supplemental commercial bandwidth. Table 1 summarizes the architectures and these approaches. The Wideband AOA Process Was Comprehensive Our assessment of the Wideband AOA found that it met our criteria for a comprehensive AOA process. Table 2 shows our determinations of how fully the Wideband AOA met each of our six best practices. Appendix I provides more detail on our AOA best practices. Based on our analysis, we found that the Wideband AOA study team thoroughly addressed a wide range of possible satellite system alternatives. Moreover, the Wideband AOA study examined the ground segment systems—including user terminals—which will communicate with the satellite system DOD chooses to replace WGS. Although user terminals were not the primary focus of this AOA, DOD officials told us this effort was the first time DOD has studied and consolidated department-wide costs for these terminals, which they said provided valuable context to decision-makers. We discuss this new information on terminals in further detail later in this report. In Accordance with Its Study Plan, DOD Used Multiple Methods to Obtain Stakeholder Input As set forth in the AOA Study Plan, the Wideband AOA study team solicited and incorporated input from across DOD stakeholders, such as the military services, operational users, and SATCOM partner nations. The study team also solicited and incorporated information from commercial SATCOM vendors to inform its alternatives. Additionally, the Wideband AOA study team incorporated information from interrelated studies, referred to as pilots and pathfinders, that the Air Force and Defense Information Systems Agency conducted. These studies recommended ongoing experimentation and adaptation to identify, incorporate, and guide future commercial SATCOM development, as well as changes to DOD’s approach to SATCOM acquisitions. Military and Commercial Stakeholders Provided Input to the AOA As set forth in its Study Plan, the Wideband AOA study team obtained military input from across DOD and information from commercial SATCOM vendors to inform its alternatives. AOA working groups were one of several mechanisms DOD used to obtain stakeholder input. The AOA study plan directed the establishment of eight working groups to consolidate subject matter experts for relevant SATCOM topics, as shown in table 3. Each working group, task force, and team conducted its analysis and wrote an appendix to the AOA report summarizing its methodology, inputs, and results. Each team also provided its own conclusions or recommendations, which contributed to the overall findings and recommendations of the AOA report. Military service representatives who participated in the Wideband AOA described to us how their personnel were involved in many or all of the working groups. AOA study leaders also emphasized the quality of the input from the working groups and were confident the AOA successfully captured the perspectives of acquisition, operational, and user communities—personnel responsible for buying, controlling, and using wideband SATCOM. In addition to the working groups, the Wideband AOA study team developed functional requirements for the alternatives by requesting SATCOM user demand data from the services, and invited SATCOM partner nations to participate in the AOA—a portion of which accepted. These efforts provided additional information from user communities. Wideband AOA study team leaders described how they relied on a formal Joint Chiefs of Staff process to obtain inputs from the military services on their current and projected bandwidth demands. Through this process, the department obtained SATCOM user demand data from combatant commands, military services, and their sub-commands. The AOA study team then used these results to develop an aggregate user demand projection that was foundational to the AOA. Any viable alternative had to provide sufficient bandwidth to meet future user demand. DOD requested inputs from commercial SATCOM vendors and the Commercial Working Group used these to identify the space system subcomponents, namely technical characteristics, including frequency bands, orbit, and satellite mass that the Technologies and Alternatives Working Group eventually combined into the 11 final alternatives. The Commercial Working Group’s intent in identifying these subcomponents was to represent capabilities the SATCOM industry will have on-orbit by 2023, without depicting any single vendor’s potential system. The Commercial Working Group also incorporated results from DOD pilot and pathfinder efforts (discussed below) to develop a roadmap for DOD to implement an enterprise management approach to SATCOM procurement and operations. DOD Pilot and Pathfinder Efforts Provided Additional Information to the Wideband AOA Study Team The Air Force and Defense Information Systems Agency conducted interrelated pilot and pathfinder studies before and during the Wideband AOA that provided information on SATCOM business arrangements, user terminal prototyping, and acquisition efficiencies. In 2014 and 2015, Congress authorized, and then directed, DOD to carry out a pilot program on the acquisition of commercial satellite communication services. As part of this pilot, DOD initiated pathfinder projects to test the feasibility of these new business arrangements. The Air Force and Defense Information Systems Agency studied and prototyped methods to improve commercial SATCOM acquisition and provide more flexible satellite connections for mobile SATCOM users. The agencies did so by contracting with commercial SATCOM providers for the following: Air Force Pilot – define and demonstrate prototyping to improve access to commercial SATCOM. The Air Force completed phases 1 and 2 of this 3-phase pilot program, studying preferential purchasing approaches that incentivize industry and the types of SATCOM architectures that enable such purchasing, such as a managed services approach that consolidates commercial SATCOM procurement for DOD users. Phase 1 studied commercial satellite communication architecture and business structures. The Wideband AOA’s Commercial Working Group used the phase 1 results in its modeling of SATCOM enterprise management. Phase 2 demonstrated a flexible modem-to-terminal interface to allow a terminal to “roam” or switch between different manufacturers’ satellite constellations. Phase 3 is ongoing and focuses on network integration risk reduction efforts. Air Force Pathfinders – prove that innovative business arrangements can meet DOD requirements and reduce costs. Through the pathfinder research efforts, the Air Force purchased an on-orbit transponder as well as pre-launch transponder to demonstrate different strategies for buying SATCOM. The final pathfinder effort is ongoing and is to demonstrate how access to shared bandwidth and more flexible ground systems can improve SATCOM access for warfighters. These types of capabilities help users to move more quickly and easily, with a reliable SATCOM connection. Defense Information Systems Agency Pathfinders – examine how acquisition efficiencies improve SATCOM services. The pathfinders’ findings provided observations on market trends for SATCOM contracting, namely that pricing will continue to decrease. The pathfinders also showed that DOD’s typical SATCOM requirements are not stable from year to year, meaning DOD cannot accurately predict when or where it will need surge SATCOM capacity. The pathfinders also identified management challenges to aggregating SATCOM requirements. The pilot and pathfinder efforts recommended ongoing experimentation and adaptation to identify, incorporate, and guide developing commercial SATCOM capabilities, as well as changes to DOD’s traditional approach to SATCOM acquisitions. In particular, both the Air Force and Defense Information Systems Agency recommended that DOD adapt to changing business models, especially for managed services in commercial SATCOM, in which DOD would purchase SATCOM services but would not own or manage the systems and data rates. Changing business models could also include greater coordination with the SATCOM industry, so DOD can better incorporate commercial technology into future systems. The Defense Information Systems Agency also recommended that DOD pursue an alignment of common types of user terminals and SATCOM architectures. For example, many programs use a different approach to procuring terminals and SATCOM architectures, which prevents DOD from taking advantage of commonalities that could save resources. Such commonalities include users in the same geographic area. These Air Force and Defense Information Systems Agency recommendations overlap with half of the findings and recommendations of the Wideband AOA. DOD Concluded That Future Wideband SATCOM Requires a Hybrid Approach and More Knowledge, but It Lacks a Plan to Implement AOA Recommendations DOD concluded in the Wideband AOA that integrating purpose-built satellite systems and commercially-provided systems into a hybrid architecture would be more cost effective and capable than any single purpose-built or commercial system alone. The AOA study team recommended actions to obtain more information on transitioning to a more integrated architecture of purpose-built and commercial systems and reducing risk. However, DOD does not have a plan to implement these recommendations and inform timely decision-making. DOD Concluded That Future Wideband Communications Require a Hybrid Approach During the AOA, DOD found that integrating purpose-built satellites and commercially-provided systems into a hybrid architecture would save costs and provide more capability than any single purpose-built or commercial system alone. The department currently uses a mix of purpose-built and commercial SATCOM contracts, but DOD has not historically managed these systems in coordination, or with an enterprise approach. DOD considered 11 architectures in its final analysis and all were to some extent hybrids of purpose-built and commercial systems because the AOA study team found that DOD requires a combination of military and commercial system capabilities. The Wideband AOA report identified three of the 11 potential architectures that would best meet DOD’s wideband SATCOM needs: Legacy Purpose-Built and Commercial Contracting Architecture - Procure and field a new purpose-built constellation for X and Ka-band capabilities with anti-jam technologies and upgraded antennas. DOD would continue to contract for commercial SATCOM as needed. Commercial-Oriented Architecture - Pursue advanced commercial high capacity satellites with steerable beams over the Ka-band. Also procure 10 purpose-built satellites to meet the military’s requirement for X-band communications. Transitional Step to Commercial Architecture - Transition to commercially-managed services architecture in low-Earth orbit for approximately 5,000 users over the long term. DOD would procure and field the modernized, purpose-built legacy architecture described above, then modify its suite of user terminals to align with the new low-Earth orbit satellites, emphasizing a cost-effective strategy to do so. For users who do not transition to the new commercial satellites, the purpose-built constellation provides continued X and Ka-band capability. During the Wideband AOA, DOD found that any post-WGS solution must continue to provide purpose-built SATCOM capabilities. For example, some users require X-band communications and identified this as the single most important capability to maintain. However, commercial constellations provide limited X-band communications due to this band’s historical use for military communications. The companies and international partners that do offer X-band communications provide fragmented coverage that does not fully meet DOD’s needs. In addition, commercial satellite constellations do not offer services in all of the areas DOD operates, such as over oceans and in polar regions. At the same time, because purpose-built systems alone cannot meet all military requirements, DOD found it will need to rely on commercial capabilities as part of a future architecture. Consequently, the AOA study team assessed alternatives that would expand DOD’s use of emerging commercial technologies. For example, DOD expects certain operations, like aerial vehicle flights that rely on wideband SATCOM, to increase and drive demand for commercial SATCOM capabilities. Moreover, the AOA study team found that emerging commercial capabilities could meet routine military needs, such as training, at a competitive cost. The AOA study team concluded integrating these capabilities into a future architecture would be beneficial. AOA Recommendations Focus on Gaining Additional Knowledge for Decision-Making and Reducing Risk In its Wideband AOA report, the AOA study team made a series of recommendations focused on maintaining current wideband capabilities and overcoming near-term information gaps in transitioning to new SATCOM acquisition and management approaches. All of the recommendations focused on gaining information needed to transition to a hybrid architecture of purpose-built and commercial systems in the long term. Table 4 provides examples of DOD’s recommendations and the additional knowledge DOD needs to obtain as it pursues a post-WGS solution. The Wideband AOA recommendations also addressed risks associated with any new SATCOM architecture, which the study team found include: (1) the uncertain stability and maturity of emergent commercial SATCOM systems and (2) the magnitude of replacing or modifying SATCOM user terminals. Commercial Technology Stability and Maturity: DOD found in the Wideband AOA that the commercial SATCOM market needs time to grow and stabilize as industry seeks to build a consumer base, especially for low-Earth-orbit-based internet services. The AOA study team found that if commercial companies cannot close their businesses cases around proposed solutions, DOD investments or programs that rely on those proposed solutions may fail. Further, many commercial systems, especially those based in low-Earth orbit, are still maturing. SATCOM providers have not yet worked closely with DOD to see how they would need to modify such constellations to operate with future DOD systems, including ground systems. Wideband AOA stakeholders—military and commercial—also described their struggle to share information on technical requirements, new capabilities, and pricing. For example, military stakeholders wanted more detailed engineering data on emerging commercial capabilities while commercial stakeholders wanted additional information on proposed alternatives for providing cost data. Commercial stakeholders also sought to protect their proprietary information. DOD’s recommendation to invest in and shape commercial SATCOM development is aimed at reducing this risk and improving information sharing between DOD and the SATCOM industry. Replacing or Modifying User Terminals: Managing user terminal development and upgrades is complex and, according to DOD officials, is one of the largest challenges the department faces in selecting a post-WGS architecture. In its analysis, DOD found that managing upgrades or replacement costs and schedules for over 17,000 terminals of approximately 135 different designs was a major challenge. The AOA’s analysis showed that out-of-cycle terminal replacement would drive significant costs and affect DOD operations. For example, vehicles like Humvees or ships have maintenance periods that are scheduled years in advance. Changing terminals could require unscheduled maintenance, potentially disrupt personnel planning, and cost more than if the terminals were upgraded on their planned refresh cycles. Certain users also cannot transition to commercial SATCOM and still meet operational requirements. For example, Navy stakeholders told us their terminals were not considered for transition to commercial systems during the Wideband AOA due to a number of issues, including Ku-band radio frequency interference, all-weather availability, open ocean coverage, and network constraints. Both our past work and the Wideband AOA found that DOD faces ongoing risks in aligning its satellite and ground control systems. We have reported that these risks have arisen, in part, because user terminal development programs are typically managed by different military acquisition organizations than those managing the satellites and ground control systems. The AOA recommendation to develop an enterprise SATCOM terminal strategy is aimed at reducing the risk user terminals present to DOD’s post-WGS SATCOM architecture. DOD Does Not Have a Formal Plan to Implement AOA Recommendations DOD’s recommendations that focus on gaining additional knowledge align with GAO’s acquisition best practices for knowledge-based decision- making and risk reduction, but DOD lacks a formal plan to implement these recommendations. More specifically, DOD’s recommendation to gain knowledge about the viability and maturity of commercial SATCOM system technologies corresponds with our best practices that outline the importance of ensuring needed technologies are proven to work as intended before programs begin. According to officials we spoke with from various DOD organizations involved in the Wideband AOA and SATCOM acquisitions, they have work ongoing that provides relevant information, including Air Force pathfinders and a study of ground infrastructure supporting WGS. However, these officials told us that there is no formal plan to guide post-AOA efforts including coordinating and providing the knowledge DOD needs to mitigate risks and inform timely decisions on DOD’s next wideband communications architecture. If DOD does not develop and implement a plan—including roles, responsibilities, and time frames—for building knowledge, then DOD risks not having enough information to make timely, knowledge-based decisions on systems that provide critical communications for military operations. For example, the Wideband AOA recommended developing an enterprise terminal strategy to centralize user terminal procurement. Without a plan to guide such an effort, it is unclear what organization within DOD would begin working with the military services to develop this strategy and potentially adjust the services’ acquisition approach to terminals. At the same time, it is important to note that DOD space acquisition is facing a changing leadership environment, and developing and implementing a plan for post-AOA efforts would need to take place in the midst of such changes. In 2016, we reported that for over 2 decades, fragmentation and overlap in DOD space acquisition management and oversight had led to ineffective and untimely decision-making, leading to delays in space system development and increasing the risk of capability gaps across critical weapons systems. DOD and Congress are taking steps designed to ultimately streamline decision-making and clarify authorities for space; however, it will likely take several years to implement such changes. Moreover, it is unclear the extent to which these changes will affect acquisition of user terminals—a long-standing challenge for DOD because the organizations responsible for buying terminals are not the same organizations that buy satellites. The changes being instituted include: Re-established United States Space Command. In August 2019, the President re-established the U.S. Space Command as a unified combatant command. DOD will form today’s Space Command with some offices from Strategic Command responsible for space operations, with the mission to protect and defend space assets. Although U.S. Space Command does not conduct space acquisitions, it is responsible for the satellite operators who help systems like WGS function—stakeholders in a post-WGS decision. Transferred commercial SATCOM procurement to Air Force Space Command. At the direction of the National Defense Authorization Act for Fiscal Year 2018, Air Force Space Command assumed responsibility for procuring commercial satellite communications for DOD in December 2018. The Defense Information Systems Agency previously managed most commercial SATCOM acquisitions and is still responsible for other types of ground segment systems. Proposed Establishment of a United States Space Force. Early in 2019, the President and DOD proposed the establishment of a U.S. Space Force as a sixth branch of the U.S. Armed Forces within the Department of the Air Force. The Space Force would include the uniformed and civilian personnel conducting and directly supporting space operations from all DOD armed forces, assume responsibilities for all major military space acquisition programs—including those for SATCOM, and create the appropriate career tracks for military and civilian space personnel. Congress is deliberating the final composition of the proposed Space Force. Established the Space Development Agency. In March 2019, DOD established the Space Development Agency to unify and integrate efforts across DOD to define, develop, and field innovative satellite solutions, including communications. The Space Development Agency is focused on a low-Earth-orbit constellation to provide communications and other satellite-based operational support for DOD, which could also provide information for selecting a post-WGS architecture. As of this time, DOD has not determined how this new organization will mesh with the Air Force Space and Missile Systems Center that acquires satellite systems; the Defense Advanced Research Projects Agency, which creates breakthrough technologies and capabilities; and similar organizations within the department. Conclusions The Wideband AOA’s recommendations for gathering additional information to reduce risk and inform DOD’s decision-making are good first steps to ensure any post-WGS architecture will effectively and efficiently meet DOD’s needs. The addition of one or two more WGS satellites provides some extra time for DOD to field new satellites, avoid capability gaps, and implement the AOA recommendations. However, given the typical 7-year development timelines for space systems, DOD will need to decide on a way forward within the next several years so that new satellites will be available when needed. Attempting to implement the Wideband AOA recommendations without developing a plan for guiding multiple knowledge-building efforts across DOD raises risk that information gaps will not be closed in time to be useful or not closed at all. Consequently, it is important for DOD to coordinate these efforts and focus on how best to obtain a future wideband architecture that provides critical communications for military operations. Recommendation for Executive Action The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment develop and implement a plan to guide and coordinate efforts to implement the Wideband AOA recommendations to support timely, informed decisions on its next wideband satellite communications architecture. (Recommendation 1) Agency Comments We provided a draft of this report to DOD for review and comment. DOD provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or by email at chaplainc@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. Appendix I: Best Practices for the Analysis of Alternatives Process The analysis of alternatives (AOA) process is an analytical study that is intended to compare the operational effectiveness, cost, and risks of a number of potential alternatives to address valid needs and shortfalls in operational capability. This process helps ensure that the best alternative that satisfies the mission need is chosen on the basis of the selection criteria, such as safety, cost, or schedule. GAO has identified 22 best practices for an AOA process by (1) compiling and reviewing commonly mentioned AOA policies and guidance used by different government and private-sector entities and (2) incorporating experts’ comments on a draft set of practices to develop a final set of practices. These practices can be applied to a wide range of activities and situations in which a preferred alternative must be selected from a set of possible options, as well as to a broad range of capability areas, projects, and programs. These practices can also provide a framework to help ensure that entities consistently and reliably select the project alternative that best meets the mission need. The guidance below is meant as an overview of the key principles that lead to a successful AOA process and not as a “how to” guide with detailed instructions for each best practice identified because each entity may have its own process in place. The 22 best practices that GAO identified are grouped into the following five phases: Initialize the AOA Process: includes best practices that are applied before starting the process of identifying, analyzing, and selecting alternatives. This includes determining the mission need and functional requirements, developing the study time frame, creating a study plan, and determining who conducts the analysis. Identify Alternatives: includes best practices that help ensure the alternatives that will be analyzed are sufficient, diverse, and viable. Analyze Alternatives: includes best practices that compare the alternatives selected for analysis in terms of costs, benefits, and risks. The best practices in this category help ensure that the team conducting the analysis uses a standard, quantitative process to analyze the alternatives. Document and Review the AOA Process: includes best practices that are applied throughout the AOA process, such as documenting in a single document all steps taken to initialize, identify, and analyze alternatives, selecting a preferred alternative, and independently reviewing the AOA. Select a Preferred Alternative: includes the final step of comparing alternatives and selecting a preferred alternative that best meets the mission need. The five phases address different themes of analysis necessary to complete the AOA process and comprise the beginning of the AOA process (defining the mission need and functional requirements) through the final step of the AOA process (select a preferred alternative). There are three key entities who are directly involved in the AOA process: the customer, the decision maker, and the AOA team. The customer refers to the group that implements the final decision (i.e. the program office, agency, and the like). A complex AOA process that impacts multiple agencies can have multiple customers. The decision maker is the person or entity who signs off on the final decision and analysis documented by the AOA report, and who will select the preferred alternative based on the established selection criteria. The decision maker should remain informed throughout the AOA process. For example, the decision maker could form a committee that consists of management and other groups independent of the AOA process who possess the required technical expertise or broad organizational knowledge to keep the decision maker apprised of and to inform the AOA process. The AOA team is the group involved in the day-to-day work of the AOA process and who conducts the identification and assessment of alternatives that is the foundation of the AOA process. We assessed the Department of Defense’s (DOD) Wideband Communication Services AOA against the “comprehensive” characteristic. Overall, the AOA met the six best practices we identified. Table 5 shows the relevant AOA best practices for the “comprehensive” characteristic. Appendix II: Department of Defense Wideband Communications Services Analysis of Alternatives Recommendations The Department of Defense (DOD) made the following recommendations in its Wideband Communications Services Analysis of Alternatives (AOA) report: 1. Immediately conduct a business case analysis that examines incorporating anti-jam and cybersecurity features that improve upon legacy capability into the Wideband Global SATCOM (WGS) Space Vehicle (SV) 11/12 procurement. 2. Investigate the impacts of WGS SV 11/12 to ground infrastructure, mission management, and user terminals to understand necessary modifications. 3. Develop and implement a DOD Enterprise Satellite Communications (SATCOM) Terminal Strategy that targets an approved Joint Information Environment architecture, reduces complexity of terminal diversity and programmatic governance, facilitates rapid modernization, and drives innovating business reforms, optimizing cost, schedule, and performance and interoperability. 4. Fund a purpose-built capability post-WGS SV 11/12 meeting user demands, including all weather capabilities, with a recommended start in fiscal year 2020, including consideration of alternate orbital regimes and approaches to cost-effectively meet needs while addressing proliferation, protection, and resiliency. The purpose is to ensure availability of DOD SATCOM resources to meet requirements where anticipated commercial offerings fail to materialize or are insufficient. 5. Continue efforts to invest in and shape commercial capabilities to support future DOD needs, including protection features, resilience, contested and all-weather capabilities, and polar coverage. Additionally, invest in and shape commercial industry development and risk reduction efforts focused on cybersecurity, terminal militarization/weapon system integration, management and control, technology assessment and development, and spectrum access. 6. Continue to fund existing and new SATCOM risk reduction efforts, evaluate blended commercial/military constellations, and expand the scope of pilots to include development of architectural standards and interface controls for enterprise management and control, terminal recapitalization plans, and means for terminals and/or weapon system platforms to transition satellite constellations and any DOD managed services. 7. Fund the design and implementation of a prototype wideband enterprise SATCOM management and control capability based on an approved Joint Information Environment architecture that integrates the management of Military, Commercial, and International Partner- provided SATCOM services and networks and supports the Enterprise Operational Management requirement in the Joint Space Communications Layer Initial Capabilities Document Change 1. 8. Plan for investment in Protected Tactical Waveform capabilities to commercial and military band terminals to align with the Protected Anti-Jam Tactical SATCOM planned ground and space milestones. 9. Fund pilot efforts to identify risks and opportunities to use commercially-managed services for Army’s Combat Support Logistics Very Small Aperture Terminals and ways to mitigate that risk. 10. Pursue partnership opportunities with Norway and Canada to achieve earlier Arctic coverage capability. Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Cristina T. Chaplain, (202) 512-4841 or chaplainc@gao.gov. Staff Acknowledgments In addition to the contact named above, Rich Horiuchi, Assistant Director; Burns C. Eckert (Analyst in Charge); Erin Cohen; Emile Ettedgui; Jon Felbinger; Kurt Gurka; Stephanie Gustafson; Jennifer Leotta; Roxanna Sun; and Jay Tallon made key contributions to this report.

DOD officials estimate spending an average of $4 billion each year to acquire and sustain wideband satellite communications that provide fast and reliable voice, video, and data transmissions critical to military operations. DOD is considering how to meet its future wideband needs across many different operating environments and scenarios. The National Defense Authorization Act for Fiscal Year 2016 required DOD to conduct a Wideband Communications Services AOA to identify ways to replace current systems as the satellites reach the end of their service lives. The National Defense Authorization Act for Fiscal Year 2017 contained a provision for GAO to assess DOD's analysis. This report addresses (1) whether the Wideband AOA was comprehensive, (2) how DOD solicited input from stakeholders, and (3) the conclusions DOD reached through the Wideband AOA. GAO reviewed the Wideband AOA along with DOD policies, documentation, and analyses; interviewed DOD officials and commercial stakeholders; and assessed the AOA against best practices for a comprehensive AOA process. The Department of Defense (DOD) conducted a comprehensive analysis of alternatives (AOA) process for wideband satellite communications, as determined through an assessment of the AOA against relevant GAO best practices. A comprehensive analysis of alternatives process indicates that the analysis team thoroughly addressed a wide range of possible satellite system alternatives. DOD used multiple methods to obtain stakeholder input, in accordance with its Wideband AOA study plan. For example, the study team incorporated input from across the military services and operational users, among others. Moreover, the Air Force and Defense Information Systems Agency conducted interrelated studies to provide additional information to the Wideband study team. DOD's analysis concluded that integrating military and commercial systems into a hybrid architecture would be more cost effective and capable than either acquisition approach alone. However, DOD also found that it needs more information to select its next satellite communications architecture and made recommendations for further study. Examples of these recommendations include: Develop an enterprise satellite communications terminal strategy – DOD found the magnitude of replacing user terminals to work with new systems was challenging and that more information on emerging technology and possible changes to terminal acquisition approaches would help DOD address this challenge. Invest in commercial technologies – DOD found that it lacked detailed technical information on commercial systems' cyber protections and that additional information on such protections would help DOD determine the extent to which they would meet DOD's needs. Such recommendations align with GAO's acquisition best practices for knowledge-based decision-making and have the potential to improve the department's satellite communications acquisitions. However, DOD stakeholders said there is no formal plan to guide and coordinate implementation of the AOA recommendations. Without such a plan, DOD is at increased risk of not having the information it needs to make timely, knowledge-based decisions on future systems to provide critical communications for military operations.

CRS_R45969

T he September 11 th Victim Compensation Fund (VCF) provides cash benefits to certain persons whose health may have been affected by the aftermath of the September 11, 2001 terrorist attacks on the Pentagon, the World Trade Center, and the terrorist-related aircraft crash at Shanksville, PA. The VCF was most recently reauthorized on July 29, 2019, with the enactment of the Never Forget the Heroes: James Zadroga, Ray Pfeifer, and Luis Alvarez Permanent Authorization of the September 11 th Victim Compensation Fund Act ( P.L. 116-34 ). All VCF claims must be filed by October 1, 2090. There is no cap on total benefits that may be paid. This report provides an overview of the VCF, including its history, current law, and appropriations. It also provides an Appendix of current VCF program statistics. History of the VCF On September 22, 2001, the Air Transportation Safety and System Stabilization Act (ATSSA; P.L. 107-42 ) was enacted into law. Quickly passed by Congress in the wake of the September 11, 2001 terrorist attacks, this legislation provided various forms of relief to the American airline industry and affirmed Congress's commitment to improving airline safety. Title IV of the ATSSA also established the VCF to compensate persons injured or the representatives of persons killed in the attacks or their immediate aftermath. The VCF originally closed in 2003 but was reopened and expanded in 2011 to provide compensation to the 2001 terrorist attacks' responders and others, such as certain New York City residents, who may have suffered health effects in the aftermath of the attacks. The VCF was reauthorized in December 2015 and July 2019 and is currently authorized through the end of FY2092 with an October 1, 2090 deadline for VCF claims. Original VCF (2001) The original VCF, created by Title IV of the ATSSA, provided cash benefits to two groups of persons who suffered physical injury or death as a result of the terrorist attacks of September 11, 2001: persons who were present at the World Trade Center, Pentagon, or aircraft crash site in Shanksville, PA, at the time of or in the immediate aftermath of the aircraft crashes at those sites on September 11, 2001; and passengers and crew of any aircraft that crashed on September 11, 2001, as a result of terrorist activity. The Attorney General appointed a special master to determine the benefit amount for each claimant. The benefit amount payable to each claimant was based on the individual's economic losses (such as loss of future earnings) and noneconomic losses (such as pain and suffering). The VCF statute specifically prohibited any payments for punitive damages. Benefits were reduced by certain collateral source payments, such as life insurance benefits, available to the claimant. There was no cap on the amount of benefits that any one person could receive or on total benefits paid. By filing a VCF claim, a person waived his or her right to file a civil action or be a party to such an action in any federal or state court for damages related to the September 11, 2001 terrorist-related aircraft crashes. This provision established the VCF as an alternate and expedited route to compensation for victims while providing some protection against lawsuits for damages that may have been brought by victims against the air carriers; airframe manufacturers; the Port Authority of New York and New Jersey, who owned the World Trade Center; or any other entity. Congress provided funding for the VCF through an appropriation of "such sums as may be necessary" for benefit payment and administration. The VCF's special master was required to promulgate regulations to govern the program within 90 days of the law's enactment, and all claims had to be filed within two years of the regulations' promulgation, at which time the VCF would close. The original VCF received 7,403 claims and made awards totaling $7.049 billion to 5,560 claimants. Reopened VCF (2011) The original VCF closed to new claims in December 2003. However, concerns about injuries and illnesses incurred by persons involved in emergency response, recovery, and debris removal operations at the September 11 th aircraft crash sites led Congress to reopen the VCF with the enactment of Title II of the James Zadroga 9/11 Health and Compensation Act of 2010 (Zadroga Act; P.L. 111-347 ). The reopened VCF extended eligibility for cash benefits to persons who suffered physical injuries or illnesses as a result of rescue, recovery, or debris removal work at or near the September 11 th aircraft crash sites during the from September 11, 2001 to May 30, 2002, as well as for certain persons who lived, worked, or were near the World Trade Center on September 11, 2001. The VCF was initially reopened for new claims through October 3, 2016. Total benefits and administrative costs were limited to $2.775 billion, unlike in the original VCF, which had no cap on total funding for benefits, allowing the special master to award benefits without considering the benefits' total cost. Under the reopened VCF, attorney fees were limited to 10% of the VCF award. VCF Reauthorizations 2015 Reauthorization The VCF was first reauthorized on December 18, 2015, which extended the claim period for five years, with the enactment of Title IV of Division O of the Consolidated Appropriations Act, 2016 (Zadroga Reauthorization Act of 2015; P.L. 114-113 ). Under this reauthorization, claims approved before the reauthorization date were considered Group A claims, which were subject to the same rules as claims under the reopened VCF and to the $2.775 billion cap on total benefit payments. All other claims filed before the December 18, 2020 deadline were considered Group B claims subject to additional rules and funding caps established by the reauthorization legislation including a $4.6 billion cap on benefits. The 2015 reauthorization created a total funding cap of $7.375 billion for Groups A and B benefits. 2019 Reauthorization The VCF was reauthorized again in 2019 with the enactment of the Never Forget the Heroes: James Zadroga, Ray Pfeifer, and Luis Alvarez Permanent Authorization of the September 11 th Victim Compensation Fund Act ( P.L. 116-34 ). Under this legislation, the VCF is authorized through the end of FY2092, with an October 1, 2090 deadline for all VCF claim filings. The 2019 reauthorization appropriates "such sums as may be necessary" for VCF benefit payments and administrative expenses for each fiscal year through the end of FY2092. Overview of the VCF Under Current Law VCF Eligibility To be eligible for VCF benefits, a person must have died as a passenger or crew member on one of the aircraft hijacked on September 11, 2001; died as a direct result of the terrorist-related aircraft crashes or rescue, recovery, or debris removal in the immediate aftermath of the September 11, 2001 terrorist attacks; or been present at a September 11 th crash site in the immediate aftermath of the September 11, 2001 terrorist attacks and suffered physical harm as a direct result of the crashes or the rescue, recovery, and debris removal efforts. Physical Harm To be eligible for the VCF, survivors (individuals who did not die as passengers or crew members of the hijacked aircraft or as a direct result of the September 11 th terrorist attacks, including rescue, recovery, and debris removal), must have suffered physical harm as a result of the attacks. Physical harm is demonstrated by the presence of a World Trade Center (WTC)-related physical health condition as defined for the purposes of the World Trade Center Health Program (WTCHP). WTC-Related Physical Health Condition A WTC-related physical health condition is a physical health condition covered by the WTCHP. These conditions are those provided in statute at Sections 3312(a) and 3322(b) of the Public Health Service Act (PHSA) and those added through rulemaking by the WTCHP administrator. Per Section 3312(a) of the PHSA, to be covered by the WTCHP and thus compensable under the VCF, a condition must be on the list of WTCHP-covered conditions and it must be determined that exposure in the aftermath of the September 11, 2001 terrorist attacks "is substantially likely to be a significant factor in aggravating, contributing to, or causing the illness or health condition." In most cases, the VCF requires that a person's condition be WTCHP certified for that condition to be compensable. The WTCHP provides standardized guidance to determine whether a person's condition was caused by exposure in the aftermath of the September 11, 2001 terrorist attacks. This determination is based on a combination of the amount of time a person was physically present at a site and the specific activities—such as search and rescue, sleeping in a home in Lower Manhattan, or just passing through a site—in which the person engaged. For example, a person who was engaged in search and rescue activities at the WTC site between September 11 and September 14, 2001, must have been present for at least 4 hours for the WTCHP to certify his or her condition and thus compensable by the VCF, whereas a person whose only activity was passing through Lower Manhattan during the same period, and who was not caught in the actual dust cloud resulting from the buildings' collapse, would have to have been in the area for at least 20 hours to be eligible for compensation. The WTCHP evaluates conditions that do not meet the minimum exposure criteria on a case-by-case basis using "professional judgement" and "any relevant medical and/or scientific information." WTCHP-covered mental health conditions may not be used to establish VCF eligibility, as the VCF does not include any provisions for benefit payments for mental health conditions. Cancer as a WTC-Related Physical Health Condition The WTCHP statute does not include any type of cancer in the list of WTC-related health conditions. However, the statute does require the WTCHP administrator to periodically review the available scientific evidence to determine if any type of cancer should be covered by the WTCHP and, by extension, the VCF. If the WTCHP administrator is petitioned to add conditions to the WTC-related health conditions' list, the administrator is required, within 90 days, to either request a recommendation on action from the WTC Scientific/Technical Advisory Committee (STAC) or make a determination on adding the health condition. If the administrator requests a recommendation from the STAC, that recommendation must be made within 90 days of its receipt and the WTCHP administrator must act on that request within an additional 90 days. On September 7, 2011, Representatives Carolyn B. Maloney, Jerrold Nadler, Peter King, Charles B. Rangel, Nydia M. Velazquez, Michael G. Grimm, and Yvette Clarke and Senators Charles E. Schumer and Kirsten E. Gillibrand filed a petition, in the form of a letter to the WTCHP administrator, requesting that the administrator "conduct an immediate review of new medical evidence showing increased cancer rates among firefighters who served at ground zero" and that the administrator "consider adding coverage for cancer under the Zadroga Act." In response to this petition, the WTC administrator requested that the STAC "review the available information on cancer outcomes associated with the exposures resulting from the September 11, 2001 terrorist attacks, and provide advice on whether to add cancer, or a certain type of cancer, to the List specified in the Zadroga Act." On September 12, 2012, based on the STAC's recommendations, the WTCHP administrator added more than 60 types of cancer, covering nearly every body system and including any cancers in persons less than 20 years of age and any rare cancers, to the list of WTC-related health conditions, thus making these conditions compensable under the VCF. In a review of the decision to add cancers to the list of WTC-related health conditions, the Government Accountability Office (GAO) found that the WTCHP administrator used a hazards-based approach to evaluate cancers. This approach evaluated whether exposures in the aftermath of the September 11, 2001 terrorist attacks were associated with types of cancer but did not evaluate the probability of developing cancer based on a given exposure. A GAO-convened scientific panel indicated that the hazards-based approach the WTCHP administrator used was reasonable given data constraints and the fact that there is a certification process to determine if a cancer or other condition on the WTC-related health list meets the statutory requirement of being "substantially likely to be a significant factor in aggravating, contributing to, or causing the illness or health condition." The panel also indicated that this approach could have benefited from an independent peer review process. The WTCHP administrator stated that peer review was not possible given the statutory time constraints to act on the petition and the STAC's recommendation. One year later, the WTCHP administrator added prostate cancer to the list of WTC-related health conditions. In addition, the WTCHP administrator established minimum latency periods for certain types of cancer and maximum onset periods for certain types of aerodigestive disorders. VCF Operations The Civil Division of the Department of Justice administers the VCF. The Attorney General appoints the VCF special master and up to two deputies, who serve at the pleasure of the Attorney General. The VCF special master, currently Rupa Bhattacharyya, decides VCF eligibility and benefits. A claimant dissatisfied with the special master's decision on his or her claim may file an appeal and request a hearing before a VCF-appointed hearing officer. There is no further right of appeal or judicial review of VCF decisions. However, a claimant may amend his or her claim after a decision has been made if the claimant has new material relevant to the claim. Registration and Claim Deadlines All claims for VCF benefits must be filed by October 1, 2090. Before filing a claim, a potential claimant must have registered with the VCF by one of the following applicable deadlines: October 3, 2013, if the claimant knew, or reasonably should have known, that he or she suffered a physical harm or died as a result of the September 11 th attacks or rescue, recovery, or debris removal efforts, and that he or she was eligible for the VCF on or before October 3, 2011; or within two years of the date the claimant knew, or reasonably should have known, that he or she has a WTC-related physical health condition or died as a result of the September 11 th attacks and is eligible for the VCF. If a claimant has a condition that is later added to the list of WTCHP-covered conditions, then the two-year period begins on the later of the dates when a government entity, such as the WTCHP or a state workers' compensation agency, determines that the condition is related to the September 11 th attacks, or when a claimant's condition is added to the WTCHP-covered list of conditions. VCF Benefits Under current law, there is no cap on the total VCF benefit amount that may be paid, but there are limits on individual benefit amounts. The special master determines VCF benefits based on the claimant's economic and noneconomic losses. For noneconomic losses, there is a cap of $250,000 for cancer claims and $90,000 for all other claims. For cases in which a WTC-related health condition causes death, the presumed award provided in the VCF regulations for noneconomic loss is $250,000 plus an additional $100,000 for the person's spouse and each dependent. In addition, the special master may exceed the noneconomic loss limits if the Special Master determines that the claim presents "special circumstances." When calculating economic losses, the special master is permitted to consider only the first $200,000 in annual income when determining losses to past earnings and future earning capacity, which limits the amount of economic losses that can be paid. The special master is required to periodically adjust this amount to account for inflation. VCF benefits are reduced by certain collateral source payments available to claimants, such as life insurance benefits, workers' compensation payments, and government benefits related to the person's injury or death, including Social Security Disability Insurance and the Public Safety Officers' Benefits program. The 2019 reauthorization provides that any benefit award that the special master had previously reduced due to insufficient funding to pay all VCF awards is to be paid in full. Exclusivity of Remedy Congress established the VCF to be an "administrative alternative to litigation for the victims of the [September 11, 2001] terrorist attacks." As such, to receive a VCF award, a person must forfeit his or her right to bring any lawsuit in any state or federal court against any entity, such as the airlines, airframe manufacturers, or building owners, for damages related to the attacks or their aftermath and must withdraw any pending legal claims. However, a person may maintain his or her eligibility for the VCF and bring a lawsuit against "any person who is a knowing participant in any conspiracy to hijack any aircraft or commit any terrorist act," or bring a lawsuit to recover collateral source obligations such as life insurance benefits owed to the victim. In addition, the VCF statute grants the United States District Court for the Southern District of New York exclusive jurisdiction over any lawsuits related to the September 11, 2001 terrorist attacks and establishes liability limits for the airlines, airframe manufacturers, airports, City of New York, and any person with property interest in the World Trade Center such as the Port Authority of New York and New Jersey. The VCF statute caps attorney fees for claimant assistance at 10% of the VCF award amount. The special master has the authority to reduce any attorney fees it deems excessive for services rendered. Under provisions of the Justice for United States Victims of State Sponsored Terrorism Act, a person who receives a VCF award is barred from receiving any additional compensation from the United States Victims of State Sponsored Terrorism Fund. VCF Appropriations The 2019 VCF reauthorization appropriates "such sums as may be necessary" for FY2019 and each fiscal year through FY2092 for the payment of VCF awards, with all funds to remain available until expended. Thus, funding for the VCF will not require annual appropriations or be subject to the annual appropriations process. Appendix. VCF Award Data

The September 11 th Victim Compensation Fund (VCF) provides cash benefits to certain persons whose health may have been affected by exposure to debris or toxic substances in the aftermath of the September 11, 2001 terrorist attacks on the Pentagon, the World Trade Center, and the terrorist-related aircraft crash at Shanksville, PA. Congress created the original VCF shortly after the 2001 terrorist attacks to provide compensation to persons injured and the families of persons killed in the attacks and their immediate aftermath. The original VCF closed in 2003. In 2011, Congress reopened the VCF to provide benefits to persons who responded to the terrorist attack sites, were involved in the cleanup of these sites, or lived in lower Manhattan during the attacks. The reopened VCF was authorized through October 3, 2016. However, the VCF was reauthorized in December 2015 ( P.L. 114-113 ) and July 2019 ( P.L. 116-34 ). All VCF claims must be filed by October 1, 2090. Since its reopening, the VCF has awarded more than $5.5 billion to more than 23,000 claimants. There is no cap on the total VCF award amount, but there are limits on the amounts of individual awards for economic and noneconomic losses claimants suffered. The 2019 reauthorization legislation provides all necessary appropriations for VCF awards and administrative expenses through the end of FY2092.

GAO_GAO-19-718T

Background Federal Onshore Oil, Gas, and Coal Lease Terms and Conditions BLM leases federal lands to private entities for oil and gas development generally through auctions. In the auctions, if BLM receives any bids that are at or above the minimum acceptable bid amount of $2 an acre— called bonus bids—the lease is awarded to the highest bidder (leases obtained in this way are called competitive leases). Tracts of land that do not receive a bid at the auction are made available noncompetitively for a period of 2 years on a first-come, first-served basis (leases obtained in this way are called noncompetitive leases). The government collects revenues from oil and gas leases under terms and conditions that are specified in the lease, including rental fees and royalties. Annual rental fees are fixed fees paid by lessees until production begins on the leased land or, when no production occurs, until the end of the period specified in the lease. For federal oil and gas leases, generally the rental rate is $1.50 per acre for the first 5 years, and $2 per acre each year thereafter. Once production of the resource starts, the lessees pay the federal government royalties of at least 12.5 percent of the value of production. Oil and gas parcels are generally leased for a primary term of 10 years, but lease terms may be extended if, for example, oil or gas is produced in paying quantities. A productive lease remains in effect until the lease is no longer capable of producing in paying quantities. The fiscal system refers to the terms and conditions under which the federal government collects revenues from production on leases, including from payments specified in the lease (e.g., royalties and rental payments). We reported in December 2013 that, since 1990, all federal coal leasing has taken place through a lease-by-application process, where coal companies propose tracts of federal lands to be put up for lease by BLM. BLM is required to announce forthcoming lease sales, and the announcement notes where interested stakeholders can view lease sale details, including bidding instructions and the terms and conditions of the lease. BLM leases a tract to the highest qualified bidder, as long as its bonus bid meets or exceeds $100 per acre and BLM’s confidential estimate of fair market value. Annual rental fees are at least $3 an acre, and royalties are 8 percent of the sale price for coal produced from underground mines and at least 12.5 percent of the sale price for coal produced from surface mines. Tracts are leased for an initial 20-year period, as long as the lessee produces coal in commercial quantities within a 10-year period and meets the condition of continued operations. Oil, Gas, and Coal Bonding Bonds can help ensure lands affected by energy development are properly reclaimed, that is, according to BLM, restored to as close to their original natural states as possible. Bonds provide funds that can be used by the relevant regulatory authority to reclaim such lands if the operator or other liable party does not do so. For oil and gas developed on federal lands, BLM requires operators to provide a bond before certain drilling operations begin. Wells are considered orphaned and fall to BLM to reclaim if they are not reclaimed by their operators, there are no other responsible or liable parties to do so, and their bonds are too low to cover reclamation costs. For surface coal mining, the Surface Mining Control and Reclamation Act of 1977 (SMCRA) requires operators to submit a bond to either Interior’s Office of Surface Mining Reclamation and Enforcement (OSMRE) or an approved state regulatory authority before mining operations begin for development on federal or nonfederal lands. Among other bonding options, coal operators may choose to self-bond, whereby the operator promises to pay reclamation costs. Federal Oil and Gas Royalty Compliance Royalties that companies pay on the sale of oil and natural gas extracted from leased federal lands and waters constitute a significant source of revenue for the federal government. The Federal Oil and Gas Royalty Management Act of 1982 requires, among other things, that Interior establish a comprehensive inspection, collection, and fiscal and production accounting and auditing system for these revenues. In particular, the act requires Interior to establish such a system to provide the capability of accurately determining oil and gas royalties, among other moneys owed, and to collect and account for such amounts in a timely manner. To accomplish this, Interior tasks its Office of Natural Resources Revenue (ONRR) with collecting and verifying the accuracy of royalties paid by companies that produce oil and gas from over 26,000 federal leases. Each month, these oil and gas companies are to self-report data to ONRR on the amount of oil and gas they produced and sold, the value of this production, and the amount of royalties that they owe to the federal government. To ensure that the data provided to ONRR are accurate and all royalties are being paid, ONRR relies on its compliance program. Under this program, ONRR initiates compliance activities by selecting companies and properties for review to assess the accuracy of their royalty data and their compliance with all relevant laws and regulations. Natural Gas Emissions on Federal Lands Under the Minerals Leasing Act of 1920, Interior is authorized to collect royalties on oil and gas produced on federal lands, and BLM is required to ensure that operators producing oil and gas take all reasonable precautions to prevent the waste of oil or gas developed on these lands. While most of the natural gas produced on leased federal lands and waters is sold and therefore royalties are paid on it, some is lost during production for various reasons, such as leaks or intentional releases for ongoing operational or safety procedures. Natural gas that is released for operational or safety procedures is released directly into the atmosphere (vented) or burned (flared). In addition to gas that is lost during production, some natural gas may be used to operate equipment on the lease (lease use). We use the term natural gas emissions to refer to vented, flared, and lease use gas collectively. Interior has generally exempted operators from paying royalties on reported natural gas emissions, and so such emissions represent a loss of royalty revenues for the federal government. Venting and flaring natural gas also has environmental implications as it adds greenhouse gases to the atmosphere—primarily methane and carbon dioxide. Natural gas consists primarily of methane, and methane (which is released through venting) is 34 times more potent by weight than carbon dioxide (which is released through flaring) in its ability to warm the atmosphere over a 100-year period, and 86 times more potent over a 20-year period, according to the Intergovernmental Panel on Climate Change. Key Terms and Conditions for Federal Oil, Gas, and Coal Leases Are the Same as They Were Decades Ago, though Market Conditions Have Changed Key federal lease terms are the same as they were decades ago, and Interior has not adjusted lease terms for inflation or other factors, such as changes in market conditions, which may affect the government’s fair return. In addition, preliminary observations from our ongoing work indicate that federal oil and gas lease terms and practices differ from those of selected states, with selected state governments generally charging higher royalty rates on production on state lands than the federal government charges for production on federal lands. We have previously recommended that Interior should establish procedures for determining when to conduct periodic assessments of the oil and gas fiscal system, including how the federal government’s share of revenues compares with those of other resource owners. Interior has established procedures for determining when to conduct periodic assessments of the oil and gas fiscal system, and according to its policy, BLM plans to complete the next assessment in late 2019. Key Federal Lease Terms Are the Same as They Were Decades Ago though Market Conditions Have Changed Key federal lease terms are the same as statutory minimums established decades ago. For onshore oil and gas leases, the minimum royalty rate of 12.5 percent has been in place since 1920, and minimum bonus bids and rental rates are currently set at the statutory minimums established in 1987. For coal, the royalty rate for surface mining is set at the statutory minimum set in the Mineral Leasing Act. We previously found that royalty rates for oil and gas leases have not been adjusted to account for changes in market conditions, and our preliminary analysis for our ongoing work suggests that adjusting rental rates for inflation could generate increased federal revenues. We reported in December 2013 that Interior offers onshore leases with lease terms— terms lasting the life of the lease—that have not been adjusted in response to changing market conditions, potentially foregoing a considerable amount of revenue. Energy markets have also changed since federal oil and gas lease terms were established. For example, we reported in June 2017 that, according to the U.S. Energy Information Administration, almost all of the recent increase in overall oil and gas production had centered on oil and gas located in shale and other tight rock geologic formations, spurred by advances in production technologies such as horizontal drilling and hydraulic fracturing. In addition, we estimate that, based on preliminary observations, the rental rate would be $2.91 per acre if it were adjusted for inflation, which would have generated about $3.6 million for the first year for new leases issued in fiscal year 2018, or an additional $1.8 million. In June 2017, we reported that raising federal royalty rates for onshore oil, gas, and coal resources could decrease oil and gas production on federal lands by either a small amount or not at all but could increase overall federal revenue, according to studies we reviewed and stakeholders we interviewed. The two oil and gas studies we reviewed for that report modeled the effects of different policy scenarios on oil and gas production on federal lands and estimated that raising the federal royalty rate could increase net federal revenue from $5 million to $38 million per year. One of the studies stated that net federal revenue would increase under three scenarios that modeled raising the royalty rate from the current 12.5 percent to 16.67 percent, 18.75 percent, or 22.5 percent. The other study noted that the effect on federal revenue would initially be small but would increase over time. The two coal studies we reviewed for our June 2017 report analyzed the effects of different policy scenarios on coal production on federal lands, and both studies suggested that a higher royalty rate could lead to an increase in federal revenues. Specifically, one study suggested that raising the royalty rate to 17 percent or 29 percent might increase federal revenue by up to $365 million per year after 2025. The other study suggested that increasing the effective rate could bring in an additional $141 million per year in royalty revenue. However, we reported that the extent of these effects was uncertain and depended, according to stakeholders, on several other factors, such as market conditions and prices. Federal Onshore Lease Terms Differ from Those of Selected States Based on preliminary observations from our ongoing work, federal onshore lease terms and practices for oil and gas development differ from those of selected states (see table 1). For example, selected state governments tend to charge higher royalty rates for oil and gas development on state lands than the federal government charges for production on federal lands. For coal production, we reported in June 2017 that royalty rates charged by selected states were generally the same as federal rates. Royalty rates for the six states representing over 90 percent of total federal oil, gas, and coal production in fiscal year 2015 ranged from 8 to 12.5 percent for surface coal and from 8 to 10 percent for underground coal. Other factors influence the competitiveness of the development of oil and gas resources on federal land versus nonfederal land. We also reported in June 2017 that some stakeholders we spoke with stated that there was already a higher regulatory burden for oil and gas companies to develop resources on federal lands than on nonfederal lands. For coal, BLM officials stated that—assuming the royalty rate was the same—the main difference between federal and nonfederal coal was the additional regulatory burden of producing on federal lands. In our ongoing work examining the oil and gas lease permitting process, our preliminary interviews indicate that drilling permit fees are higher for federal lands than for the states we reviewed. However, operators we interviewed said that the filing fee was not an important or major factor in their decisions to apply for federal drilling permits. In addition to regulatory differences, in June 2017 we reported that a few stakeholders told us that competitiveness of federal lands for development depends on the location of the best resources—such as areas with low exploration and production costs. We also reported in June 2017 that most areas with major U.S. tight oil and shale gas plays—areas of known oil and gas sharing similar properties—and major U.S. coal basins do not overlap with federal lands. Interior Has Taken Steps to Assess Its Oil and Gas Lease Terms and Conditions We have reported on steps Interior has taken to assess its oil and gas fiscal system—the terms and conditions under which the federal government collects revenues from production on leases—and have made recommendations intended to help ensure that the federal government receives a fair return on its oil and gas resources. For example, in September 2008, we found that Interior had not evaluated the federal oil and gas fiscal system for over 25 years and recommended that a periodic assessment was needed. In response to our September 2008 report, Interior contracted for a study that was completed in October 2011 and compared the federal oil and gas fiscal systems of selected federal oil and gas regions to that of other resource owners. However, in December 2013, we reported that Interior officials said that the study was not adequate to determine next steps for onshore lease terms. Interior has considered making changes to improve its management of federal oil and gas resources. For example, in April 2015, BLM sought comments on a number of potential reforms to the oil and gas leasing process, including changing royalty rates, but took no further action. In November 2016, BLM did issue the Methane and Waste Prevention Rule, which incorporated flexibility for the bureau to make changes to onshore royalty rates, as we recommended in December 2013. Officials told us in October 2018 that they were not aware of BLM issuing any recent competitive leases with a royalty rate higher than 12.5 percent. In addition, in March 2017, the Secretary of the Interior established the Royalty Policy Committee (committee), which was to be comprised of stakeholders representing federal agencies, states, Indian tribes, mining and energy, academia, and public interest groups. The purpose of the committee was to advise the Secretary on the fair market value of mineral resources developed on federal lands, among other issues. The committee met four times over the 2 years it was in effect and approved recommendations related to Interior’s oversight of its oil and gas programs. This included two recommendations to conduct studies that compare the U.S. oil and gas fiscal system to certain other countries’ fiscal systems. However, a U.S. District Court found that the establishment of the committee violated the law and prohibited Interior from relying on any of the committee’s recommendations. Interior has established procedures for assessing the oil and gas fiscal system. In December 2013, we found that Interior did not have documented procedures for determining when to conduct additional periodic assessments of the oil and gas fiscal system, and we recommended that Interior put such procedures in place. Further, we reported that documented procedures could help Interior ensure that its evaluations take relevant factors into consideration. These factors may change over time as the market for oil and gas, the technologies used to explore and produce oil and gas, or the broader economic climate changes. In August 2016, in response to our recommendation, Interior reported that it had developed documented procedures for conducting assessments of the oil and gas fiscal system, fully implementing our recommendation. To meet this recommendation, BLM established a fiscal assessment policy that describes actions it will take every 3 years and every 10 years. Based on this policy, the next assessment is expected to be completed in late 2019. According to the policy, every 3 years BLM plans to conduct a review of the oil and gas fiscal systems of the states with significant oil and gas leasing activity where there is also significant federal onshore leasing activity. The policy states that every 10 years— depending on available appropriations—Interior plans to co-sponsor with the Bureau of Ocean Energy Management an independent study of government take from lease and development of federal oil and gas resources. In February 2019, as part of our ongoing work examining oil and gas leases, BLM officials told us that the bureau had contracted for an external fiscal assessment in 2018 and that the report would be completed in mid-2019. According to Interior officials, the study is undergoing final review. Weaknesses in Coal, Oil, and Gas Bonding Present Financial Risks to the Federal Government We have reported that weaknesses with bonds for coal mining and for oil and gas development pose a financial risk to the federal government as laws, regulations, or agency practices have not been adjusted to reflect current economic circumstances. We have also reported that BLM has no mechanism to pay for reclaiming well sites that operators have not reclaimed. Coal Self-Bonding Presents a Financial Risk to the Government We reported in March 2018 that self-bonding for coal mining creates a financial risk for the federal government. If specific conditions are met, SMCRA allows states to let an operator guarantee the cost for reclaiming a mine on the basis of its own finances—a practice known as self- bonding—rather than by securing a bond through another company or providing collateral, such as cash, letters of credit, or real property. We reported that as of 2017, eight states held coal self-bonds worth over $1.1 billion. In the event a self-bonded operator becomes bankrupt and the regulatory authority is not able to collect sufficient funds to complete the reclamation plan, the burden could fall on taxpayers to fund reclamation. According to stakeholders we interviewed for our March 2018 report, self- bonding for coal mining presents a financial risk to the federal government for several reasons. It is difficult to (1) ascertain the financial health of an operator, in part, because greater financial expertise is often now needed to evaluate the complex financial structures of large coal companies as compared to when self-bonding regulations were first approved in 1983; (2) determine whether an operator qualifies for self- bonding; and (3) secure a replacement for existing self-bonds when an operator no longer qualifies. For example, some stakeholders we interviewed told us that the risk from self-bonding is greater now than when OSMRE first approved its self- bonding regulations in 1983; at that time, the office noted there were companies financially sound enough that the probability of bankruptcy was small. However, according to an August 2016 OSMRE policy advisory, three of the largest coal companies in the United States declared bankruptcy in 2015 and 2016, and these companies held approximately $2 billion in self-bonds at the time. Because SMCRA explicitly allows states to decide whether to accept self-bonds, eliminating the risk that self-bonds pose to the federal government and states would require SMCRA to be amended. In our March 2018 report, we recommended that Congress consider amending SMCRA to eliminate self-bonding. Interior did not provide written comments on the report. Oil and Gas Bonds Do Not Provide Sufficient Financial Assurance to Prevent Orphaned Wells We reported in September 2019 that bonds held by BLM have not provided sufficient financial assurance to prevent orphaned oil and gas wells on federal lands. Specifically, we reported that BLM identified 89 new orphaned wells from July 2017 through April 2019, and 13 BLM field offices identified about $46 million in estimated potential reclamation costs associated with orphaned wells and inactive wells that officials deemed to be at risk of becoming orphaned in 2018. Although BLM does not estimate reclamation costs for all wells, it has estimated reclamation costs for thousands of wells whose operators have filed for bankruptcy. Based on our analysis of these estimates, we identified two cost scenarios: low-cost wells typically cost about $20,000 to reclaim, and high-cost wells typically cost about $145,000 to reclaim. In our September 2019 report, based on our cost scenarios described above, we found that most bonds (84 percent) that we were able to link to wells in BLM data are likely too low to fund reclamation costs for all the wells they cover. Bonds generally do not reflect reclamation costs because most bonds are set at regulatory minimum values, and these minimums have not been adjusted to account for inflation since they were first set in the 1950s and 1960s, as shown in figure 1. In addition, these minimums do not account for variables, such as the number of wells they cover, or other characteristics that affect reclamation costs, such as increasing well depth. In addition to the wells identified by BLM as orphaned over the last decade, in our September 2019 report we identified inactive wells at increased risk of becoming orphaned and found their bonds are often not sufficient to reclaim the wells. Our analysis of BLM bond value data as of May 2018 and ONRR production data as of June 2017 revealed that a significant number of inactive wells remain unplugged and could be at increased risk of becoming orphaned. Specifically, we identified 2,294 wells that may be at increased risk of becoming orphaned because they have not produced since June 2008 and have not been reclaimed. Since these at-risk wells are unlikely to produce again, an operator bankruptcy could lead to orphaned wells unless bonds are adequate to reclaim them. In our September 2019 report, we stated that if the number of at-risk wells is multiplied by our low-cost reclamation scenario of $20,000, it implies a cost of about $46 million to reclaim these wells. If the number of these wells is multiplied by our high-cost reclamation scenario of $145,000, it implies a cost of about $333 million. When we further analyzed the available bonds for these at-risk wells, we found that most of these wells (about 77 percent) had bonds that would be too low to fully reclaim the at-risk wells under our low-cost scenario. More than 97 percent of these at-risk wells have bonds that would not fully reclaim the wells under our high-cost scenario. Without taking steps to adjust bond levels to more closely reflect expected reclamation costs, BLM faces ongoing risks that not all wells will be completely and timely reclaimed, as required by law. We recommended in our September 2019 report that BLM take steps to adjust bond levels to more closely reflect expected reclamation costs. BLM concurred with our recommendation. However, while BLM stated it had updated its bond review policy, it is unclear whether the updated policy will improve BLM’s ability to secure bond increases. BLM Does Not Currently Assess User Fees to Fund Orphaned Well Reclamation In addition to fulfilling its responsibility to prevent new orphaned wells, it falls to BLM to reclaim wells that are currently orphaned, and BLM has not always been able to do so quickly. For example, we reported in September 2019 that there were 51 wells that BLM identified as orphaned in 2009, and that they had not been reclaimed as of April 2019. As noted above, BLM faces significant estimated potential reclamation costs associated with orphaned wells and inactive wells. The Energy Policy Act of 2005 directs Interior to establish a program that, among other things, provides for the identification and recovery of reclamation costs from persons or other entities currently providing a bond or other financial assurance for an oil or gas well that is orphaned, abandoned, or idled. In our September 2019 report we described one way in which BLM may be able to accomplish this is through the imposition of user fees, such as at the time an operator submits an application for permit to drill or as an annual fee for inactive wells. Some states, such as Wyoming, have dedicated funds for reclaiming orphaned wells. According to one official we interviewed with the Wyoming Oil and Gas Conservation Commission, the Commission has reclaimed approximately 2,215 wells since 2014 under its Orphan Well Program, which is funded through a conservation tax assessed on the sale of oil and natural gas produced in the state. Developing a mechanism to obtain funds from operators for such costs could help ensure that BLM can reclaim wells completely and timely. In commenting on a draft of our September 2019 report, BLM stated that it does not have the authority to seek or collect fees from lease operators to reclaim orphaned wells. We continue to believe a mechanism for BLM to obtain funds from oil and gas operators to cover the costs of reclamation of orphaned wells could help ensure BLM can completely and timely reclaim these wells, some of which have been orphaned for at least 10 years. Accordingly, in our September 2019 report, we recommended that Congress consider giving BLM the authority to obtain funds from operators to reclaim orphaned wells and requiring BLM to implement a mechanism to obtain sufficient funds from operators for reclaiming orphaned wells. ONRR Compliance Goals May Not Align with the Agency Mission to Account for Royalty Payments, Despite Agency Efforts to Improve Operations In May 2019, we found that ONRR had begun implementing several initiatives to help the agency operate more effectively, according to ONRR officials. For example, in March 2017, ONRR initiated Boldly Go, an effort to assess its organizational structure and identify and implement potential improvements. ONRR was also in the process of implementing a new electronic compliance case management and work paper tool referred to as the Operations and Management Tool. According to ONRR documents, this tool was to combine multiple systems into one and was intended to serve a variety of functions. ONRR documents stated that the tool is designed to be a single, standardized system that reduces manual data entry, creates a single system of record for ONRR case data, offers checks to eliminate data entry errors, and provides greater transparency for outside auditors. The agency also introduced a new auditor training curriculum in April 2018. In our May 2019 report, we also found that ONRR reported generally meeting its annual royalty compliance goals for fiscal years 2010 through 2017. However, we found that while ONRR’s fiscal year 2017 compliance goals could be useful for assessing certain aspects of ONRR’s performance, they may not have been effectively aligned with the agency’s statutory requirements or its mission to account for all royalty payments. For example, ONRR’s fiscal year 2017 compliance goals did not sufficiently address its mission to collect, account for, and verify revenues, in part, because its goals did not address accuracy, such as a coverage goal (e.g., identifying the number of companies or percentage of royalties subject to compliance activities over a set period). We stated that by establishing a coverage goal that aligns with the agency’s mission, ONRR could have additional assurance that its compliance program was assessing the extent to which oil and gas royalty payments were accurate. Overall, we made seven recommendations, including that ONRR establish an accuracy goal that addresses coverage that aligns with its mission. Interior concurred with our recommendations. Limitations Exist in Interior’s Accounting and Management of Natural Gas Emissions We issued reports in October 2010 and July 2016 that included several recommendations regarding steps Interior should take to better account for and manage natural gas emissions associated with oil and gas development. In October 2010, we reported that data collected by Interior to track venting and flaring on federal leases likely underestimated venting and flaring because they do not account for all sources of lost gas. For onshore federal leases, operators reported to Interior that about 0.13 percent of produced gas was vented or flared. Estimates from the Environmental Protection Agency and the Western Regional Air Partnership showed volumes as high as 30 times higher. We reported that economically capturing onshore vented and flared natural gas with then-available control technologies could increase federal royalty payments by $23 million annually. We also found limitations in how Interior was overseeing venting and flaring on federal leases, and made five recommendations geared toward ensuring that Interior had a complete picture of venting and flaring and took steps to reduce this lost gas where economic to do so. Interior generally concurred with our recommendations. In July 2016, we found that limitations in Interior’s guidance for oil and gas operators regarding their reporting requirements could hinder the extent to which the agency can account for natural gas emissions on federal lands. Without such data, Interior could not ensure that operators were minimizing waste and that BLM was collecting all royalties that were owed to the federal government. We recommended, among other things, that BLM provide additional guidance for operators on how to estimate natural gas emissions from oil and gas produced on federal leases. BLM concurred with the recommendation. Interior has taken steps to implement our past recommendations regarding the control of natural gas. Accounting for natural gas is important for ensuring that the federal government receives all royalties it is due and because methane—which comprises approximately 80 percent of natural gas emissions—is a potent greenhouse gas that has the ability to warm the atmosphere. In addition, we reported in July 2016 that increased oil production in recent years has resulted in an increase in flared gas in certain regions where there is limited infrastructure to transport or process gas associated with oil production. In November 2016, Interior issued regulations intended to reduce wasteful emissions from onshore oil and gas production that were consistent with our recommendations. In June 2017, however, Interior postponed the compliance dates for relevant sections of the new regulations and then suspended certain requirements in December 2017. Interior subsequently issued revised regulations in September 2018 that are not consistent with the findings and recommendations in our prior work. In our prior work and preliminary observations in our ongoing work, we have found that some states have requirements that are more stringent than BLM’s regarding accounting for and managing natural gas emissions. For example, we reported in July 2016 that North Dakota targeted the amount of gas flared from two geologic formations in the state by imposing restrictions on the amount of gas operators may flare from existing and new sources. We also reported that North Dakota requires operators to include a gas capture plan when they apply to drill a new oil well. According to state officials we interviewed for our report, gas capture plans help facilitate discussions between oil producers and firms that process and transport gas and have improved the speed at which new wells are connected to gas gathering infrastructure. In the course of our ongoing work, we obtained documents indicating that per its regulations, North Dakota requires all gas produced and used on a lease for fuel purposes or that is flared must be measured or estimated and reported monthly, and that all vented gas be burned and the volume reported. In addition, based on preliminary observations in our ongoing work, Colorado and Texas both charge royalties on vented and flared gas volumes. In the course of our ongoing work, we obtained documents indicating that the Colorado Oil and Gas Conservation Commission, which regulates oil and gas activity in the state, addresses both venting and flaring as well as leaks. Colorado officials we interviewed with the State Land Board told us in September 2019 that, since 2018, the state charges royalties on all vented and flared gas volumes, with certain exceptions. These officials told us that prior to 2018, vented and flared gas could be exempt from royalties, but that it was uncommon. In addition, in Texas, a state official we interviewed told us that vented or flared volumes must be reported monthly and that charging royalties on these volumes increases revenues. Chairman Lowenthal, Ranking Member Gosar, and Members of the Subcommittee, this completes my prepared testimony. I would be pleased to respond to any questions you may have at this time. GAO Contacts and Staff Acknowledgments If you or your staff have any questions about this testimony, please contact Frank Rusco, Director, Natural Resources and Environment at (202) 512-3841 or RuscoF@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony. GAO staff who made key contributions to this testimony are Quindi Franco (Assistant Director), Marie Bancroft (Analyst-In- Charge), Antoinette Capaccio, John Delicath, Jonathan Dent, Elizabeth Erdmann, Glenn C. Fischer, Emily Gamelin, William Gerard, Cindy Gilbert, Holly Halifax, Richard P. Johnson, Christine Kehr, Michael Kendix, Greg Marchand, Jon Muchin, Marietta Mayfield Revesz, Dan Royer, and Kiki Theodoropoulos. 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.

Interior oversees energy production on federal lands and waters and is responsible for ensuring taxpayers receive a fair return for access to federal energy resources. Oil, gas, and coal on federal lands provide an important source of energy for the United States; they create jobs; and they generate billions of dollars in revenues that are shared between federal, state, and tribal governments. However, when not managed properly, energy production on federal lands can create risks to public health and the environment, such as contaminated surface water. In February 2011, GAO designated Interior's management of federal oil and gas resources as a program at high risk for fraud, waste, abuse, and mismanagement or the need for transformation. This testimony discusses GAO's work related to ensuring a fair return on resources from federal lands. To do this work, GAO drew on reports issued from May 2007 through September 2019 and preliminary observations from ongoing work. GAO reviewed relevant federal and state laws, regulations, and policies; analyzed federal data; and interviewed federal, state, and industry officials, among others. GAO's prior and ongoing work found challenges related to ensuring a fair return for oil, gas, and coal developed on federal lands in areas, including the following: Oil, Gas, and Coal Lease Terms and Conditions. Key federal lease terms are the same as they were decades ago, and Interior has not adjusted them for inflation or other factors that may affect the federal government's fair return. In June 2017, GAO reported that raising federal royalty rates—a lease term that defines a percentage of the value of production paid to the government—for onshore oil, gas, and coal resources could decrease production on federal lands by a small amount or not at all but could increase overall federal revenue. Also, preliminary observations from GAO's ongoing work indicate that selected states charge royalty rates for oil and gas produced on state lands at a higher rate than the federal government charges for production on federal lands. Oil, Gas, and Coal Bonding. GAO found in September 2019 that oil and gas bonds do not provide sufficient financial assurance because, among other things, most individual, statewide, and nationwide lease bonds are set at regulatory minimum values that have not been adjusted for inflation since the 1950s and 1960s (see figure). Further, GAO reported in March 2018 that coal self-bonding (where an operator promises to pay reclamation costs without providing collateral) poses financial risks to the federal government. Bonds provide funds that can be used to reclaim lands—restore them as close to their original natural states as possible—if an operator or other liable party does not do so. Natural Gas Emissions. In October 2010, GAO reported that data collected by Interior likely underestimated venting and flaring because they did not account for all sources of lost gas. GAO reported that economically capturing vented and flared natural gas could increase federal royalty payments by $23 million annually and made recommendations to help Interior better account for and manage emissions. In November 2016, Interior issued regulations consistent with GAO's recommendations, but Interior has since issued revised regulations, which are inconsistent with GAO's recommendations.

CRS_R45948

P rescription drugs play a vital role in American public health. The Centers for Disease Control and Prevention (CDC) estimates that between 2011 and 2014 just under half of all Americans had used one or more prescription drugs in the last 30 days. On the other hand, unfettered access to drugs may pose serious public health risks. The CDC reports that in 2017 over 70,000 Americans died of overdoses on prescription and nonprescription drugs. The Controlled Su bstances Act (CSA or the Act) seeks to balance those competing interests. The CSA regulates controlled substances —prescription and nonprescription drugs and other substances that are deemed to pose a risk of abuse and dependence. By establishing rules for the proper handling of controlled substances and imposing penalties for any illicit production, distribution, and possession of such substances, the Act seeks to protect the public health from the dangers of controlled substances while also ensuring that patients have access to pharmaceutical controlled substances for legitimate medical purposes. This report provides an overview of the CSA and select legal issues that have arisen under the Act, with a focus on legal issues of concern for the 116th Congress. The report first summarizes the history of the CSA and explains how the regulation of drugs under the CSA overlaps with other federal and state regulatory regimes. It then outlines the categories—known as sch edules —into which controlled substances subject to the Act are divided and discusses how substances are added to the schedules. The report next summarizes the CSA's registration requirements, which apply to entities that register with the government to legally handle pharmaceutical controlled substances, before summarizing the CSA's criminal trafficking provisions, which apply to activities involving controlled substances that are not sanctioned under the Act. Finally, the report outlines select legal issues for Congress related to the CSA, including issues related to the response to the opioid crisis, the control of analogues to the potent opioid fentanyl, the growing divergence between the treatment of marijuana under federal and state law, and the legal limits on clinical research involving certain controlled substances. Background and Scope of the CSA Congress has regulated drugs in some capacity since the 19th century. Federal drug regulation began with tariffs, import and export controls, and purity and labeling requirements applicable to narcotic drugs including opium and coca leaves and their derivatives. With the passage of the Harrison Narcotics Tax Act of 1914, Congress began in earnest to regulate the domestic trade in narcotic drugs. The Harrison Act provided for federal oversight of the legal trade in narcotic drugs and imposed criminal penalties for illicit trafficking in narcotics. Over the course of the 20th century, the list of drugs subject to federal control expanded beyond narcotic drugs to include marijuana, depressants, stimulants, and hallucinogens. Congress revamped federal drug regulation by enacting the Comprehensive Drug Abuse Prevention and Control Act of 1970. The Comprehensive Drug Abuse Prevention and Control Act repealed nearly all existing federal substance control laws and, for the first time, imposed a unified framework of federal controlled substance regulation. Title II of the Comprehensive Drug Abuse Prevention and Control Act is known as the Controlled Substances Act. The CSA regulates certain drugs —whether medical or recreational, legally or illicitly distributed—that are considered to pose a risk of abuse and dependence. In enacting the CSA, Congress recognized two competing interests related to drug regulation: on the one hand, many drugs "have a useful and legitimate medical purpose and are necessary to maintain the health and general welfare of the American people." On the other hand, "illegal importation, manufacture, distribution, and possession and improper use of controlled substances have a substantial and detrimental effect on the health and general welfare of the American people." Accordingly, the Act simultaneously aims to protect public health from the dangers of controlled substances while also ensuring that patients have access to pharmaceutical controlled substances for legitimate medical purposes. To accomplish those two goals, the statute creates two overlapping legal schemes. Registration provisions require entities working with controlled substances to register with the government, take steps to prevent diversion and misuse of controlled substances, and report certain information to regulators. Trafficking provisions establish penalties for the production, distribution, and possession of controlled substances outside the legitimate scope of the registration system. The CSA does not apply to all drugs. As discussed below, substances must be specifically identified for control (either individually or as a class) to fall within the scope of the Act. For medical drugs, the CSA primarily applies to prescription drugs, not drugs available over the counter. Moreover, the statute does not apply to all prescription drugs, but rather to a subset of those drugs deemed to warrant additional controls. As for nonpharmaceutical drugs, well-known recreational drugs such as marijuana, cocaine, heroin, and lysergic acid diethylamide (LSD) are all controlled substances, as are numerous lesser-known substances, some of which are identified only by their chemical formulas. Some recreational drugs are not classified as federally controlled substances. Alcohol and tobacco, which might otherwise qualify as drugs potentially warranting control under the CSA, are explicitly excluded from the scope of the Act, as is hemp that meets certain statutory requirements. Finally, it is possible for legitimate researchers and illicit drug manufacturers to formulate new drugs not contemplated by the Act. Those drugs may fall outside the scope of the CSA unless they are classified as controlled substances. Other Regulatory Schemes Many drugs classified as controlled substances subject to the CSA are also subject to other legal regimes. For example, all prescription drugs, including those subject to the Act, are subject to the Federal Food, Drug, and Cosmetic Act (FD&C Act). The U.S. Food and Drug Administration (FDA) is the agency primarily responsible for enforcing the FD&C Act, which prohibits the "introduction or delivery for introduction into interstate commerce of any . . . drug . . . that is adulterated or misbranded." The FD&C Act defines misbranding broadly: a drug is considered misbranded if, among other things, its labeling, advertising, or promotion "is false or misleading in any particular." Unlabeled drugs are considered misbranded, as are prescription drugs that FDA has not approved, including imported drugs. In addition, misbranding may include misrepresenting that a substance offered for sale is a brand-name drug (even if the seller believes the substance for sale is chemically identical to the brand-name drug). The FD&C Act provides that a drug is deemed to be adulterated if, among other things, it "consists in whole or in part of any filthy, putrid, or decomposed substance," "it has been prepared, packed, or held under insanitary conditions," its container is made of "any poisonous or deleterious substance," or its strength, quality, or purity is not as represented. The key aims of the FD&C Act are related to but distinct from those of the CSA. The CSA establishes distribution controls to prevent the misuse of substances deemed to pose a potential danger to the public welfare. The FD&C Act, by contrast, is a consumer protection statute that seeks to prevent harm to consumers who obtain drugs (and other public health products) through commercial channels. Any person or organization that produces, distributes, or otherwise works with prescription drugs that are also controlled substances must comply with the requirements of both the CSA and the FD&C Act. With respect to both pharmaceutical and nonpharmaceutical drugs, many drugs subject to the Act are also subject to state drug laws. State substance control laws often mirror federal law and are relatively uniform across jurisdictions because almost all states have adopted a version of the Uniform Controlled Substances Act (UCSA). However, states are free to modify the UCSA, and have done so to varying extents. Moreover, the model statute does not specify sentences for violations, so penalties for state controlled substance offenses vary widely. There is not a complete overlap between drugs subject to federal and state control for several reasons. First, states may elect to impose controls on substances that are not subject to the CSA. For example, some states have controlled the fentanyl analogues benzylfentayl and thenylfentanyl, but those substances are not currently subject to federal control. Second, states may wish to adopt federal scheduling decisions at the state level but lag behind federal regulators due to the need for a separate state scheduling process. Third, states may decide not to impose state controls on substances subject to the CSA, or they may choose to impose modified versions of federal controls at the state level. Crucially, however, the states cannot alter federal law, and when state and federal law conflict, the federal law controls. Thus, when states "legalize" or "decriminalize" a federally controlled substance (as many have done recently with respect to marijuana), the sole result is that the substance is no longer controlled under state law. Any federal controls remain in effect and potentially enforceable in those states. Classification of Controlled Substances The heart of the CSA is its system for classifying controlled substances, as nearly all the obligations and penalties that the Act establishes flow from the classification system. Drugs become subject to the CSA by being placed in one of five lists, referred to as "schedules." Both the Administrator of the Drug Enforcement Administration (DEA)—an arm of the Department of Justice (DOJ)—and Congress can place a substance in a schedule, move a controlled substance to a different schedule, or remove a controlled substance from a schedule. As discussed below, scheduling decisions by Congress and DEA follow different procedures. Overview of Schedules The CSA establishes five categories of controlled substances, referred to as Schedules I through V. The schedule on which a controlled substance is placed determines the level of restriction on its production, distribution, and possession, as well as the penalties applicable to any improper handling of the substance. As Figure 1 describes, each controlled substance is assigned to a schedule based on its medical utility and its potential for abuse and dependence. A lower schedule number corresponds to greater restrictions, so controlled substances in Schedule I are subject to the most stringent controls, while substances in Schedule V are subject to the least stringent. Notably, because substances in Schedule I have no accepted medical use, it is only legal to produce, dispense, and possess those substances in the context of federally approved scientific studies. Analogues and Listed Chemicals In addition to the controlled substances listed in Schedules I through V, the CSA also regulates (1) controlled substance analogues and (2) listed chemicals . Under the CSA, a controlled substance analogue is a substance that FDA has not approved and that is not specifically scheduled under the Act, but that has (1) a chemical structure substantially similar to that of a controlled substance in Schedule I or II, or (2) an actual or intended effect that is "substantially similar to or greater than the stimulant, depressant, or hallucinogenic effect on the central nervous system of a controlled substance in schedule I or II." A substance that meets those criteria and is intended for human consumption is treated as a controlled substance in Schedule I. Listed chemicals subject to the CSA are precursor chemicals for controlled substances. They may be placed on one of two lists: List I Chemicals —designated chemicals that, in addition to legitimate uses, are used in manufacturing a controlled substance in violation of the CSA and are important to the manufacture of a controlled substance. List II Chemicals —designated chemicals that, in addition to legitimate uses, are used in manufacturing a controlled substance in violation of the CSA. List I chemicals include substances such as ephedrine, white phosphorous, and iodine, which are used to produce methamphetamine, as well as chemicals used to manufacture LSD, MDMA, and other drugs. List II chemicals include, among others, solvents such as acetone, hydrochloric acid, and sulfuric acid. Listed chemicals are subject to some of the same controls as controlled substances. In addition, entities that sell listed chemicals must record the transactions, report them to regulators, and comply with statutory limits on sales to a single purchaser. There are a number of differences between how controlled substance analogues and listed chemicals are regulated. A key difference between controlled substance analogues and listed chemicals is that a substance does not qualify for control as an analogue unless it is intended for human consumption as a substitute for a controlled substance, while listed chemicals generally are not intended for human consumption standing alone but are used as ingredients in the manufacture of controlled substances. In addition, listed chemicals include only specific substances identified for control under the CSA by statute or rulemaking. By contrast, controlled substance analogues need not be individually scheduled; they need only satisfy the statutory criteria. Scheduling Procedures Substances may be added to or removed from a schedule or moved to a different schedule through agency action or by legislation. Legislative Scheduling Perhaps the most straightforward way to change a substance's legal status under the CSA is for Congress to pass legislation to place a substance under control, alter its classification, or remove it from control. The procedural requirements for administrative scheduling discussed in the following section do not apply to legislative scheduling. Thus, Congress may use its legislative scheduling power to respond quickly to a drug it views as posing an urgent concern. For example, the Synthetic Drug Abuse Prevention Act of 2012 permanently added two synthetic cathinones (central nervous system stimulants) and certain cannabimimetic substances (commonly referred to as synthetic marijuana) to Schedule I. Administrative Scheduling DEA makes scheduling decisions through a complex process requiring participation by other agencies and the public. DEA may undertake administrative scheduling on its own initiative, at the request of the U.S. Department of Health and Human Services (HHS), or "on the petition of any interested party." With regard to the last route for initiating administrative scheduling, the DEA Administrator may deny a petition to begin scheduling proceedings based on a finding that "the grounds upon which the petitioner relies are not sufficient to justify the initiation of proceedings." Denial of a petition to initiate scheduling proceedings is subject to judicial review, but courts will overturn a denial only if it is arbitrary and capricious. Before initiating rulemaking proceedings, DEA must request a scientific and medical evaluation of the substance at issue from the Secretary of HHS. The Secretary has delegated the authority to prepare the scientific and medical evaluation to FDA. In preparing the evaluation, FDA considers factors including the substance's potential for abuse and dependence, scientific evidence of its pharmacological effect, the state of current scientific knowledge regarding the substance, any risk the substance poses to the public health, and whether the substance is an immediate precursor of an existing controlled substance. Based on those factors, FDA makes a recommendation on whether the substance should be controlled and, if so, in which schedule it should be placed. FDA's scientific and medical findings are binding on DEA. And if FDA recommends against controlling the substance, DEA may not schedule it. Upon receipt of FDA's report, the DEA Administrator evaluates all of the relevant data and determines whether the substance should be scheduled, rescheduled, or removed from control. Before placing a substance on a schedule, the DEA Administrator must make specific findings that the substance meets the applicable criteria related to accepted medical use and potential for abuse and dependence. DEA scheduling decisions are subject to notice-and-comment rulemaking, meaning that interested parties must have the opportunity to submit comments on the DEA Administrator's decision before it becomes final. The DEA Administrator's decision whether to schedule, reschedule, or deschedule a substance through the ordinary administrative process is subject to judicial review. Such review is generally deferential: courts accept DEA's interpretation of the CSA as long as the interpretation of ambiguous statutory text is reasonable, and the CSA provides that the DEA Administrator's findings of fact are "conclusive" on judicial review if the findings are supported by substantial evidence. Emergency Scheduling Ordinary DEA scheduling decisions are made through notice-and-comment rulemaking and can take years to consider and finalize. Recognizing that in some cases faster scheduling may be appropriate, Congress amended the CSA through the Comprehensive Crime Control Act of 1984 to allow the DEA Administrator to place a substance in Schedule I temporarily when "necessary to avoid an imminent hazard to the public safety." Further amendments enacted in the Synthetic Drug Abuse Prevention Act of 2012 extended the maximum length of the temporary scheduling period. Before issuing a temporary scheduling order, the DEA Administrator must provide 30 days' notice to the public and the Secretary of HHS stating the basis for temporary scheduling. In issuing a temporary scheduling order, the DEA Administrator must consider only a subset of the factors relevant to permanent scheduling: the history and current pattern of abuse of the substance at issue; the scope, duration, and significance of abuse; and the risk to the public health. The DEA Administrator must also consider any comments from the Secretary of HHS. A substance may be temporarily scheduled for up to two years; if permanent scheduling proceedings are pending, the DEA Administrator may extend the temporary scheduling period for up to one additional year. A temporary scheduling order is vacated once permanent scheduling proceedings are completed with respect to the substance at issue. The CSA provides that emergency scheduling orders are not subject to judicial review. DEA has recently used its emergency scheduling power to temporarily control certain analogues to the opioid fentanyl and several synthetic cannabinoids. International Treaty Obligations The United States is a party to the Single Convention on Narcotic Drugs of 1961, which was designed to establish effective control over international and domestic traffic in narcotics, coca leaf, cocaine, and marijuana. That treaty requires signatories, among other things, to criminalize "cultivation, production, manufacture, extraction, preparation, possession, offering, offering for sale, distribution, purchase, sale, . . . importation and exportation of drugs" contrary to the Convention. The United States is also party to the Convention on Psychotropic Substances of 1971, which was designed to establish similar control over stimulants, depressants, and hallucinogens. The Convention on Psychotropic Substances requires parties to adopt various controls applicable to controlled substances, including mandating licenses for manufacture and distribution, requiring prescriptions for dispensing such substances, and adopting measures "for the repression of acts contrary to laws or regulations" adopted pursuant to treaty obligations. If existing controls of a drug are less stringent than those required by the United States' treaty obligations, the CSA directs the DEA Administrator to "issue an order controlling such drug under the schedule he deems most appropriate to carry out such obligations." Scheduling pursuant to international treaty obligations does not require the factual findings that are necessary for other administrative scheduling actions, and may be implemented without regard to the procedures outlined for regular administrative scheduling. Registration Requirements Once a substance is brought within the scope of the CSA, almost any person or organization that handles that substance, except for the end user, becomes subject to a comprehensive system of regulatory requirements. The goal of the regulatory scheme is to create a "closed system" of distribution in which only authorized handlers may distribute controlled substances. Central to the closed system of distribution is the requirement that individuals or entities that work with controlled substances register with DEA. Those covered entities, which include manufacturers, distributors, practitioners, and pharmacists, are referred to as registrants . As DEA has described the movement of a pharmaceutical controlled substance from the manufacturer to the patient, [A] controlled substance, after being manufactured by a DEA-registered manufacturer, may be transferred to a DEA-registered distributor for subsequent distribution to a DEA-registered retail pharmacy. After a DEA-registered practitioner, such as a physician or a dentist, issues a prescription for a controlled substance to a patient . . . , that patient can fill that prescription at a retail pharmacy to obtain that controlled substance. In this system, the manufacturer, the distributor, the practitioner, and the retail pharmacy are all required to be DEA registrants, or to be exempted from the requirement of registration, to participate in the process. As discussed further below, registrants must maintain records of transactions involving controlled substances, establish security measures to prevent theft of such substances, and monitor for suspicious orders to prevent misuse and diversion. Thus, the registration system aims to ensure that any controlled substance is always accounted for and under the control of a DEA-registered person until it reaches a patient or is destroyed. Entities Required to Register Under the CSA, every person who produces, distributes, or dispenses any controlled substance, or who proposes to engage in any of those activities, must register with DEA, unless an exemption applies. Significantly, the CSA exempts from registration individual consumers of controlled substances, such as patients and their family members, whom the act refers to as "ultimate users." DEA has explained that ultimate users need not register because the controlled substances in their possession "are no longer part of the closed system of distribution and are no longer subject to DEA's system of corresponding accountability." Manufacturers and distributors of controlled substances, such as pharmaceutical companies, must register with DEA annually. By contrast, entities that dispense controlled substances, such as hospitals, pharmacies, and individual medical practitioners and pharmacists, may obtain registrations lasting between one and three years. Registrations specify the extent to which registrants may manufacture, possess, distribute, or dispense controlled substances, and each registrant may engage only in the specific activities covered by its registration. In some instances, applicants must obtain more than one registration to comply with the CSA. For example, separate registrations are required for each principal place of business where controlled substances are manufactured, distributed, imported, exported, or dispensed. And certain activities can give rise to additional registration requirements. For instance, a special registration is required to operate an opioid treatment program such as a methadone clinic. The CSA directs the DEA Administrator to grant registration if it would be consistent with the public interest, outlining the criteria the DEA Administrator must consider when evaluating the public interest. The criteria vary depending on (1) whether the applicant is a manufacturer, distributor, researcher, or practitioner, and (2) the classification of the controlled substances that are the focus of the application. However, the requirements generally serve to help DEA determine whether the applicant has demonstrated the capacity to maintain effective controls against diversion and comply with applicable laws. The registration of an individual or organization expires at the end of the registration period unless it is renewed. Registration also ends when the registrant dies, ceases legal existence, or discontinues business or professional practice. A registration cannot be transferred to someone else without the express, written consent of the DEA Administrator. Obligations of Registrants Recordkeeping and Reporting The CSA and its implementing regulations impose multiple recordkeeping and reporting requirements on registrants. Registrants must undertake a biennial inventory of all stocks of controlled substances they have on hand, and maintain records of each controlled substance they manufacture, receive, sell, deliver, or otherwise dispose of. In addition, controlled substances in Schedules I and II may only be distributed pursuant to a written order. Copies of each order form must be transmitted to DEA. Records of orders must be preserved for two years and made available for government review upon request. Registrants are also required to "design and operate a system to identify suspicious orders" and to notify DEA of any suspicious orders they detect. DEA regulations provide that "[s]uspicious orders include orders of unusual size, orders deviating substantially from a normal pattern, and orders of unusual frequency." That list is not exhaustive, however—orders may also be deemed suspicious if, for example, a pharmacy mostly sells controlled substances rather than a more typical mix of controlled and noncontrolled medications, if many customers pay for controlled substances with cash, or if pharmacies purchase drugs at a price higher than insurance would reimburse. Inspections The CSA permits the DEA Administrator to inspect the establishment of any registrant or applicant for registration. DEA regulations express the intent of the agency "to inspect all manufacturers of controlled substances listed in Schedules I and II and distributors of controlled substances listed in Schedule I once each year," and other manufacturers and distributors of controlled substances "as circumstances may require." Absent the consent of the registrant or special circumstances such as an imminent danger to health or safety, a warrant is required for inspection. "Any judge of the United States or of a State court of record, or any United States magistrate judge" may issue such a warrant "within his territorial jurisdiction." Issuance of a warrant requires probable cause. The CSA defines probable cause as "a valid public interest in the effective enforcement of this subchapter or regulations thereunder sufficient to justify" the inspection at issue. Security The CSA's implementing regulations require all registrants to "provide effective controls and procedures to guard against theft and diversion of controlled substances." The regulations establish specific physical security requirements, which vary depending on the type of registrant and the classification of the controlled substance at issue. For example, nonpractitioners must store controlled substances in Schedules I and II in a safe, steel cabinet, or vault that meets certain specifications. Nonpractitioners must further ensure that controlled substance storage areas are "accessible only to an absolute minimum number of specifically authorized employees." Practitioners must store controlled substances "in a securely locked, substantially constructed cabinet." In addition to those physical security requirements, practitioners subject to CSA registration may not "employ, as an agent or employee who has access to controlled substances" any person who has been convicted of a felony related to controlled substances, had an application for CSA registration denied, had a CSA registration revoked, or surrendered a CSA registration for cause. Quotas To prevent the production of excess amounts of controlled substances, which may be prone to diversion, the CSA directs DEA to set production quotas for controlled substances in Schedules I and II and for ephedrine, pseudoephedrine, and phenylpropanolamine. The DEA Administrator is also required to set individual quotas for each registered manufacturer seeking to produce such substances and to limit or reduce individual quotas as necessary to prevent oversupply. With respect to certain opioid medications, the Act further directs the DEA Administrator to estimate the amount of diversion of each opioid and reduce quotas to account for such diversion. Relatedly, the Controlled Substances Import and Export Act allows the importation of certain controlled substances and listed chemicals only in amounts the DEA Administrator determines to be "necessary to provide for the medical, scientific, or other legitimate needs of the United States." Prescriptions Under the CSA, controlled substances in Schedules II through IV must be provided directly to an ultimate user by a medical practitioner or dispensed pursuant to a prescription. The Act does not mandate that Schedule V substances be distributed by prescription, but such substances may be dispensed only "for a medical purpose." As a practical matter, Schedule V substances are almost always dispensed pursuant to a prescription due to separate requirements under the FD&C Act or state law. Enforcement and Penalties DEA is the federal agency primarily responsible for enforcing the CSA's registration requirements. If a registrant contravenes the Act's registration requirements, DEA may take formal or informal administrative action including issuing warning letters, suspending or revoking an entity's registration, and imposing fines. The DEA Administrator may suspend or revoke a registration (or deny an application for registration) on several bases, including findings that a registrant or applicant has falsified application materials, been convicted of certain felonies, or "committed such acts as would render his registration . . . inconsistent with the public interest." Unless the DEA Administrator finds that there is an imminent danger to the public health or safety, the DEA Administrator must provide the applicant or registrant with notice, the opportunity for a hearing, and the opportunity to submit a corrective plan before denying, suspending, or revoking a registration. Imminent danger exists when, due to the failure of the registrant to comply with the registration requirements, "there is a substantial likelihood of an immediate threat that death, serious bodily harm, or abuse of a controlled substance will occur in the absence of an immediate suspension of the registration" Those conditions are satisfied, for example, when a practitioner prescribes controlled substances outside the usual course of professional practice without a legitimate medical purpose in violation of state and federal controlled substances laws. A violation of the CSA's registration requirements—including failure to maintain records or detect and report suspicious orders, noncompliance with security requirements, or dispensing controlled substances without the necessary prescriptions—generally does not constitute a criminal offense unless the violation is committed knowingly. However, in the event of a knowing violation DEA, through DOJ, may bring criminal charges against both individual and corporate registrants. Potential penalties vary depending on the offense. For example, a first criminal violation of the registration requirements by an individual is punishable by a fine or up to a year in prison. If "a registered manufacturer or distributor of opioids" commits knowing violations such as failing to report suspicious orders for opioids or maintain effective controls against diversion of opioids, it may be punished by a fine of up to $500,000. Trafficking Provisions In addition to the registration requirements outlined above, the CSA also contains provisions that define multiple offenses involving the production, distribution, and possession of controlled substances outside the legitimate confines of the registration system, that is, the Act's trafficking provisions . Although the word "trafficking" may primarily call to mind the illegal distribution of recreational drugs, the CSA's trafficking provisions in fact apply to a wide range of illicit activities involving either pharmaceutical or nonpharmaceutical controlled substances. Prohibitions The CSA's trafficking provisions make it illegal to "manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance," except as authorized under the Act. They also make it unlawful "knowingly or intentionally to possess a controlled substance," unless the substance was obtained in a manner authorized by the CSA. Penalties vary based on the type and amount of the controlled substance in question. Other sections of the CSA define more specific offenses, such as distributing controlled substances at truck stops or rest areas, at schools, or to people under age 21; endangering human life while manufacturing a controlled substance; selling drug paraphernalia; and engaging in a "continuing criminal enterprise"—that is, an ongoing, large-scale drug dealing operation. An attempt or conspiracy to commit any offense defined under the Act also constitutes a crime. Enforcement and Penalties DOJ enforces the CSA's trafficking provisions by bringing criminal charges against alleged violators. Notably, the CSA's registration system and its trafficking regime are not mutually exclusive, and participation in the registration system does not insulate registrants from the statute's trafficking penalties. In United States v. Moore , the Supreme Court rejected a claim that the CSA "must be interpreted in light of a congressional intent to set up two separate and distinct penalty systems," one for registrants and one for persons not registered under the Act. The Court in Moore held that physicians registered under the CSA can be prosecuted under the Act's general drug trafficking provisions "when their activities fall outside the usual course of professional practice." Numerous judicial opinions provide guidance on what sorts of conduct fall outside the usual course of professional practice. The defendant in Moore was a registered doctor who distributed large amounts of methadone with inadequate patient exams and no precautions against misuse or diversion. The Court held that "[t]he evidence presented at trial was sufficient for the jury to find that respondent's conduct exceeded the bounds of 'professional practice'" because, "[i]n practical effect, he acted as a large-scale 'pusher' not as a physician." Appellate courts have relied on Moore to uphold convictions of a pharmacist who signed thousands of prescriptions for sale through an online pharmacy, and a practitioner who "freely distributed prescriptions for large amounts of controlled substances that are highly addictive, difficult to obtain, and sought after for nonmedical purposes," including prescribing one patient more than 20,000 pills in a single year. But several courts have cautioned that a conviction under Moore requires more than a showing of mere professional malpractice. For instance, the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit) has held that the prosecution must prove that the defendant "acted with intent to distribute the drugs and with intent to distribute them outside the course of professional practic e ," suggesting that intent must be established with respect to the nature of the defendant's failure to abide by professional norms. For decades, DOJ has brought criminal trafficking charges against doctors and pharmacists who dispensed pharmaceutical controlled substances outside the usual course of professional practice. In April 2019, DOJ for the first time brought criminal trafficking charges against a pharmaceutical company—Rochester Drug Cooperative—and two of its executives based on the company's sale of the opioids oxycodone and fentanyl to pharmacies that illegally distributed the drugs. Similarly, in July 2019, a federal grand jury indicted defendants including two former executives at the pharmaceutical distributor Miami-Luken, Inc. for conspiracy to violate the CSA's trafficking provisions. Violations of the CSA's trafficking provisions are criminal offenses that may give rise to large fines and significant jail time. Penalties vary according to the offense and may further vary based on the type and amount of the controlled substance at issue. Unauthorized simple possession of a controlled substance may prompt a minimum fine of $1,000 and a term of up to a year in prison. Distribution of large quantities of certain drugs—including Schedule I controlled substances such as heroin and LSD and Schedule II controlled substances such as cocaine and methamphetamine—carries a prison sentence of 10 years to life and a fine of up to $10 million for an individual or a fine of up to $50 million for an organization. Penalties increase for second or subsequent offenses, or if death or serious bodily injury results from the use of the controlled substance. Compared with the CSA's registration provisions, prosecution under the Act's trafficking provisions generally entails greater potential liability—particularly for individual defendants—but also entails a more exacting burden of proof. The CSA is not the only means to target misconduct related to the distribution of pharmaceutical and nonpharmaceutical controlled substances. Rather, such conduct can give rise to liability under numerous other provisions of federal and state law. For example, drug companies may face administrative sanctions or criminal charges under the FD&C Act. Companies and criminal organizations may be subject to federal charges under the Racketeer Influenced and Corrupt Organizations Act. And manufacturers and distributors of opioids currently face numerous civil suits under federal and state law based on the companies' marketing and distribution of prescription opioids. Legal Considerations for the 116th Congress Drug regulation has received significant attention from Congress in recent years, prompting a range of proposals concerning the opioid epidemic; the proliferation of synthetic drugs, in particular analogues to the opioid fentanyl; the divergence between the status of marijuana under state and federal law; and the ability of researchers to conduct clinical research involving Schedule I controlled substances. Opioid Crisis One of the most salient current issues in the realm of controlled substance regulation is the opioid epidemic. Opioids are drugs derived from the opium poppy or emulating the effects of opium-derived drugs. Some opioids have legitimate medical purposes, primarily related to pain management, while others have no recognized medical use. Both pharmaceutical opioids—such as oxycodone, codeine, and morphine—and nonpharmaceutical opioids—such as heroin—may pose a risk of abuse and dependence and may be dangerous or even deadly in excessive doses. The CDC reports that overdoses on prescription and nonprescription opioids claimed a record 47,600 lives in 2017. The CDC further estimates that the misuse of prescription opioids alone costs the United States $78.5 billion per year. In recent years, the opioid crisis has prompted various legislative proposals aiming to prevent the illicit distribution of opioids; curb the effects of the crisis on individuals, families, and communities; and cover the costs of law enforcement efforts and treatment programs. In 2016, Congress enacted the Comprehensive Addiction and Recovery Act of 2016 (CARA) and the 21st Century Cures Act (Cures Act). CARA authorized grants to address the opioid crisis in areas including abuse prevention and education, law enforcement, and treatment, while the Cures Act, among other things, provided additional funding to states combating opioid addiction. In 2018, Congress enacted the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (SUPPORT Act), which sought to address the opioid crisis through far-ranging amendments to the CSA, the FD&C Act, and other statutes. Key amendments to the CSA under the SUPPORT Act included provisions expanding access to medication-assisted treatment for opioid addiction, specifying the factors for determining whether a controlled substance analogue is intended for human consumption, revising the factors DEA considers when establishing opioid production quotas, and codifying the definition of "suspicious order" and outlining the CSA's suspicious order reporting requirements. Notwithstanding the flurry of recent legal changes, many recent legislative proposals seek to further address the opioid crisis by amending the CSA. For example, the DEA Enforcement Authority Act of 2019 would revise the standard for "imminent danger" required to support an immediate suspension of DEA registration. Specifically, the bill would lower the threshold for what constitutes imminent danger, requiring " probable cause that death, serious bodily harm, or abuse of a controlled substance will occur in the absence of an immediate suspension of the registration," rather than the current statutory requirement that " a substantial likelihood of an immediate threat that death, serious bodily harm, or abuse of a controlled substance will occur in the absence of an immediate suspension of the registration." In addition, the John S. McCain Opioid Addiction Prevention Act would, as part of the CSA's registration regime, require medical practitioners applying for new or renewed CSA registration to certify that they will not prescribe more than a seven-day supply of opioids for the treatment of acute pain. The LABEL Opioids Act would amend the CSA to require that opioids in Schedules I through V bear labels warning that they can cause dependence, addiction, and overdose. Failure to comply with the labeling requirements would violate the CSA's registration requirements. Some proposals target specific opioids, especially fentanyl. For instance, the Ending the Fentanyl Crisis Act of 2019 would amend the CSA to reduce the amounts of fentanyl required to constitute a trafficking offense. The Comprehensive Fentanyl Control Act, introduced in the 115th Congress, would likewise have reduced the amount of fentanyl triggering criminal liability. That bill would have also increased penalties applicable to offenses involving fentanyl and provided separate procedures for emergency scheduling of synthetic opioids. The Screening All Fentanyl-Enhanced Mail Act of 2019 seeks to require screening of all inbound international mail and express cargo from high-risk countries to detect and prevent the importation of illicit fentanyl and other synthetic opioids. Finally, the Blocking Deadly Fentanyl Imports Act would aim to gather information about the illicit production of illicit fentanyl in foreign countries and to withhold bilateral assistance from countries that fail to enforce certain controlled substance regulations. Analogue Fentanyl A related issue currently before Congress is the proliferation of synthetic drugs, especially synthetic opioids. Synthetic drugs are drugs that are chemically produced in a laboratory; they may have a chemical structure identical to or different from that of a natural drug. Synthetic drugs are often intended to mimic or enhance the effects of natural drugs, but have chemical structures that have been slightly modified to circumvent existing drug laws. One particular concern in this area relates to synthetic opioids, including fentanyl analogues and other fentanyl-like substances. Fentanyl is a powerful opioid that has legitimate medical uses including pain management for cancer patients. But, due to its potency, it also poses a particularly high risk of abuse, dependency, and overdose. Prescription fentanyl is a Schedule II controlled substance; multiple nonpharmaceutical substances related to fentanyl are controlled in Schedule I. However, experts have noted that it is relatively easy to manipulate the chemical structure of fentanyl in order to produce new substances that may have similar effects to fentanyl or pose other dangers if consumed but that are not included in the CSA's schedules. Since March 2011, DEA has used its emergency scheduling authority 23 times to impose temporary controls on 68 synthetic drugs, including 17 fentanyl-like substances. Most recently, in February 2018, DEA issued an emergency scheduling order that applies broadly to all "fentanyl-related substances" that meet certain criteria related to their chemical structure. Absent further action by DEA or Congress, the temporary scheduling order will expire in February 2020. Even if not individually scheduled on a temporary or permanent basis, fentanyl-related substances may still be subject to DEA control as controlled substance analogues. However, to secure a conviction for an offense involving an analogue controlled substance, DOJ must, among other elements, prove beyond a reasonable doubt that the substance at issue (1) is intended for human consumption and (2) has either a chemical structure substantially similar to the chemical structure of a Schedule I or II controlled substance or an actual or intended effect similar to or greater than that of a Schedule I or II controlled substance. Thus, DOJ has stated that analogue controlled substance prosecutions can be burdensome because they raise "complex chemical and scientific issues," and has argued that permanent scheduling of fentanyl analogues will reduce uncertainty and aid enforcement. Several proposals in the 116th Congress would seek to permanently schedule fentanyl analogues. For instance, the Stopping Overdoses of Fentanyl Analogues Act would permanently add to Schedule I certain specific synthetic opioids, as well as the whole category of "fentanyl-related substances," as defined in the February 2018 emergency scheduling order. The Modernizing Drug Enforcement Act of 2019 would amend the CSA to add to Schedule I all "mu opioid receptor agonists" not otherwise scheduled, subject to certain exceptions. One of the sponsors of the Modernizing Drug Enforcement Act has stated that the bill's aim is "to automatically classify drugs or other substances that act as opioids, such as synthetic fentanyl, as a schedule I narcotic based on their chemical structure and functions," avoiding the need for such substances to be individually scheduled. A key challenge in permanently scheduling fentanyl analogues is how to define the substances subject to regulation. Not all analogues of fentanyl have effects similar to fentanyl itself, and due to the large number of potential analogues there are many whose effects are unknown. Defining covered substances based on chemical structure may be overinclusive because the definition may include inactive substances, potentially allowing for prosecution of individuals who possess substances that pose no threat to public health and safety. On the other hand, such a definition may also be underinclusive because it excludes opioids that are not chemically related to fentanyl or that are made using different modifications to fentanyl's chemical structure. Alternatively, defining covered opioids based on their effects rather than their chemical structure could impose a heavy burden on prosecutors, similar to the burden they currently face when bringing analogue controlled substance charges. Marijuana Policy Gap Another area raising a number of legal considerations for the 116th Congress is the marijuana policy gap—the increasing divergence between federal and state law in the area of marijuana regulation. As of June 2019, 11 states and the District of Columbia have passed laws removing state prohibitions on medical and recreational marijuana use by adults age 21 or older. An additional 35 states have passed laws permitting medical use of marijuana or CBD. However, marijuana remains a Schedule I controlled substance under federal law, and state legislation decriminalizing marijuana has no effect on that status. Because of resource limitations, DOJ typically has not prosecuted individuals who possess marijuana for personal use on private property, but instead has "left such lower-level or localized marijuana activity to state and local authorities through enforcement of their own drug laws." Moreover, in each budget cycle since FY2014 Congress has passed an appropriations rider preventing DOJ from using taxpayer funds to prevent the states from "implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana." The current appropriations rider is in effect through November 21, 2019. Several courts have interpreted the appropriations rider to bar DOJ from expending any appropriated funds to prosecute activities involving marijuana that are conducted in "strict compliance" with state law. However, activities that fall outside the scope of state medical marijuana laws remain subject to prosecution. For example, in United States v. Evans , the Ninth Circuit upheld the prosecution of medical marijuana growers who smoked some of the marijuana they grew because the defendants failed to show they were "qualifying patients" who acted in strict compliance with state medical marijuana law. Notwithstanding the appropriations rider, marijuana-related activity may still give rise to serious legal consequences under federal law. DOJ issued guidance in 2018 reaffirming the authority of federal prosecutors to exercise prosecutorial discretion to target federal marijuana offenses "in accordance with all applicable laws, regulations, and appropriations." Furthermore, regardless whether they are subject to criminal prosecution, participants in the cannabis industry may face numerous collateral consequences arising from the federal prohibition of marijuana because other federal laws impose noncriminal consequences based on criminal activity, including violations for the CSA. For example, cannabis businesses that are legal under state law may be unable to access banking services due to federal anti-money laundering laws, and those businesses may be ineligible for certain federal tax deductions. The involvement of income from a cannabis-related business may also prevent a bankruptcy court from approving a bankruptcy plan. And participation in the cannabis industry, even if legal under state law, may have adverse immigration consequences. Numerous proposals currently before Congress aim to address issues related to the marijuana policy gap. Some proposals target specific issues that arise from the divergence between federal and state law. For instance, the Secure And Fair Enforcement Banking Act of 2019 (SAFE Banking Act) would seek to protect depository institutions that provide financial services to cannabis-related businesses from regulatory sanctions. The Ensuring Safe Capital Access for All Small Businesses Act of 2019 would make certain loan programs of the Small Business Administration (SBA) available to cannabis-related businesses. Other proposals would seek to address the marijuana policy gap more broadly by attempting to mitigate any conflict between federal and state law. For example, the Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act) would amend the CSA to provide that most provisions related to marijuana "shall not apply to any person acting in compliance with State law relating to the manufacture, production, possession, distribution, dispensation, administration, or delivery" of marijuana. The STATES Act would remove the risk of federal prosecution under the CSA for individuals and entities whose marijuana-related activities comply with state law, but the bill does not specifically address the potential consequences of such activity under other areas of federal law. The Responsibly Addressing the Marijuana Policy Gap Act of 2019 would both remove marijuana-related activities that comply with state law from the scope of the CSA and seek to address specific collateral consequences of such activity, including access to banking services, bankruptcy proceedings, and certain tax deductions. By contrast, the State Cannabis Commerce Act would take an approach similar to the current DOJ appropriations rider with respect to all federal agencies: while it would not alter the scope of the CSA's restrictions on marijuana, the State Cannabis Commerce Act would prevent any agency from using appropriated funds "to prevent any State from implementing any law of the State that . . . authorizes the use, distribution, possession, or cultivation of marijuana" within the state. Additional proposed legislation could address the marijuana policy gap by altering the status of marijuana under the CSA across the board. Some proposals would move marijuana from Schedule I to a less restrictive schedule. Others would remove marijuana from the CSA's schedules completely. Removing marijuana from the coverage of the CSA could, however, raise new legal issues. For instance, by default, the repeal of federal criminal prohibitions rarely applies retroactively. As a result, if Congress were to remove marijuana from the CSA, it might want to consider how to address past criminal convictions related to marijuana and whether to take any action to mitigate the effects of past convictions. In addition, Congress would not be precluded from regulating marijuana in other ways if it were to remove the drug from the ambit of the CSA. For instance, legislation has been introduced that would impose new federal regulations on marijuana akin to those applicable to alcohol and cigarettes. In addition, descheduling marijuana would not, standing alone, alter the status of the substance under the FD&C Act and, thus, would not bring the existing cannabis industry into compliance with federal law. FDA has explained that it "treat[s] products containing cannabis or cannabis-derived compounds as [it does] any other FDA-regulated products," and that it is "unlawful under the FD&C Act to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived." FDA is currently engaged in "consideration of a framework for the lawful marketing of appropriate cannabis and cannabis-derived products under our existing authorities." Congress could also pass legislation to alter FDA regulation of cannabis-based products. For example, the Legitimate Use of Medicinal Marihuana Act would provide that neither the CSA nor the FD&C Act "shall prohibit or otherwise restrict" certain activities related to medical marijuana that are legal under state law. Reducing or removing federal restrictions on marijuana might also create tension with certain treaty obligations of the United States. The United States is a party to the Single Convention on Narcotic Drugs of 1961, which requires signatories, among other things, to criminalize "cultivation, production, manufacture, extraction, preparation, possession, offering, offering for sale, distribution, purchase, sale, . . . importation and exportation of drugs" contrary to the provisions of the Convention. The United States is also party to the Convention on Psychotropic Substances of 1971, which requires parties to impose various restrictions on controlled substances, including measures "for the repression of acts contrary to laws or regulations" adopted pursuant to treaty obligations. The two treaties are not self-executing, meaning that they do not have the same status as judicially enforceable domestic law. However, failure to abide by its treaty obligations could expose the United States to international legal consequences. Research Access Another significant legal issue before the 116th Congress is the effect of the CSA on researchers' ability to conduct clinical research involving Schedule I controlled substances, including marijuana. Because substances in Schedule I have no accepted medical use, it is only legal to produce, dispense, and possess those substances in the context of federally approved scientific studies. In addition, federal law generally prevents the use of federal funding for such research: a rider to the appropriations bill for FY2019 provides that no appropriated funds may be used "for any activity that promotes the legalization of any drug or other substance included in schedule I" of the CSA, except "when there is significant medical evidence of a therapeutic advantage to the use of such drug or other substance or . . . federally sponsored clinical trials are being conducted to determine therapeutic advantage." Some commentators have expressed concerns that the CSA places too many restrictions on research involving controlled substances, particularly Schedule I controlled substances that might have a legitimate medical use. With respect to clinical research involving marijuana specifically, currently there is one farm that legally produces marijuana for research purposes, and researchers have complained that such marijuana is deficient in both quality and quantity. In 2015, Congress passed the Improving Regulatory Transparency for New Medical Therapies Act, which imposes deadlines on DEA to issue notice of each application to manufacture Schedule I substances for research and then act on the application. In 2016, DEA stated that it planned to grant additional licenses to grow marijuana for research purposes; however, as of June 2019 no new licenses had been granted. One applicant for a license petitioned the U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit) for a writ of mandamus compelling DEA to issue notice of its application. In July 2019, the D.C. Circuit ordered DEA to respond to the petition. On August 27, 2019, DEA published a notice in the Federal Register (1) providing notice of the 33 applications it has received to manufacture Schedule I controlled substances for research purposes and (2) announcing the agency's intent to promulgate regulations governing the manufacture of marijuana for research purposes. The next day, DEA filed a response to the mandamus petition in the D.C. Circuit, asserting that the petition was moot because DEA had issued the requested notice of application. The petitioner disputes that the matter is moot and asks the court to retain jurisdiction "to ensure the agency acts with dispatch and processes [petitioner's] application promptly." The court has yet to rule on the petition. DEA's Federal Register notice stated that the agency intends to review all pending applications and grant "the number that the agency determines is necessary to ensure an adequate and uninterrupted supply of the controlled substances at issue under adequately competitive conditions." The notice further explained that DEA is engaged in an ongoing "policy review process to ensure that the [marijuana] growers program is consistent with applicable laws and treaties." It remains to be seen how many applications DEA will grant and what new regulations will apply to the successful applicants. As it did with the Improving Regulatory Transparency for New Medical Therapies Act, Congress could pass further legislation to guide DEA's consideration of applications to manufacture marijuana for research purposes. For instance, the Medical Cannabis Research Act of 2019, which was introduced before the recent developments in the D.C. Circuit and remains pending before Congress, would aim to increase the number of licenses to produce cannabis for research purposes, requiring DEA to approve at least three additional manufacturers within a year of passage. Congress could also legislate more broadly to facilitate research involving controlled substances. For example, a proposed amendment to the appropriations bill for FY2020 would have eliminated the appropriations rider restricting the use of federal funding for research involving Schedule I substances. That amendment, which would have applied to research involving all Schedule I controlled substances, was intended to facilitate research involving not only marijuana but also psilocybin, MDMA, and other Schedule I drugs that might have legitimate medical uses.

The Controlled Substances Act (CSA) imposes a unified legal framework to regulate certain drugs—whether medical or recreational, legally or illicitly distributed—that are deemed to pose a risk of abuse and dependence. The CSA does not apply to all drugs. Rather, it applies to specific substances and categories of substances that have been designated for control by Congress or through administrative proceedings. The statute also applies to controlled substance analogues that are intended to mimic the effects of controlled substances and certain precursor chemicals commonly used in the manufacturing of controlled substances. Controlled substances subject to the CSA are divided into categories known as Schedules I through V based on their medical utility and their potential for abuse and dependence. Substances considered to present the greatest risk to the public health and safety are subject to the most stringent controls and sanctions. A lower schedule number corresponds to greater restrictions, so substances in Schedule I are subject to the strictest controls, while substances in Schedule V are subject to the least strict. Most substances subject to the CSA are also subject to other federal or state regulations, including the Federal Food, Drug, and Cosmetic Act (FD&C Act). The Drug Enforcement Administration (DEA) is the federal agency primarily responsible for implementing and enforcing the CSA. DEA may designate a substance for control through notice-and-comment rulemaking if the substance satisfies the applicable statutory criteria. The agency may also place a substance under temporary control on an emergency basis if the substance poses an imminent hazard to public safety. In addition, DEA may designate a substance for control under the United States' international treaty obligations. In the alternative, Congress may place a substance under control by statute. The CSA simultaneously aims to protect public health from the dangers of controlled substances diverted into the illicit market while also seeking to ensure that patients have access to pharmaceutical controlled substances for legitimate medical purposes. To accomplish those two goals, the statute creates two overlapping legal schemes. Registration provisions require entities working with controlled substances to register with DEA and implement various measures to prevent diversion and misuse of controlled substances. Trafficking provisions establish penalties for the production, distribution, and possession of controlled substances outside the legitimate scope of the registration system. DEA is primarily responsible for enforcing the registration provisions and works with the Criminal Division of the Department of Justice to enforce the trafficking provisions of the CSA. Violations of the registration provisions generally are not criminal offenses, but certain serious violations may result in criminal prosecutions, fines, and even short prison sentences. Violations of the trafficking provisions are criminal offenses that may result in large fines and lengthy prison sentences. Drug regulation has received significant attention from Congress in recent years, with a number of bills introduced in the 116th Congress that would amend the CSA in various ways. For example, after Congress passed several bills in recent years in response to the opioid crisis, additional proposals aimed at addressing the crisis are pending before the 116th Congress, including the John S. McCain Opioid Addiction Prevention Act ( H.R. 1614 , S. 724 ), which would limit practitioners' ability to prescribe opioids; the LABEL Opioids Act ( H.R. 2732 , S. 1449 ), which would require prescription opioids to bear certain warning labels; and the Ending the Fentanyl Crisis Act of 2019 ( S. 1724 ), which would increase criminal liability for illicit trafficking in the powerful opioid fentanyl. The 116th Congress has also considered measures specifically seeking to address the proliferation of synthetic drugs that mimic the effects of fentanyl, including the Stopping Overdoses of Fentanyl Analogues Act ( H.R. 2935 , S. 1622 ) and the Modernizing Drug Enforcement Act of 2019 ( H.R. 2580 ). In addition, multiple recent proposals would seek to address the divergence between federal and state marijuana laws. For example, the Secure And Fair Enforcement Banking Act of 2019 (SAFE Banking Act) ( H.R. 1595 , S. 1200 ) would seek to protect depository institutions that provide financial services to cannabis-related businesses from regulatory sanctions, and the Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act) ( H.R. 2093 , S. 1028 ) would amend the CSA so that most provisions concerning marijuana do not apply to marijuana-related activities that comply with state law. Other proposals, such as the Legitimate Use of Medicinal Marihuana Act ( H.R. 171 ) and the Marijuana Justice Act of 2019 ( H.R. 1456 , S. 597 ) could address the gap between federal and state law in the area of marijuana regulation by moving marijuana from Schedule I to a less restrictive schedule or remove marijuana from the CSA's schedules. Finally, recent legislative proposals would aim to facilitate clinical research involving controlled substances, particularly marijuana. These various proposals raise a number of legal questions as Congress contemplates whether to change the laws governing controlled substances.

GAO_GAO-19-594T

FEMA Has Taken Steps to Strengthen Disaster Resilience and Preparedness, but Additional Steps are Needed to Fully Address Remaining Challenges We have previously reported on various aspects of national preparedness, including examining the extent to which FEMA programs encourage disaster resilience and identifying gaps in federal preparedness capabilities. We have found that when federal, state, and local efforts aligned to focus on improving disaster resilience and preparedness, there was a noticeable reduction in the effects of the disaster. However, our prior and ongoing work also highlight opportunities to improve disaster resilience and preparedness nationwide. Disaster Resilience Hazard mitigation is a key step in building resilience and preparedness against future disasters. In July 2015, we found that states and localities experienced challenges when trying to use federal funds to maximize resilient rebuilding in the wake of a disaster. In particular, they had difficulty navigating multiple federal grant programs and applying federal resources towards their most salient risks because of the fragmented and reactionary nature of the funding. In our 2015 report, we recommended that the Mitigation Framework Leadership group—an interagency body chaired by FEMA—create a National Mitigation Investment Strategy to help federal, state, and local officials plan for and prioritize disaster resilience. As of May 2019, according to FEMA officials, the Mitigation Framework Leadership group is on track to address the recommendation, and they expect the strategy to be published by July 2019. In September 2017, we reported that the methods used to estimate the potential economic effects of climate change in the United States—using linked climate science and economics models—could inform decision makers about significant potential damages in different U.S. sectors or regions, despite the limitations. For example, for 2020 through 2039, one study estimated between $4 billion and $6 billion in annual coastal property damages from sea level rise and more frequent and intense storms. We found that the federal government has not undertaken strategic government-wide planning on the potential economic effects of climate change to identify significant risks and craft appropriate federal responses. As a result, we recommended the Executive Office of the President, among others, should use information on the potential economic effects of climate change to help identify significant climate risks facing the federal government and craft appropriate federal responses, such as establishing a strategy to identify, prioritize, and guide federal investments to enhance resilience against future disasters; however, as of June 2019, officials have not taken action to address this recommendation. In November 2017, we found that FEMA had taken some actions to better promote hazard mitigation as part of its Public Assistance grant program. However, we also reported that more consistent planning for, and more specific performance measures related to, hazard mitigation could help ensure that mitigation is incorporated into recovery efforts. We recommended, among other things, that FEMA (1) standardize planning efforts for hazard mitigation after a disaster and (2) develop performance measures for the Public Assistance grant program to better align with FEMA’s strategic goal for hazard mitigation in the recovery process. FEMA concurred with our recommendations, and as of March 2019, officials have reported taking steps to increase coordination across its Public Assistance, mitigation, and field operations to ensure hazard mitigation efforts are standardized and integrated into the recovery process. Additionally, FEMA officials reported taking actions to begin developing disaster-specific mitigation performance measures. However, FEMA has yet to finalize these actions, such as by proposing performance measures to FEMA senior leadership. As such, we are continuing to monitor FEMA’s efforts to address these recommendations. Disaster Preparedness In March 2011, we reported that FEMA had not completed a comprehensive and measurable national preparedness assessment of capability gaps—for example the amount of resources required to save lives, protect property and the environment, and meet basic human needs after an incident has occurred. Developing such an assessment would help FEMA to identify what capability gaps exist and what level of resources are needed to close such gaps. Accordingly, we suggested that FEMA complete a national preparedness assessment to evaluate capability requirements and gaps at each level of government to enable FEMA to prioritize grant funding. As of December 2018, FEMA had efforts underway to assess urban area, state, territory, and tribal preparedness capabilities to inform the prioritization of grant funding; however, the agency had not yet completed a national preparedness assessment with clear, objective, and quantifiable capability requirements against which to assess preparedness. We are continuing to monitor FEMA’s efforts to complete such an assessment. Furthermore, in March 2015, we reviewed selected states’ approaches to budgeting for disaster costs to help inform congressional consideration of the balance between federal and state roles in funding disaster assistance. Specifically, we reported that none of the 10 states in our review maintained reserves dedicated solely for future disasters, and some state officials reported that they could cover disaster costs without dedicated disaster reserves because they generally relied on the federal government to fund most of the costs associated with disaster response and recovery. In response to the 2017 disasters, we also have ongoing work to review national preparedness capabilities to assist communities in responding to and recovering from disasters. Based on our preliminary observations, some states and localities we interviewed reported that while they are prepared to deal with immediate response issues in the aftermath of a disaster, gaps exist in their capacity to support longer term recovery. One reason for this, according to these state and local officials, is because federal preparedness grant funds are largely dedicated to maintaining response capabilities and sustaining personnel costs for local emergency management officials. While these preparedness grants fund critical elements of the national preparedness system, there are some limitations to using them. Specifically, some state and local officials told us that the preparedness grant activities are generally focused on terrorism issues rather than all-hazards. In addition, they reported that the preparedness grants are generally spent on maintaining response capabilities rather than to enhance their capacity for disaster recovery—such as additional training and exercises. In addition to the state, territory, and urban region assessments that FEMA is conducting, FEMA is currently in the process of developing the first national Threat and Hazard Identification and Risk Assessment. This national assessment may help FEMA and policymakers better understand how to target federal resources in a way that enhances the nation’s capacity to respond and recover from future catastrophic or sequential disasters. We are continuing to evaluate national preparedness efforts and plan to report on FEMA’s Threat and Hazard Identification and Risk Assessment process in January 2020. FEMA’s Response to the 2017 Disasters Highlighted Some Areas of Progress, But also Identified Significant Weaknesses FEMA’s Response to the 2017 Disasters In September 2018, we reported that the response to the 2017 hurricanes and wildfires in Texas, Florida, and California showed progress made since the 2005 federal response to Hurricane Katrina. We also found that FEMA coordinated closely with Texas, Florida, and California emergency management officials and other federal, local, and volunteer emergency partners to implement various emergency preparedness actions prior to the 2017 disasters in each state, and to respond to these disasters. According to FEMA and state officials, these actions helped officials begin addressing a number of challenges they faced such as meeting the demand for a sufficient and adequately-trained disaster workforce and complex issues related to removing debris in a timely manner after the hurricanes and wildfires. In contrast, we also reported in September 2018, that in Puerto Rico and the USVI a variety of challenges—such as the far distance of the territories from the U.S. mainland, limited local preparedness for a major hurricane, and outdated local infrastructure—complicated response efforts to hurricanes Irma and Maria. Many of the challenges we identified are also described in FEMA’s 2017 Hurricane Season FEMA After-Action Report, including: the sequential and overlapping timing of the three hurricanes—with Maria being the last of the three—caused staffing shortages and required FEMA to shift staff to the territories that were already deployed to other disasters; the far distance of both territories from the U.S. mainland complicated efforts to deploy federal resources and personnel quickly; and the incapacitation of local response functions due to widespread devastation and loss of power and communications, and limited preparedness by Puerto Rico and the USVI for a category 5 hurricane resulted in FEMA having to assume response functions that territories would usually perform themselves. We also reported that FEMA’s 2017 Hurricane Season FEMA After-Action Report noted that FEMA could have better leveraged information from preparedness exercises in the Caribbean, including a 2011 exercise after- action report for Puerto Rico which indicated that the territory would require extensive federal support during a large scale disaster in moving commodities from the mainland to the territory and to distribution points throughout. In our September 2018 report, we also found that FEMA’s efforts in Puerto Rico after Hurricane Maria were the largest and longest single response in the agency’s history. According to FEMA, the agency’s response included, among other things, bringing in approximately $1 billion in food and supplies; and distributing food, commodities, and medicine via approximately 1,400 flights, which constituted the longest sustained air operations in U.S. disaster history. FEMA officials explained that the agency essentially served as the first responder in the early response efforts in Puerto Rico, and many of services FEMA provided—such as power restoration, debris removal, and commodity distribution—were typically provided by territorial or local governments. We also reported in September 2018, that in the USVI, recent disaster training and the pre-positioning of supplies due to the anticipated impact of Hurricane Irma facilitated the response efforts for Hurricane Maria, which made landfall less than two weeks later. According to FEMA’s federal coordinating officer, the lead federal official in charge of response for the USVI, the federal government deployed assets, including urban search and rescue teams and medical assistance teams. In addition, due to the sequence of Hurricane Irma hitting the USVI immediately before Hurricane Maria, the Department of Defense (DOD) already had personnel and resources (i.e., ships) deployed to the area, which enabled DOD to respond to Hurricane Maria faster than it otherwise would have. Additional challenges we have reported on regarding response operations have included providing short-term housing and sheltering for disaster survivors. The Department of Homeland Security’s (DHS) 2017 National Preparedness Report states that providing effective and affordable short- term housing for disaster survivors has been a longstanding and continuing challenge. For example, following the California wildfires, local officials faced challenges identifying shelter for displaced survivors, in part due to a housing shortage that existed before the wildfires. Federal, state, and local officials formed housing task forces which facilitated a joint decision-making approach to address these challenges. While this approach has enabled the state to meet its most pressing short-term housing needs, according to FEMA officials, the state faces other challenges in the long term. For example, FEMA officials in the region covering California told us that because of the nature of damage following a wildfire and because of housing shortages in California, some of FEMA’s forms of housing assistance have been less relevant in the wake of the California wildfires than for other disasters. We will continue to evaluate these and other challenges and plan to report in fall 2019. We also have ongoing work to review efforts to provide mass care— which includes sheltering, feeding and providing emergency supplies— following the 2017 hurricanes. Our preliminary observations indicate that during and immediately following the hurricanes, the number of people seeking public shelters outpaced the capacity. In Texas and Florida, emergency managers we spoke with described having unprecedented numbers of residents needing shelters but not always enough staff initially to operate the shelters. In Texas, Puerto Rico, and the USVI, hurricanes Harvey, Irma, and Maria flooded or destroyed many buildings planned for use as shelters, according to emergency management and local government officials in these areas. As a result, some remaining shelters were at maximum capacity. In the USVI, residents of some public housing units that had sustained significant damages sought help at the territory’s Department of Human Services because there was no more space in the shelters, according to local government officials. While they were turned away from the shelters, these families were able to take refuge in the lobby of the Department of Human Services building. We will continue to evaluate these and other challenges and plan to report in summer 2019. FEMA Disaster Contracting In December 2018 and April 2019, we reported that, in response to hurricanes Harvey, Irma, and Maria, as well as the 2017 California wildfires, FEMA and other federal partners relied heavily on advance contracts—which are established before a disaster to provide for life- sustaining goods and services such as food, water and transportation typically needed immediately after a disaster—and post disaster contracts—which can be used for various goods and services, such as debris removal and installation of power transmission equipment. FEMA is required to coordinate with states and localities and encourage them to establish their own advance contracts with vendors. In December 2018, we reported on inconsistencies we found in that coordination and in the information FEMA used to coordinate with states and localities on advance contracts. As a result of this and other challenges identified, we made nine recommendations to FEMA, including that it update its strategy and guidance to clarify the use of advance contracts, improve the timeliness of its acquisition planning activities, revise its methodology for reporting disaster contracting actions to Congress, and provide more consistent guidance and information for contracting officers in coordinating with states and localities to establish advance contracts. FEMA concurred with all of these recommendations, and we are continuing to monitor its efforts to implement each recommendation. Furthermore, in April 2019, we reported on challenges that we found in the federal government’s use of post-disaster contracts. These challenges included a lack of transparency about contract actions, challenges with requirements development, and with interagency coordination. In our report, we found that FEMA had begun taking some steps to address the consistency of post-disaster contract requirements with contracting officers, but that inaccurate or untimely estimates in the contracts we reviewed sometimes resulted in delays meeting the needs of survivors. As a result of our findings in this report, we made 10 recommendations to FEMA and other federal agencies that use these post-disaster contracts related to improving the management of such contracts. FEMA and other agency officials concurred with nine of the recommendations and have reported taking actions to begin implementing them. We will continue to monitor FEMA’s progress in fully addressing these recommendations. FEMA Provides Long Term Disaster Recovery Support, but State and Local Officials Cited Continued Challenges Managing Complex Recovery Assistance Programs FEMA provides multiple forms of disaster recovery assistance after a major disaster has been declared, including Public Assistance and Individual Assistance. Through these grant programs, FEMA obligates billions of dollars to state, tribal, territorial, and local governments, certain nonprofit organizations, and individuals that have suffered injury or damages from major disaster or emergency incidents, such as hurricanes, tornados, or wildfires. In September 2016, we reported that, from fiscal years 2005 through 2014, FEMA obligated almost $46 billion for the Public Assistance program and over $25 billion for the Individual Assistance program. According to FEMA’s May 2019 Disaster Relief Fund report, total projected obligations through fiscal year 2019 for the Public Assistance and Individual Assistance programs for just the 2017 hurricanes—Harvey, Irma, and Maria—are roughly $16 billion and $7 billion, respectively. Given the high cost of these programs, it is imperative that FEMA continue to make progress on the challenges we have identified in our prior and ongoing work regarding its recovery efforts. FEMA Public Assistance Grants for Disaster Recovery FEMA’s Public Assistance program provides grants to state, tribal, territorial, and local governments for debris removal; emergency protective measures; and the repair, replacement, or restoration of disaster-damaged, publicly owned facilities. It is a complex and multistep program administered through a partnership among FEMA, the state, and local officials. Prior to implementing the Public Assistance program, FEMA determines a state, territorial or tribal government’s eligibility for the program using the per capita damage indicator. In our September 2018 report on federal response and recovery efforts for the 2017 hurricanes and wildfires, we reported on FEMA’s implementation of the Public Assistance program, which has recently undergone significant changes as a result of federal legislation and agency initiatives. Specifically, we reported on FEMA’s use of its redesigned delivery model for providing grants under the Public Assistance program, as well as the alternative procedures for administering or receiving such grant funds that FEMA allows states, territories, and local governments to use for their recovery. Our prior and ongoing work highlights both progress and challenges with FEMA’s Public Assistance program, including the agency’s methodology for determining program eligibility, the redesigned delivery model, and the program’s alternative procedures. Criteria for Determining Public Assistance Eligibility In September 2012, we found that FEMA primarily relied on a single criterion, the per capita damage indicator, to determine a jurisdiction’s eligibility for Public Assistance funding. However, because FEMA’s current per capita indicator, set at $1 in 1986, does not reflect the rise in (1) per capita personal income since it was created in 1986 or (2) inflation from 1986 to 1999, the indicator is artificially low. Our analysis of actual and projected obligations for 508 disaster declarations in which Public Assistance was awarded during fiscal years 2004 through 2011 showed that fewer disasters would have met either the personal income-adjusted or the inflation-adjusted Public Assistance per capita indicators for the years in which the disaster was declared. Thus, had the indicator been adjusted annually since 1986 for personal income or inflation, fewer jurisdictions would have met the eligibility criteria that FEMA primarily used to determine whether federal assistance should be provided, which would have likely resulted in fewer disaster declarations and lower federal costs. We recommended, among other things, that FEMA develop and implement a methodology that that more comprehensively assesses a jurisdiction’s capacity to respond to and recover from a disaster without federal assistance, including fiscal capacity and consideration of response and recovery capabilities. DHS concurred with our recommendation and, in January 2016, FEMA was considering establishing a disaster deductible, which would have required a predetermined level of financial or other commitment before FEMA would have provided assistance under the Public Assistance program. In August 2018, FEMA told us that it was no longer pursuing its proposed disaster deductible due to concerns about the complexity of the proposal. FEMA is considering options that leverage similar approaches, but does not have an estimated completion date for implementation. In addition, the DRRA requires FEMA to initiate rulemaking to (1) update the factors considered when evaluating requests for major disaster declarations, including reviewing how FEMA estimates the cost of major disaster assistance, and (2) consider other impacts on the capacity of a jurisdiction to respond to disasters, by October 2020. Until FEMA implements a new methodology, the agency will not have an accurate assessment of a jurisdiction’s capabilities and runs the risk of recommending that the President award Public Assistance to jurisdictions that have the capacity to respond and recover on their own. Redesigned Public Assistance Delivery Model Prior to our September 2018 report, we had previously reported on the Public Assistance program in November 2017. Specifically, we reported that FEMA redesigned the delivery model for providing grants under the Public Assistance program. As part of the redesign effort, FEMA developed a new, web-based case management system to address past challenges, such as difficulties in sharing grant documentation among FEMA, state, and local officials and tracking the status of Public Assistance projects. Both FEMA and state officials involved in testing of the redesigned delivery model stated that the new case management system’s capabilities could lead to greater transparency and efficiencies in the program. However, we found that FEMA had not fully addressed two key information technology management controls that are necessary to ensure systems work effectively and meet user needs. We recommended, among other things, that FEMA (1) establish controls for tracking the development of system requirements, and (2) establish system testing criteria, roles and responsibilities, and the sequence and schedule for integration of other relevant systems. FEMA concurred with these recommendations and has fully implemented the first recommendation. Regarding the second recommendation, FEMA has not yet finalized its decision on whether to integrate its new case management system with its current grants management system. As of March 2019, we are awaiting a final decision from officials to determine whether their actions fully address our recommendation. FEMA’s original intention was to implement the redesigned delivery model for all future disasters beginning in January 2018. However, in September 2017, FEMA expedited full implementation of the redesigned model shortly after Hurricane Harvey made landfall. In September 2018, we reported that local officials continued to experience challenges with using the new Public Assistance web-based, case management system following the 2017 disasters, such as not having sufficient guidance on how to use the new system and delays with FEMA’s processing of their projects. Public Assistance Alternative Procedures in the United States Virgin Islands and Puerto Rico In February 2019, we also reported that FEMA and the USVI were transitioning from using the standard Public Assistance program to using Public Assistance alternative procedures. FEMA and USVI officials stated that the alternative procedures will give the USVI more flexibility in determining when and how to fund projects and allow the territory to use any excess funds for cost-effective hazard mitigation measures, among other uses. Further, when using the alternative procedures, the Bipartisan Budget Act of 2018 allows FEMA, the USVI and Puerto Rico to repair and rebuild critical services infrastructure—such as medical and education facilities—so it meets industry standards without regard to pre-disaster condition (see Figure 1). Regarding the implementation of the Public Assistance program in Puerto Rico, in March 2019, we reported that Puerto Rico established a central recovery office to oversee federal recovery funds and was developing an internal controls plan to help ensure better management and accountability of the funds. In the interim, FEMA instituted a manual process for reviewing each reimbursement request before providing Public Assistance funds to mitigate risk and help ensure financial accountability. We also reported that officials we interviewed from FEMA, Puerto Rico’s central recovery office, and municipalities said they experienced initial challenges with the recovery process, including concerns about lack of experience and knowledge of the alternative procedures; concerns about missing, incomplete, or conflicting guidance on the alternative procedures; and concerns that municipalities had not been fully reimbursed for work already completed after the hurricanes, causing financial hardships in some municipalities. FEMA officials stated that the agency is taking actions to address reported recovery challenges, such as additional training for new FEMA employees and drafting supplemental guidance for the alternative procedures process. We continue to monitor FEMA’s efforts in our ongoing work. As part of our ongoing work, we are continuing to examine hurricane recovery efforts in the USVI and Puerto Rico. Our preliminary observations indicate that the USVI plans to take a cautious approach in pursuing permanent work projects using the Public Assistance alternative procedures program, which requires the use of fixed-cost estimates. Specifically, USVI officials we interviewed told us that developing such fixed-cost estimates that accurately incorporate the future impact of inflation and increases in materials and labor costs for certain projects was difficult. Further, these officials stated that since the territory is financially responsible for any costs that exceed these fixed-cost estimates, the USVI plans to pursue projects that do not include high levels of complexity or uncertainty to reduce the risk of cost overruns. From our ongoing work on Puerto Rico’s recovery efforts, we have learned that, in March 2019, Puerto Rico’s central recovery office released the Disaster Recovery Federal Funds Management Guide, including an internal controls plan for the operation of the recovery office. On April 1, 2019, FEMA removed the manual reimbursement process and began a transition to allow the central recovery office to take responsibility for review and reimbursement approval of federal recovery funds. We will review this transition process as a part of our ongoing work. Our preliminary observations also indicate that some of the challenges we reported in our March 2019 report continue. For example, officials from Puerto Rico’s central government agencies told us they did not feel they had sufficient guidance on the FEMA Public Assistance program and where they did, written and verbal FEMA guidance was inconsistent or conflicting. For example, officials from one agency expressed their desire for more FEMA guidance communicated in writing as it frequently happened that different FEMA officials would interpret existing guidance differently. Similarly, officials from two agencies described situations where they had initially been directed to follow one interpretation of a policy, only to be directed to follow a different, conflicting interpretation in the subsequent months. Puerto Rico agency officials also stated that the lack of sufficient instruction led to a “back and forth” with FEMA for clarifications, which led to delays in the phases of project development. FEMA officials in Puerto Rico stated that the agency has developed specific guidance for disaster recovery in Puerto Rico and that there are various ways, such as in-person meetings, where officials from Puerto Rico can obtain clarification. We are continuing to examine this issue as part of our ongoing review of Puerto Rico’s recovery. In addition, our preliminary observations from our ongoing work for both the USVI and Puerto Rico indicate that FEMA, USVI and Puerto Rico officials have reported challenges with the implementation of the flexibilities authorized by section 20601 of the Bipartisan Budget Act. This section of the Act allows for the provision of assistance under the Public Assistance alternative procedures to restore disaster-damaged facilities or systems that provide critical services to an industry standard without regard to pre-disaster condition. Officials from Puerto Rico’s central government stated that they disagreed with FEMA’s interpretation of the types of damages covered by section 20601 of the Bipartisan Budget Act of 2018. In response, FEMA officials in Puerto Rico stated they held several briefings with Puerto Rico’s central recovery office to explain FEMA’s interpretation of the section. Further, FEMA officials in the USVI told us that initially, they had difficulty obtaining clarification from FEMA headquarters regarding how to implement key components of section 20601 of the Act. As of May 2019, FEMA officials in the USVI stated that they continue to move forward with developing alternative procedures projects. USVI officials also told us that FEMA had been responsive and helpful in identifying its options for using the new authorities the Act provides. We will continue to evaluate these identified challenges and any efforts to address them, as well as other aspects of recovery efforts in the USVI and Puerto Rico, and plan to report our findings in late 2019 and early 2020, respectively. FEMA Individual Assistance The Individual Assistance program provides financial and direct assistance to disaster victims for expenses and needs that cannot be met through other means, such as insurance. In May 2019, we reported on FEMA’s effort to provide disaster assistance under the Individual Assistance program to older adults and people with disabilities following the 2017 hurricanes. We found that aspects of the application process for FEMA assistance were challenging for older individuals and those with disabilities. Further, according to stakeholders and FEMA officials, disability-related questions in the Individual Assistance registration materials were confusing and easily misinterpreted. While FEMA had made some efforts to help registrants interpret the questions, we recommended, among other things, that FEMA (1) implement new registration-intake questions that improve FEMA’s ability to identify and address survivors’ disability-related needs, and (2) improve communication of registrants’ disability-related information across FEMA programs. DHS concurred with the first recommendation and described steps FEMA plans to take, or is in the process of taking, to address it. However, DHS did not concur with the second recommendation, noting that it lacks specific funding to augment its legacy data systems. FEMA officials stated that they began a long-term data management improvement initiative in April 2017, which they expect will ease efforts to share and flag specific disability-related data. While we acknowledge FEMA’s concerns about changing legacy systems when it has existing plans to replace those systems, we continue to believe there are other cost-effective ways that are likely to improve communication of registrants’ disability-related information prior to implementing the system upgrades. For example, FEMA could revise its guidance to remind program officials to review the survivor case file notes to identify whether there is a record of any disability-related needs. We also have work underway to assess FEMA’s Individuals and Households Program, a component program of Individual Assistance. Through this program, as of April 2019, FEMA had awarded roughly $4.7 billion in assistance to almost 1.8 million individuals and households for federally-declared disasters occurring in 2017 and 2018. Specifically, we are analyzing Individuals and Households Program expenditures and registration data for recent years; reviewing FEMA’s processes, policies, and procedures for making eligibility and award determinations; and examining survivors’ reported experiences with this program, including any challenges, for major disaster declarations occurring in recent years. We plan to report our findings in early 2020. Longstanding Workforce Management and Information Technology Challenges Exacerbate Key Issues with Response and Recovery Operations FEMA Workforce Management Challenges FEMA’s experiences during the 2017 disasters highlight the importance of continuing to make progress on addressing the long-standing workforce management challenges we have previously reported on and continue to observe in our ongoing work. In September 2018, we reported that the 2017 disasters—hurricanes Harvey, Irma, and Maria, as well as the California wildfires—resulted in unprecedented FEMA workforce management challenges, including recruiting, maintaining, and deploying a sufficient and adequately-trained FEMA disaster workforce. FEMA’s available workforce was overwhelmed by the response needs caused by the sequential and overlapping timing of the three hurricanes. For example, at the height of FEMA workforce deployments in October 2017, 54 percent of staff were serving in a capacity in which they did not hold the title of “Qualified”—according to FEMA’s qualification system standards—a past challenge we identified. FEMA officials noted that staff shortages, and lack of trained personnel with program expertise led to complications in its response efforts, particularly after Hurricane Maria. In February 2016, we reported on, among other things, FEMA’s efforts to implement, assess, and improve its Incident Management Assistance Team program. We found that while FEMA used some leading practices in managing the program, it lacked a standardized plan to ensure that all national and regional Incident Management Assistance Team members received required training. Further, we found that the program had experienced high attrition since its implementation in fiscal year 2013. We recommended, among other things, that FEMA develop (1) a plan to ensure that Incident Management Assistance Teams receive required training, and (2) a workforce strategy for retaining Incident Management Assistance Team staff. DHS concurred with the recommendations. FEMA fully implemented our first recommendation by developing an Incident Management Assistance Team Training and Readiness Manual and providing a training schedule for fiscal year 2017. In response to the second recommendation, FEMA officials stated in July 2018 that they plan to develop policies that will provide guidance on a new workforce structure, incentives for Incident Management Assistance Team personnel, and pay-for-performance and all other human resource actions. We are continuing to monitor FEMA’s efforts to address this recommendation. In November and December 2017, we reported on staffing challenges in FEMA’s Public Assistance program. In November 2017, we reported on FEMA’s efforts to address past workforce management challenges through its redesigned Public Assistance delivery model. As part of the redesign effort, FEMA created consolidated resource centers to standardize and centralize Public Assistance staff responsible for managing grant applications, and new specialized positions to ensure more consistent guidance to applicants. However, we found that FEMA had not assessed the workforce needed to fully implement the redesigned model, such as the number of staff needed to fill certain new positions, or to achieve staffing goals. Further, in December 2017, we reported on FEMA’s management of its Public Assistance appeals process, including that FEMA increased staffing levels for the appeals process from 2015 to 2017. However, we found that FEMA continued to face a number of workforce challenges, such as staff vacancies, turnover, and delays in training, which contributed to processing delays. Based on our findings from our November and December 2017 reports, we recommended, among other things, that FEMA (1) complete workforce staffing assessments that identify the appropriate number of staff needed to implement the redesigned Public Assistance delivery model, and (2) document steps for hiring, training, and retaining key appeals staff, and address staff transitions resulting from deployments to disasters. FEMA concurred with our recommendations to address workforce management challenges in the Public Assistance program and have reported taking some actions in response. For example, to address the first recommendation, FEMA officials have developed preliminary models and estimates of staffing needs across various programs, including Public Assistance, and plan to reevaluate the appropriate number of staff needed and present recommendations to senior leadership by the end of June 2019. To address the second recommendation, FEMA has collected information on the amount of time regional appeals analysts spend on appeals, and the inventory and timeliness of different types of appeals. FEMA officials stated in September 2018 that they plan to assess this information to prepare a detailed regional workforce plan. As of June 2019, we are evaluating plans and documents provided by FEMA to determine whether they have fully addressed this recommendation. In our March 2019 report on the status of recovery efforts in Puerto Rico, we also reported Puerto Rico officials’ concerns about FEMA staff turnover and lack of knowledge among FEMA staff about how the Public Assistance alternative procedures are to be applied in Puerto Rico. As part of our ongoing work, we are continuing to examine recovery efforts in Puerto Rico. Our preliminary observations indicate that the concerns we reported on in our March 2019 report continue. For example, Puerto Rico agency officials said that the lack of continuity in FEMA personnel has been a challenge for communication and project development. Further, officials from all seven Puerto Rico government agencies we interviewed felt that the FEMA staff they interacted with did not have a complete understanding of FEMA processes and policies. We are continuing to evaluate FEMA’s recovery efforts in Puerto Rico and plan to issue our findings in late 2019. In April 2019, we reported on the federal government’s contracting efforts for preparedness, response, and recovery efforts related to the 2017 hurricanes and California wildfires. We found, among other things, that contracting workforce shortages continue to be a challenge for disaster response and recovery. Further, although FEMA’s 2017 after-action report recommended increasing contract support capacities, it did not provide a specific plan to do so. We also found that while FEMA evaluated its contracting workforce needs in a 2014 workforce analysis, it did not specifically consider contracting workforce needs in the regional offices or address Disaster Acquisition Response Team employees. In our April 2019 report, we recommended, among other things, that FEMA assess its workforce needs—including staffing levels, mission needs, and skill gaps—for contracting staff, to include regional offices and Disaster Acquisition Response Teams, and develop a plan, including timelines, to address any gaps. FEMA concurred with this recommendation and estimates that it will implement it in September 2019. In our May 2019 report on FEMA disaster assistance to older adults and people with disabilities following the 2017 hurricanes, we found that FEMA began implementing a new approach to assist individuals with disabilities in June 2018, which shifted the responsibility for directly assisting individuals with disabilities from Disability Integration Advisors— which are staff FEMA deploys specifically to identify and recommend actions needed to support survivors with disabilities—to all FEMA staff. To implement this new approach, FEMA planned to train all of the agency’s deployable staff and staff in programmatic offices on disability issues during response and recovery deployments. According to FEMA, a number of Disability Integration Advisors would also deploy to advise FEMA leadership in the field during disaster response and recovery. We found that while FEMA has taken some initial steps to provide training on the changes, it has not established a plan for delivering comprehensive disability-related training to all staff who will be directly interacting with individuals with disabilities. We recommended, among other things, that FEMA develop a plan for delivering training to FEMA staff that promotes competency in disability awareness and includes milestones and performance measures, and outlines how performance will be monitored. DHS concurred with this recommendation; however, officials stated that FEMA is developing a plan to include a disability integration competency in the guidance provided for all deployable staff, rather than through training. We will monitor FEMA’s efforts to develop this plan and fully address our recommendation. In addition to our prior work on FEMA’s workforce management challenges related to specific programs and functions, we are continuing to evaluate FEMA’s workforce capacity and training efforts during the 2017 and 2018 disaster seasons. Our preliminary observations indicate that there were challenges in FEMA’s ability to deploy staff with the right kinds of skills and training at the right time to best meet the needs of various disaster events. For example, according to FEMA field leadership we interviewed, for some of the functions FEMA performs in the field, FEMA had too few staff with the right technical skills to perform their missions—such as inspections of damaged properties—efficiently and effectively. For other functions, these managers also reported that they had too many staff in the early stages of the disaster, which created challenges with assigning duties and providing on-the-job training. For example, some managers reported that they were allocated more staff than needed in the initial phases of the disaster, but many lacked experience and were without someone to provide direction and mentoring to ensure they used their time efficiently and gained competence more quickly. Groups of FEMA field managers we interviewed told us that difficulties deploying the right mix of staff with the right skills led to challenges such as making purchases to support FEMA operations, problems with properly registering applicants for FEMA programs, or poor communication with nonfederal partners. Nonetheless, FEMA staff have noted that, despite any suboptimal circumstances during disaster response, they aimed to and have been able to find a way to deliver the mission. As part of this ongoing work, FEMA field leadership and managers also reported challenges using agency systems to ensure the availability of the right staff with the right skills in the right place and time. FEMA uses a system called the Deployment Tracking System to, among other things, help identify staff available to be deployed and activate and track deployments. To help gauge the experience level and training needs of its staff, the agency established the FEMA Qualification System (FQS), which is a set of processes and criteria to monitor staff experience in competently performing tasks and completing training that correspond to their job titles. According to the FQS guidance, staff who have been able to demonstrate proficient performance of all the relevant tasks and complete required training receive the designation “qualified,” and are expected to be ready and able to competently fulfill their responsibilities. Those who have not, receive the designation “trainee,” and can be expected to need additional guidance and on-the-job training. FQS designations feed into the Deployment Tracking System as one key variable in how the tracking system deploys staff. Among other challenges with FEMA’s Deployment Tracking System and Qualification System, FEMA managers and staff in the field told us an employee’s recorded qualification status was not a reliable indicator of the level at which deployed personnel would be capable of performing specific duties and responsibilities or their general proficiency in their positions, making it more difficult for managers to know the specialized skills or experience of staff and effectively build teams. We are continuing to assess these and other reported workforce challenges and plan to report our findings in January 2020. FEMA Information Technology Challenges In April 2019, we reported on FEMA’s Grants Management Modernization program, which is intended to replace the agency’s 10 legacy grants management systems and modernize and streamline the grants management environment. We found that, of six important leading practices for effective business process reengineering and information technology requirements management, FEMA fully implemented four and partially implemented two for the Grants Management Modernization program. The two partially implemented leading practices were (1) establishing plans for implementing new business processes and (2) establishing complete traceability of information technology requirements. In addition, we found that the program’s initial May 2017 cost estimate of about $251 million was generally consistent with leading practices for a reliable, high-quality estimate; however, it no longer reflected the current assumptions about the program at the time of our review. Moreover, the program’s schedule–specifically its final delivery date of September 2020—did not reflect leading practices for project schedules, as the date was not informed by a realistic assessment of development activities. Lastly, we found that FEMA fully addressed three and partially addressed two of five key cybersecurity practices. The two partially addressed practices were (1) assessing security controls, and (2) obtaining an authorization to operate the system. We made 8 recommendations to FEMA to implement leading practices related to reengineering processes, managing information technology requirements, scheduling system development activities, and implementing cybersecurity. DHS concurred with all of our recommendations and provided estimated completion dates for implementing each of them through July 2020. Thank you, Chairman Thompson, Ranking Member Rogers and Members of the Committee. This concludes my prepared statement. I would be happy to respond to any question you may have at this time. GAO Contact and Staff Acknowledgements If you or your staff has any questions concerning this testimony, please contact Christopher P. Currie at (404) 679-1875 or curriec@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Key contributors to this statement were Joel Aldape (Assistant Director), Amanda R. Parker (Analyst-in-Charge), Matthew T. Lowney, Rebecca Mendelsohn, and David (Ben) Nelson. In addition, Aditi Archer, Bryan Bourgault, Lorraine Ettaro, Aaron Gluck, Kathryn Godfrey, Taylor Hadfield, Eric Hauswirth, Robert (Denton) Herring, Adam Hoffman, Susan Hsu, Sara Kelly, Amy Moran Lowe, Heidi Nielson, Danielle Pakdaman, Sara Pelton, Amanda Prichard, and Johanna Wong made contributions to this statement. Key contributors for the previous work that this is based on are listed in each product. Enclosure I: Related GAO Products Previously Issued Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue. GAO-11-318SP, March 1, 2011. Federal Disaster Assistance: Improved Criteria Needed to Assess a Jurisdiction’s Capability to Respond and Recover on Its Own. GAO-12- 838, September 12, 2012. Fiscal Exposures: Improving Cost Recognition in the Federal Budget. GAO-14-28, October 29, 2013. Emergency Preparedness: Opportunities Exist to Strengthen Interagency Assessments and Accountability for Closing Capability Gaps. GAO-15-20, December 4, 2014. High-Risk Series: An Update. GAO-15-290, February 11, 2015. Budgeting for Disasters: Approaches to Budgeting for Disasters in Selected States. GAO-15-424, March 26, 2015. Hurricane Sandy: An Investment Strategy Could Help the Federal Government Enhance National Resilience for Future Disasters. GAO-15- 515, July 30, 2015. Disaster Response: FEMA Has Made Progress Implementing Key Programs, but Opportunities for Improvement Exist. GAO-16-87, February 5, 2016. Disaster Recovery: FEMA Needs to Assess Its Effectiveness in Implementing the National Disaster Recovery Framework. GAO-16-476, May 26, 2016. Federal Disaster Assistance: Federal Departments and Agencies Obligated at Least $277.6 Billion during Fiscal Years 2005 through 2014. GAO-16-797, September 22, 2016. Climate Change: Information on Potential Economic Effects Could Help Guide Federal Efforts to Reduce Fiscal Exposure. GAO-17-720, September 28, 2017. Disaster Assistance: Opportunities to Enhance Implementation of the Redesigned Public Assistance Grant Program. GAO-18-30, November 8, 2017. Disaster Recovery: Additional Actions Would Improve Data Quality and Timeliness of FEMA’s Public Assistance Appeals Processing. GAO-18- 143, December 15, 2017. 2017 Disaster Contracting: Observations on Federal Contracting for Response and Recovery Efforts. GAO-18-335, February 28, 2018. Federal Disaster Assistance: Individual Assistance Requests Often Granted but FEMA Could Better Document Factors Considered. GAO-18- 366, May 31, 2018. 2017 Hurricanes and Wildfires: Initial Observations on the Federal Response and Key Recovery Challenges. GAO-18-472, September 4, 2018. Homeland Security Grant Program: Additional Actions Could Further Enhance FEMA’s Risk-Based Grant Assessment Model. GAO-18-354, September 6, 2018. Continuity of Operations: Actions Needed to Strengthen FEMA’s Oversight and Coordination of Executive Branch Readiness. GAO-19- 18SU, November 26, 2018. 2017 Disaster Contracting: Action Needed to Better Ensure More Effective Use and Management of Advance Contracts. GAO-19-93, December 6, 2018. U.S. Virgin Islands Recovery: Status of FEMA Public Assistance Funding and Implementation. GAO-19-253, February 25, 2019. High-Risk Series: Substantial Efforts Needed to Achieve Greater Progress on High-Risk Areas. GAO-19-157SP, March 6, 2019. Puerto Rico Hurricanes: Status of FEMA Funding, Oversight, and Recovery Challenges. GAO-19-256, March 14, 2019. Huracanes de Puerto Rico: Estado de Financiamiento de FEMA, Supervisión y Desafíos de Recuperación. GAO-19-331, March 14, 2019. Disaster Recovery: Better Monitoring of Block Grant Funds Is Needed. GAO-19-232, March 25, 2019. FEMA Grants Modernization: Improvements Needed to Strengthen Program Management and Cybersecurity. GAO-19-164, April 9, 2019. 2017 Hurricane Season: Federal Support for Electricity Grid Restoration in the U.S. Virgin Islands and Puerto Rico. GAO-19-296, April 18, 2019. Disaster Contracting: Actions Needed to Improve the Use of Post- Disaster Contracts to Support Response and Recovery, GAO-19-281, April 24, 2019. Disaster Assistance: FEMA Action Needed to Better Support Individuals Who Are Older or Have Disabilities. GAO-19-318, May 14, 2019. Enclosure II: Ongoing GAO Reviews 1. Review of U.S. Virgin Islands recovery planning and progress; 2. Puerto Rico disaster recovery planning and progress; 3. 2017 wildfire response and recovery; 4. Federal internal control plans for disaster assistance funding; 5. Electricity grid restoration and resilience after the 2017 hurricane 6. Mass care sheltering and feeding challenges during the 2017 7. Department of Transportation highway and transit emergency relief 8. Drinking water and wastewater utility resilience; 9. Review of disaster death count information in selected states and 10. Department of Health and Human Services disaster response efforts; 11. Disaster and climate change impacts on Superfund sites; 12. FEMA Public Assistance program fraud risk management efforts; 13. Wildland fire collaboration on fuel reduction efforts; 14. Preparedness challenges and lessons learned from the 2017 15. FEMA workforce management and challenges; 16. Small Business Administration response to 2017 disasters; 17. Development of the GAO disaster resilience framework; 18. FEMA Individuals and Households Program operations and 19. National Flood Insurance Program post-flood enforcement; 20. Emergency alerting capabilities and progress; 21. National Flood Insurance Program buyouts and property acquisitions; 22. Economic costs of large-scale natural disasters and impacts on 23. Community Development Block Grants – disaster recovery; and 24. Disaster Housing Assistance Program. 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.

Recent hurricanes, wildfires, and flooding have highlighted the challenges the federal government faces in responding effectively to natural disasters. The 2017 and 2018 hurricanes and wildfires affected millions of individuals and caused billions of dollars in damages. In March 2019, the Midwest experienced historic flooding that affected millions of acres of agriculture and damaged significant infrastructure. Since 2005, federal funding for disaster assistance is at least $450 billion. Increasing reliance on federal help to address natural disasters is a key source of federal fiscal exposure, particularly as certain extreme weather events become more frequent and intense due to climate change. This statement discusses, among other things, FEMA's progress and challenges related to disaster resilience, response, recovery, and workforce management. This statement is based on GAO reports issued from March 2011 through May 2019, and also includes preliminary observations from ongoing GAO reviews of FEMA operations. For ongoing work, GAO reviewed federal laws; analyzed documents; interviewed agency officials; and visited disaster damaged areas in California, Florida, South Carolina, North Carolina, Puerto Rico, Texas, and the U.S. Virgin Islands, where GAO also interviewed FEMA and local officials. GAO's issued and ongoing work identified progress and challenges in the Federal Emergency Management Agency's (FEMA) disaster resilience, response, recovery, and workforce management efforts, as discussed below. Disaster Resilience. GAO found that federal and local efforts to improve resilience can reduce the effects and costs of future disasters. FEMA has made progress in this area, but in July 2015, GAO found that states and localities faced challenges using federal funds to maximize resilient rebuilding following a disaster. GAO recommended that the Mitigation Framework Leadership Group—an interagency body chaired by FEMA—create a national strategy to better plan for and invest in disaster resilience. FEMA is working to address this recommendation and plans to publish the strategy by July 2019. Response and Recovery. In September 2018, GAO reported that the response to the 2017 disasters in Texas, Florida, and California showed progress since Hurricane Katrina in 2005. Specifically, FEMA and state officials' pre-existing relationships and exercises aided the response and helped address various challenges. However, GAO and FEMA identified challenges that slowed and complicated FEMA's response to Hurricane Maria, particularly in Puerto Rico. GAO's issued and ongoing work also identified challenges in implementing FEMA Public Assistance grants. For example, FEMA and Puerto Rico officials identified challenges with Public Assistance policies and guidance that have complicated and slowed the recovery. GAO did not make recommendations, but continues to evaluate recovery efforts and will report its findings later this year. FEMA Workforce Management. GAO has previously reported on long-standing workforce management challenges, such as ensuring an adequately-staffed and trained workforce. For example, GAO reported in September 2018 that the 2017 disasters overwhelmed FEMA's workforce and a lack of trained personnel with program expertise led to complications in its response efforts, particularly after Hurricane Maria. While FEMA has taken actions to address several of GAO's workforce management-related recommendations since 2016, a number of recommendations remain open as the 2019 hurricane season begins. Also, GAO is currently reviewing FEMA's workforce management efforts and lessons learned from the 2017 disasters and will report its findings early next year.

GAO_GAO-20-332

Background OMB’s ERM Requirements and Guidance OMB provides guidance to federal managers on how to improve accountability and effectiveness of federal programs and operations by identifying and managing risks. OMB updated its Circular No. A-123 in July 2016 to establish management’s responsibilities for ERM. As part of the overall governance process, ERM calls for the consideration of a risk across the entire organization and how it may interact with other identified risks. When used appropriately, ERM is a decision-making tool that allows agency leadership to view risks across an organization and helps management understand an organization’s portfolio of top risk exposures, which could affect achievement of the agency’s goals and objectives. In December 2016, we issued a report that provided an overall framework for agencies to build an effective ERM program. In July 2016, OMB also updated Circular No. A-11, Preparation, Submission, and Execution of the Budget. In Circular No. A-11, OMB referred agencies to Circular No. A-123 for requirements related to ERM implementation, including for developing a risk profile as a component of the agency’s annual strategic review. A risk profile is a prioritized inventory of the most significant risks identified and assessed through the risk assessment process. It considers risks from a portfolio perspective, identifies sources of uncertainty that are both positive (opportunities) and negative (threats), and facilitates the review and regular monitoring of risks. Together, these two OMB circulars constitute the ERM policy framework for executive agencies by integrating and operationalizing specific ERM activities and helping to modernize existing risk management efforts. Internal Control Requirements and Guidance Standards for Internal Control in the Federal Government describes internal control as a process put in place by an entity’s oversight body, management, and other personnel that provides reasonable assurance that objectives related to performing operations effectively and efficiently, producing reliable internal and external reports, and complying with applicable laws and regulations will be achieved. Internal control serves as the first line of defense in safeguarding assets. Its importance to federal agencies is further reflected in permanent requirements enacted into law. The internal control processes required by FMFIA and the Standards for Internal Control in the Federal Government help to form an integrated governance structure designed to improve mission delivery, reduce costs, and focus corrective actions toward key risks. OMB Circular No. A-123 precludes agencies from concluding that their internal control is effective if there are one or more material weaknesses identified from its assessment. Air Force’s Annual Statement of Assurance and Financial Audit As a component of DOD, the Air Force is required to (1) identify and manage risks, (2) establish and operate an effective system of internal control, (3) assess and correct control deficiencies, and (4) report on the effectiveness of internal control through an annual Statement of Assurance. In addition, the Chief Financial Officers Act of 1990 (CFO Act), as amended by the Government Management Reform Act of 1994 and implemented by guidance in OMB Bulletin No. 19-03, Audit Requirements for Federal Financial Statements (August 27, 2019), requires the Air Force to annually undergo a financial statement audit. However, since 1990, the Air Force has continued to be unable to demonstrate basic internal control that would allow it to pass a financial statement audit, which has contributed to DOD’s financial management remaining on the GAO High-Risk List since 1995. For fiscal year 2018, the Air Force reported 11 material weaknesses in internal control over operations and 14 material weaknesses in internal control over reporting in its Statement of Assurance. For fiscal year 2019, it reported the same number of operations-related material weaknesses, and its reporting-related material weaknesses increased to 25. During the Air Force’s fiscal years 2018 and 2019 financial statement audits, independent auditors specifically considered the Air Force’s internal control over financial reporting in order to determine appropriate audit procedures to perform in order to express an opinion on the financial statements. The independent auditors disclaimed an opinion on the Air Force’s fiscal years 2018 and 2019 financial statements, stating that the Air Force continued to have unresolved accounting issues, and for each year, the auditors reported 23 material weaknesses in internal control over financial reporting. These material weaknesses included control deficiencies in processes related to the Air Force’s mission-critical assets and involved a lack of policies and procedures, inadequate financial information systems and reporting, and inaccurate and incomplete information in its accountability records and financial reports. Air Force Has Not Fully Integrated ERM into Its Management Practices The Air Force’s efforts to implement ERM are in the early stages, and accordingly, it has not fully incorporated ERM into its management practices. Since the July 2016 update to OMB Circular No. A-123 required agencies to implement ERM, the Air Force has been leveraging and relying on its existing risk management practices. To date, these practices have focused on the organizational unit level and not at the entity level, as required by OMB Circular No. A-123. The Air Force plans to integrate ERM increasingly into its management practices over the next several years, with expectations of a fully developed ERM approach after fiscal year 2023. The Air Force has taken the initial steps to establish an ERM governance structure, define risk classifications, and develop its ERM framework. For instance, the Air Force has drafted charters updating responsibilities for two senior management advisory councils—(1) the Enterprise Productivity Improvement Council (EPIC) and (2) the Executive Steering Committee (ESC)—to implement OMB Circular No. A-123. EPIC will oversee the agency’s risk management function, with a specific emphasis on overseeing the regular assessment of risk and approving risk responses and the Air Force’s risk profile. ESC will lead the implementation, assessment, and documentation of risk management over financial reporting, financial systems, all associated activities, and oversight with respect to the Air Force’s internal control program. EPIC is designed to focus exclusively on potential operational material weaknesses, and ESC will focus on potential financial reporting and financial systems material weaknesses. Air Force officials informed us that both councils would share responsibility for compliance objectives and resulting material weaknesses. During our audit, we analyzed the Air Force’s financial reports beginning with those for fiscal year 1999 and noted that the agency and the external auditors have generally reported material weaknesses each year involving the tracking, reporting, location, accountability, and cost of certain mission-critical assets. These weaknesses identified risks that decreased the Air Force’s ability to perform operations efficiently, prepare reliable financial reports, and comply with applicable laws and regulations. EPIC and ESC currently assess proposed material weaknesses that the primary reporting elements (PRE) submit and determine whether to recommend them to the Secretary of the Air Force for reporting in the annual Statement of Assurance. However, the Air Force’s governance structure does not include a mechanism for EPIC or ESC to oversee the management of risk associated with material weaknesses and consider its effect across the entire agency. Based on our review of the draft charters and documentation from governance meetings, the Air Force included provisions for ESC to identify material weaknesses related to financial reporting and financial systems and EPIC to identify material weaknesses related to operations objectives. However, there were no charter provisions for either council to identify, assess, respond to, and report on the risks associated with those material weaknesses or material weaknesses identified through external audits. A material weakness, reported by either the agency or an external auditor, by definition indicates a significant decrease in an agency’s ability, during the normal course of operations, to achieve objectives and address related risks. Under OMB Circular No. A-123, an agency’s risk management governance structure helps ensure that the agency identifies risks that have the most significant effect on the mission outcomes of the agency. Without a thorough and integrated ERM governance structure that includes oversight responsibilities managing risks associated with material weaknesses in internal control, there is an increased risk that the Air Force will not properly identify, assess, and respond to significant entity-level risks. Air Force Has Not Designed a Comprehensive Approach for Assessing Internal Control, Including Processes Related to Mission-Critical Assets The Air Force’s current internal control assessment process is not designed to facilitate the timely identification and correction of internal control deficiencies or to be used to support the Air Force’s annual Statement of Assurance. Specifically, Air Force management has not designed an adequate process for assessing internal control. Further, the process does not focus on areas with the greatest risk, such as mission- critical assets. In addition, the reviews of mission-critical assets in fiscal years 2018 and 2019 in support of the financial statement audit did not result in adequate assessments of internal control. The Air Force’s policy for assessing the effectiveness of its internal control system and for preparing the agency’s annual Statement of Assurance is based on DOD Instruction 5010.40, Managers’ Internal Control Program Procedures, dated May 2013. The Air Force’s policy is outlined in Air Force Policy Directive 65-2, Managers Internal Control Program. This policy is supported by the procedures outlined in Air Force Instruction (AFI) 65-201, Managers Internal Control Program Procedures, dated February 2016, which the Air Force currently is revising to address the July 2016 OMB Circular No. A-123 update. The Air Force provides additional guidance to supplement AFI 65-201 in its Statement of Assurance Handbook and its Internal Control Playbook. The Air Force’s OMB Circular No. A-123 program comprises 17 designated PREs, including the Secretariat and Air Force staff offices, major commands, the Army and Air Force Exchange Service, and direct- reporting units. The Air Force subdivides each PRE along organizational lines into more than 6,500 organizational assessable units (organizational units), such as a squadron or wing, and other specific programs and functions, where it evaluates internal controls per AFI 65-201. Each of the organizational units has an assessable unit manager (unit manager) who has authority over the unit’s internal control, including continual monitoring, testing, and improvement. Figure 1 illustrates how the Air Force’s organizational structure informs its overall annual Statement of Assurance. The Air Force requires each unit manager to submit an annual supporting statement of assurance providing the manager’s opinion on whether the unit has reasonable assurance that its internal controls are effective. The units submit the statements to the Assistant Secretary of the Air Force, Financial Management and Comptroller (SAF/FM), the office responsible for OMB Circular No. A-123 implementation and compilation of the annual Statement of Assurance. Based on discussions with Air Force officials, SAF/FM uses the unit managers’ supporting statements of assurance to develop the overall Air Force annual Statement of Assurance. Air Force Has Not Designed an Adequate Process for Assessing Internal Control The Air Force’s internal control assessment process does not require (1) an assessment of all required elements of an effective internal control system; (2) test plans that specify the nature, scope, and timing of procedures to conduct; and (3) management validation of results. In addition, existing policies and procedures that staff follow to perform the assessments do not fully implement OMB Circular No. A-123. Further, the Air Force provided inadequate training to those responsible for conducting and concluding on the internal control assessments. Assessment of Internal Control Not Designed to Evaluate All Required Elements Although not required by policy, the Air Force performed its first assessment of the five components of internal control during fiscal year 2019 through an SAF/FM review of entity-level controls, which are controls that have a pervasive effect on an entity’s internal control system and may pertain to multiple components. Based on this assessment, SAF/FM concluded in the Air Force’s Statement of Assurance for fiscal year 2019 that three components of internal control (i.e., risk assessment, control activities, and information and communication) were not designed, implemented, or operating effectively. Although SAF/FM performed this assessment in 2019, the assessment did not include a determination of whether each internal control principle was designed, implemented, and operating effectively. Also, there was no indication that the Air Force designed the assessment of entity-level controls to be pertinent to all Air Force objectives, such as those related to operations, reporting, or compliance. In addition, SAF/FM did not provide the assessment results to the unit managers for input or consideration in their unit-specific control assessments and supporting statements of assurance. The Air Force’s Internal Control Playbook directs unit managers to assess the design and operating effectiveness of the relevant entity-level controls within their purview. However, for fiscal year 2019, SAF/FM performed this assessment, and officials informed us that it was not their intent for unit managers to assess entity-level controls. According to OMB Circular No. A-123, management must summarize its determination of whether each of the five components and 17 principles from Standards for Internal Control in the Federal Government are designed, implemented, and operating effectively and components are operating together in an integrated manner. The determination must be a “yes/no” response. If one or more of the five components are not designed, implemented, and operating effectively, or if they are not operating together in an integrated manner, then an internal control system is ineffective. AFI 65-201 states, as part of its discussion on assessing internal control over financial reporting, that OMB Circular No. A-123 prescribes a process to evaluate controls at the entity level for the five components of internal control (i.e., control environment, risk assessment, control activities, information and communication, and monitoring). The Air Force’s assessment lacked required determinations related to internal control principles because the Air Force lacked policies or procedures for the following: Clearly delineating who within the Air Force (e.g., unit managers or SAF/FM) is responsible for assessing the components and principles of internal control, how often assessments are performed, at what level (e.g., entity or transactional) components and principles are to be evaluated, what objectives are covered in the assessment of entity-level controls, to whom to communicate the results if the results are relevant to others performing assessments of internal control, and what Air Force guidance to follow. Documenting management’s summary, whether performed by the unit managers as outlined in the guidance or by SAF/FM as performed during fiscal year 2019, of its determination of whether each component and principle is designed, implemented, and operating effectively and whether components are operating together in an integrated manner. By not ensuring that management is assessing whether each internal control component and principle is designed, implemented, and operating effectively, the Air Force cannot determine whether internal control is effective at reducing the risk of not achieving its stated mission and objectives to an acceptable level. Moreover, given the entity-wide relevance of SAF/FM’s conclusions, unit managers may not be aware of all the necessary information with which to draw conclusions about the effectiveness of their organizational units’ internal control. Further, management’s assurances on internal control effectiveness, as reported in the Statement of Assurance, may not appropriately represent the effectiveness of the Air Force’s internal control. Assessment of Internal Control Not Designed to Use Consistent Test Plans The Air Force did not have a process in place to base its annual assessment of internal control and Statement of Assurance preparation on uniform testing performed across its agency. Although the Air Force had standard test plans for reviews associated with financial reporting objectives, SAF/FM could not demonstrate what procedures are performed to support its assessment of internal control over its operational, internal reporting, and compliance objectives. Specifically, for these objectives, the Air Force did not develop guidance for those responsible for assessing internal controls on which tests to conduct to obtain the best evidence of whether controls are designed, implemented, and operating effectively; how much testing is needed in each area; when to conduct the tests; how to ensure that current year conclusions are based on current year how assessment procedures are to be adjusted or amended to reflect a consideration of prior year self-identified control deficiencies and internal and external audit results. Additionally, standard test plans for the reviews conducted as part of the Air Force’s financial statement audit remediation efforts did not include guidance on how to consider prior year self-identified control deficiencies and internal and external audit results in determining the nature, timing, and extent of procedures to be conducted for the current year. Further, although the Air Force outlines 20 overall objectives in its 2019 through 2021 Business Operations Plan (dated January 2019), it did not document the specific procedures the Air Force planned and performed to support an evaluation of its internal control over these 20 objectives. According to Standards for Internal Control in the Federal Government, management should establish and operate activities to monitor the internal control system and evaluate the results and should remediate identified internal control deficiencies on a timely basis. For example, as part of its monitoring activities, agency management responsible for the OMB Circular No. A-123 program could design a test plan or establish a baseline to monitor the current state of the internal control system and compare that baseline to the results of its internal control tests. The Air Force’s assessment of internal control and Statement of Assurance are not clearly supported by completed test plans or other documented monitoring activities because SAF/FM does not have a policy or procedures for conducting internal control assessments that require documented test plans that (1) tie back to specific objectives included in the Business Operations Plan; (2) specify the nature, scope, and timing of procedures to conduct under the OMB Circular No. A-123 assessment process; and (3) reflect a consideration of prior year self- identified control deficiencies and results of other internal and external audits. By not ensuring that its more than 6,500 unit managers are evaluating internal control based on the agency’s established baseline, the Air Force cannot ensure that it is consistently and effectively assessing its internal control in order to timely identify and correct deficiencies or that its design of internal control reduces, to an acceptable level, the risk of not achieving agency operational, reporting, and compliance objectives. As a result, Air Force management’s assurances on internal control, as reported in the overall agency Statement of Assurance, may not appropriately represent its internal control effectiveness. Assessment of Internal Control Not Designed to Include Management Validation of Results Air Force management did not have a process to validate whether its unit managers appropriately performed and documented their internal control assessments. During our review, Air Force management was uncertain about how many internal control assessments were being performed or by whom. SAF/FM officials initially stated that there were 5,567 organizational units responsible for assessing internal control, but officials later informed us that the actual number was more than 6,500. Furthermore, Air Force officials were unable to provide information on how many organizational unit managers failed to report on their specific internal control assessments or received waivers from performing such assessments. Finally, management lacked a process to ensure that results used to compile the current year Statement of Assurance are based upon current fiscal year assessments. The Air Force requires unit managers to assess internal control and submit results to SAF/FM through the automated statement of assurance submission system. SAF/FM then compiles the supporting statements of assurance submissions and prepares the Air Force’s annual Statement of Assurance. However, we found that the automated system that collects the annual assessments from more than 6,500 unit managers allows these managers to import internal control testing activities from the prior fiscal year. Air Force officials were unable to provide information about how they ensure that unit managers were not importing prior year results without performing current year testing. OMB Circular No. A-123 requires documentation to demonstrate and support conclusions about the design, implementation, and operating effectiveness of an entity’s internal control system, and requires agencies to consider carefully whether systemic weaknesses exist that adversely affect internal control across organizational or program lines. The Air Force’s process lacks management validation of results because it has not developed a documented policy or procedures to ensure that management can readily review and validate the results of its internal control testing. The Air Force has not required SAF/FM to validate (1) the number of organizational units reporting for its overall internal control assessment; (2) how it tested control procedures, what results it achieved, and how it derived conclusions from those results; and (3) whether it based the results used to compile the current year Statement of Assurance on current fiscal year assessments. Additionally, when PRE management waives assessments, SAF/FM does not have a process to track waivers and assess how they affect the current year assessment of internal control, determination of systemic weaknesses, and compilation of the Air Force’s overall Statement of Assurance. By not validating the internal control assessment results, Air Force management cannot ensure that the assessment was performed as expected to support related conclusions and timely identify internal control deficiencies. Further, management’s assurance on internal control, as reported in the overall Statement of Assurance, may not appropriately represent the internal control effectiveness. Guidance for Assessment of Internal Control Does Not Properly Define Material Weaknesses and Internal Control Air Force guidance for its assessment of internal control neither accurately nor completely reflects definitions included in OMB Circular No. A-123. For example, AFI 65-201 and the Statement of Assurance Handbook provided to unit managers for conducting internal control assessments, and the Internal Control Playbook that the Air Force developed in August 2019 to address internal control over reporting objectives, do not include the complete definitions of the four material weakness categories for deficiencies related to (1) operations, (2) reporting, (3) external financial reporting, and (4) compliance objectives, consistent with guidance in OMB Circular No. A-123. Additionally, the handbook does not define internal control as a process that provides reasonable assurance that objectives will be achieved or an internal control system as a continuous built-in component of operations, affected by people, that provides reasonable assurance that an entity’s objectives will be achieved. Although the playbook does adequately define internal control and a system of internal control, the Air Force developed this guidance after we initiated our review, and the guidance only addresses internal control over reporting objectives and not operational and compliance objectives. These inaccuracies and incomplete descriptions occurred because the Air Force did not provide its internal control assessment guidance preparers or reviewers with training to assist them in writing and reviewing the guidance to ensure proper application of the fundamental concepts of internal control and OMB Circular No. A-123, such as those related to definitions of internal control and material weakness. By not ensuring that Air Force guidance reflects accurate and complete definitions included in OMB Circular No. A-123, the Air Force is at increased risk that its officials performing internal control assessments will not properly conclude on the results; therefore, management’s assurances on internal control, as reported in the Statement of Assurance, may not appropriately represent the effectiveness of internal control. Air Force Lacks Adequate Training for Employees on How to Perform Assessments of Internal Control Among other things, OMB Circular No. A-123 requires staff to identify objectives, assess related risks, document internal controls, evaluate the design of controls, conduct appropriate tests of the operating effectiveness of controls, report on the results of these tests, and appropriately document the assessment procedures. However, the Air Force’s training provided to unit managers responsible for assessing internal control lacks sufficient instructions on how to perform such assessments. Specifically, the current annual training provided by SAF/FM lacks instruction on how to prepare documentation to adequately support conclusions, identify and test the key internal controls, and evaluate and document test results; limits discussion of OMB Circular No. A-123 internal control assessments to internal control over external financial reporting objectives and does not cover internal control over operational, compliance, and internal reporting objectives; lacks adequate definitions of material weaknesses included in OMB Circular No. A-123; lacks instruction on how to interpret, respond to, and correct self- identified deficiencies (control deficiencies, significant deficiencies, and material weaknesses); and is not required for individuals performing reviews related to external financial reporting. SAF/FM officials informed us that the definitions of material weakness and instructions on how to interpret, respond to, and correct deficiencies were included in other guidance documents, such as the newly created Internal Control Playbook. However, the Air Force did not provide the playbook to PREs during the fiscal year 2019 training, and it is not officially named as guidance in the Air Force’s policy for assessments of internal control. Although the Air Force has described the playbook as supplemental guidance, it does not refer to the playbook as such in its policy for assessing the effectiveness of its system of internal control to provide reasonable assurance that operational, reporting, and compliance objectives are achieved. These inadequacies occurred because SAF/FM has not fully evaluated and incorporated the requirements for assessing an internal control system into its training and has not designed training that (1) enhances skills in evaluating an internal control system and documenting the results; (2) reflects all OMB Circular No. A-123 requirements, such as those related to assessing controls for all objectives and determining material weaknesses; and (3) is provided to all who are responsible for performing internal control assessments. According to federal internal control standards, management should demonstrate a commitment to developing competent individuals. For example, management could provide training for employees to develop skills and competencies needed for key roles and responsibilities in assessing internal control. Without appropriate training, those responsible for assessing internal control may not do so adequately enough to identify internal control deficiencies timely and support the agency’s internal control assessments with appropriate documentation and summarization of the results. Air Force Has Not Designed a Process for Assessing Internal Control Based on Risk OMB Circular No. A-123 requires an agency to evaluate whether a system of internal control reduces the risk of not achieving the entity’s objectives using a risk-based assessment approach. However, the Air Force’s current AFI 65-201 approach calls for assessing internal control at more than 6,500 organizational units without regard to quantitative or qualitative risks. As previously discussed, the Air Force lacks procedures to verify whether its unit managers are performing internal control assessments as intended and does not provide guidance for uniform testing across the organization. Therefore, the Air Force’s current approach for assessing internal control does not ensure that areas of greatest risk are addressed, such as mission-critical assets, and instead may unnecessarily focus on areas of lower risk. As a result, the Air Force may not be using resources efficiently. The Air Force’s current design of assessing internal control does not ensure, at a minimum, the evaluation of internal control over areas key to meeting its mission. Specifically, the Air Force does not have a policy requiring evaluation of whether its internal control over processes related to areas of highest risk—such as processes related to mission-critical assets, including equipment, government-furnished equipment, and weapons-system spare parts managed and held by contractors and working capital fund inventory—reduces the risk of not achieving specific operation, reporting, or compliance objectives to an acceptable level. The Acting Secretary of Defense, during fiscal year 2019, emphasized two of these areas—government property in the possession of contractors, which includes government-furnished equipment, and working capital fund inventory—as high priority for corrective actions related to financial statement audit remediation. The Air Force’s current approach for assessing internal control calls for more than 6,500 organizational units to perform assessments without regard to risk because the Air Force has not developed a policy or procedures providing guidance on how to perform the assessment using a risk-based approach. A risk-based approach provides a methodology for Air Force management to focus and prioritize its internal control assessments on areas and activities of greater risk and importance to accomplishing mission and strategic objectives. By not evaluating internal control with a risk-based approach, Air Force management lacks the assurance that resources are used efficiently to assess key controls associated with achieving Air Force objectives subject to the highest risks along with those designated as high priority by agency management, such as controls over accounting for, managing, and reporting on mission-critical assets. Current Reviews Do Not Adequately Assess Internal Control over Processes Related to Mission-Critical Assets Although the Air Force has not designed a process for performing OMB Circular No. A-123 internal control assessments based on risk, it did review certain business process assessable units, such as mission-critical assets, as part of its financial statement audit remediation efforts. However, Air Force’s reviews of internal control over processes related to mission-critical assets did not meet OMB Circular No. A-123 requirements or federal internal control standards for evaluating a system of internal control. During fiscal years 2018 and 2019, the Air Force engaged the Air Force Audit Agency (AFAA) to review control activities for five processes related to mission-critical assets and instructed business process assessable unit leads to conduct additional internal control reviews for select mission-critical asset areas during fiscal year 2019. However, the organizational unit managers did not formally consider the results of these reviews when concluding on their assessments of internal control. For fiscal year 2018, AFAA performed certain agreed-upon procedures to confirm current transactional processes and related internal control over external financial reporting for five mission-critical asset areas as documented in the related business process cycle memorandums. In order to perform the procedures, AFAA used SAF/FM-prepared templates to confirm certain processes and key controls included in the respective process cycle memorandums. However, the procedures SAF/FM instructed AFAA to perform in 2018 did not meet the requirements of an assessment of an internal control system as prescribed in OMB Circular No. A-123. Specifically: Procedures to test design of controls did not include steps for evaluating whether the controls individually or in combination with other controls would achieve objectives or address related risks. Instead, SAF/FM instructed AFAA to confirm whether the process cycle memorandums accurately reflected the controls and processes in place. Procedures to test operating effectiveness of controls were conducted even though there was no determination of whether the controls were designed to achieve objectives or address related risks. Procedures performed involved the use of process cycle memorandums as a baseline, which, as noted by the Air Force’s auditor, did not always reflect the current process, and there was no process in place for management to assess whether the differences related to an inaccurate cycle memorandum or improper implementation of the process. For fiscal year 2019, tests continued to (1) address operating effectiveness without first determining if the controls were designed to meet objectives and reduce risks and (2) involve the use of process cycle memorandums as a baseline that did not always reflect the current business process. For fiscal year 2019, business process assessable unit leads conducted the additional internal control reviews for select processes related to mission-critical assets based on the templates for tests of design and tests of operating effectiveness in Internal Control Playbook appendixes. Similar to the procedures developed for AFAA, the Air Force did not devise the fiscal year 2019 playbook’s template procedures to support conclusions on the design, implementation, and operating effectiveness of internal control over processes that are key to achieving Air Force operational, internal reporting, and compliance objectives. For example, the procedures that the Air Force used to assess the design of internal control over a process related to spare engines at one air base only considered controls related to external financial reporting objectives. The Air Force did not provide evidence that it tested additional controls key to achieving internal reporting, operating, and compliance objectives, such as improving and strengthening business operations and harnessing the power of data for timely decision-making and mission success, or evidence that the Air Force would test such controls during future reviews. Additionally, the Air Force lacked a process for the organizational unit managers or PREs to consider the results of internal control reviews performed at the business process assessable unit level in assessing internal control when they assess and report on the status of internal control for the overall Air Force Statement of Assurance (see fig. 2). Specifically, the current and draft AFI 65-201 and Statement of Assurance Handbook do not include procedures for how information gathered from AFAA agreed-upon procedures or business process unit leads’ testing of internal control over processes related to mission-critical assets is considered in the conclusions reported through the organizational unit managers’ supporting statements of assurance. OMB Circular No. A-123 requires that management, in accordance with federal standards for internal control, evaluate whether a system of internal control reduces the risk of not achieving the entity’s objectives related to operations, reporting, or compliance to an acceptable level. According to the federal internal control standards, when evaluating the design of internal control, management determines if controls individually and in combination with other controls are capable of achieving an objective and addressing related risks. A control cannot be effectively operating if it was not properly designed and implemented. Further, management should establish and operate monitoring activities to monitor the internal control system and evaluate the results. For example, once established, management can use the baseline, or current state of the internal control system, as criteria in evaluating the internal control system and make changes to reduce the difference between the criteria (what is expected) and condition (what Air Force staff did do instead of what was expected). Also, per OMB Circular No. A-123, an agency may document its assessment of internal control using a variety of information sources, such as management reviews conducted expressly for the purpose of assessing internal control (e.g., AFAA agreed-upon procedures and Internal Control Playbook procedures). Air Force reviews of internal control over processes related to mission- critical assets were inadequate because SAF/FM did not include in the agreed-upon procedures or the Internal Control Playbook tests of design to determine if controls individually and in combination with other controls are capable of achieving an objective and addressing related risks, tests of implementation and operating effectiveness only after a favorable assessment of the design of control, and a baseline that has accurate descriptions of business processes and identifies key internal controls as designed by management to respond to risks. Further, SAF/FM did not document its approach for using results from the AFAA agreed-upon procedures in assessing the Air Force’s internal control over processes related to mission-critical assets because the Air Force did not provide guidance establishing the process and reporting lines of all the sources of information that it considered in preparing its overall Statement of Assurance. Also, SAF/FM did not have a documented process for integrating the results of internal control reviews performed at the business process assessable unit level into the organizational units’ assessment of internal control. Moreover, Air Force did not have guidance describing how often, through which conduit, or when the results from the business process internal control reviews were to be provided to relevant organizational units, or how this information would affect conclusions made in a unit’s respective assurance statement. By not comprehensively evaluating internal control over processes related to mission-critical assets, the Air Force is at increased risk that it may not timely identify internal control deficiencies and may lack reasonable assurance over the effectiveness of internal control over processes accounting for mission-critical assets. In addition, without performing internal control assessments in accordance with requirements or having a formal process to consider the results of the AFAA agreed-upon procedures and the Internal Control Playbook procedures in the organizational unit managers’ assessment process, the Air Force increases the risk that its assessment of internal control and related Statement of Assurance may not appropriately represent the effectiveness of internal control. Conclusions Air Force senior leaders work to achieve complex and inherently risky objectives across the agency, while managing over $230 billion in mission-critical assets available to carry out its mission. To reduce the risk of not achieving its objectives or efficiently managing its resources, the Air Force needs to implement an ERM capability that is integrated with an effective system of internal control, as outlined in OMB Circular No. A-123 and federal standards for internal control. Although the Air Force has been working to improve its risk management and internal control practices, including remediation of deficiencies in its internal control over financial reporting related to mission-critical assets, it still faces significant challenges. For example, the agency continues to have difficulties with tracking and reporting, with reasonable accuracy, financial information about its mission-critical assets that directly affect its ability to efficiently support the warfighter, achieve its objectives, and accomplish its mission through reliable, useful, and readily available information. Without an effective ERM governance structure, there is an increased risk that the Air Force will not properly identify, assess, and respond to significant entity-level risks. In addition, by not comprehensively implementing and evaluating its internal control system, the Air Force cannot ensure that it is timely identifying and correcting internal control deficiencies or effectively reducing, to an acceptable level, the risk of not achieving its objectives. Further, Air Force management’s assurances on internal control, as reported in the overall agency Statement of Assurance, may not appropriately represent its internal control effectiveness. Recommendations for Executive Action We are making the following 12 recommendations to the Air Force: The Secretary of the Air Force should develop and implement procedures for an ERM governance structure that includes oversight responsibilities for identifying, assessing, responding to, and reporting on the risks associated with agency material weaknesses from all relevant sources. These procedures should clearly demonstrate that risks associated with material weaknesses are considered by Air Force governance, as a whole, and are mitigated appropriately to achieve goals and objectives. (Recommendation 1) The Secretary of the Air Force should develop policies or procedures for assessing internal control to require (1) clearly delineating who within the Air Force is responsible for evaluating the internal control components and principles, how often they are to perform the evaluation, the level (e.g., entity or transactional) of the evaluation, what objectives are covered in the assessment, to whom to communicate the results if they are relevant to others performing assessments of internal control, and what guidance to follow; (2) documenting management’s determination of whether each component and principle is designed, implemented, and operating effectively; and (3) documenting management’s determination of whether components are operating together in an integrated manner. (Recommendation 2) The Secretary of the Air Force should develop policies or procedures for assessing internal control to require the use of test plans that (1) tie back to specific objectives to be achieved as included in the Business Operations Plan; (2) specify the nature, scope, and timing of procedures to conduct under the OMB Circular No. A-123 assessment process; and (3) reflect a consideration of prior year self-identified control deficiencies and results of internal and external audits. (Recommendation 3) The Secretary of the Air Force should develop policies or procedures for assessing internal control to require SAF/FM to validate (1) the number of organizational units reporting for its overall internal control assessment; (2) how control procedures were tested, what results were achieved, and how conclusions were derived from those results; and (3) whether the results used to compile the current year report are based on current fiscal year’s assessments. (Recommendation 4) The Secretary of the Air Force should develop policies or procedures for assessing internal control to require SAF/FM to assess how waivers affect the current year assessment of internal control, the determination of systemic weaknesses, and the compilation of the Air Force’s overall Statement of Assurance. (Recommendation 5) The Secretary of the Air Force should require that developers of the policy and related guidance associated with designing the procedures for conducting OMB Circular No. A-123 assessments receive recurring training and are appropriately skilled in conducting internal control assessments and are familiar with Standards for Internal Control in the Federal Government. (Recommendation 6) The Secretary of the Air Force should analyze all definitions included in Air Force ERM and internal control assessment policy and related guidance to ensure that all definitions and concepts are defined correctly. (Recommendation 7) The Secretary of the Air Force should require SAF/FM to design recurring training for those who will assess internal control that (1) includes enhancing their skills in evaluating the internal control system and documenting results; (2) reflects all OMB Circular No. A-123 requirements, such as those related to identifying objectives, evaluating deficiencies, and determining material weaknesses; and (3) is provided to all who are responsible for performing internal control assessments. (Recommendation 8) The Secretary of the Air Force should develop policy or procedures consistent with OMB Circular No. A-123 to assess the system of internal control using a risk-based approach. (Recommendation 9) The Secretary of the Air Force should develop procedures to assess internal control over processes related to mission-critical assets, including (1) tests of design that evaluate whether controls are capable of achieving objectives, (2) tests of effectiveness only after a favorable assessment of the design of the control, and (3) a baseline that has accurate descriptions of business processes and identifies key internal controls as designed by management to respond to risks. (Recommendation 10) The Secretary of the Air Force should establish a process and reporting lines of all the sources of information, including reviews performed of internal control processes related to mission-critical assets, that will be considered in the Secretary’s Statement of Assurance. (Recommendation 11) The Secretary of the Air Force should develop procedures to require coordination between business process leads and the Air Force’s unit managers to ensure that mission-critical asset–related internal control deficiencies are considered in the unit managers’ assessments of internal control and related supporting statements of assurance. These procedures should include how, when, and with what frequency the results from the business process internal control reviews should be provided to relevant organizational units for consideration in their respective assurance statements. (Recommendation 12) Agency Comments We provided a draft of this report to the Air Force for review and comment. In written comments, the Air Force concurred with all 12 of our recommendations and cited actions to address them. Air Force’s comments are reproduced in appendix I. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, the Under Secretary of Defense (Comptroller)/Chief Financial Officer, the Secretary of the Air Force, the Assistant Secretary of the Air Force (Financial Management and Comptroller), and other interested parties. In addition, the report is available at no charge on the GAO website at https://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2989 or kociolekk@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 II. Appendix I: Comments from the Department of the Air Force Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the contact named above, John Sawyer (Assistant Director), Russell Brown, Anthony Clark, Oliver Culley, Eric Essig, Patrick Frey, Jason Kelly, Aaron Ruiz, and Vanessa Taja made key contributions to this report.

OMB Circular No. A-123 requires agencies to provide an annual assurance statement that represents the agency head's informed judgment as to the overall adequacy and effectiveness of internal controls related to operations, reporting, and compliance objectives. Although the Air Force is required annually to assess and report on its control effectiveness and to correct known deficiencies, it has been unable to demonstrate basic internal control, as identified in previous audits, that would allow it to report, with reasonable assurance, the reliability of internal controls, including those designed to account for mission-critical assets. This report, developed in connection with fulfilling GAO's mandate to audit the U.S. government's consolidated financial statements, examines the extent to which the Air Force has incorporated ERM into its management practices and designed a process for assessing internal control, including processes related to mission-critical assets. GAO reviewed Air Force policies and procedures and interviewed Air Force officials on their process for fulfilling ERM and internal control assessments. The Air Force's efforts to implement Enterprise Risk Management (ERM) are in the early stages, and accordingly, it has not fully incorporated ERM into its management practices as outlined in Office of Management and Budget (OMB) Circular No. A-123. As a result, the Air Force is not fully managing its challenges and opportunities from an enterprise-wide view. Until it fully incorporates ERM—planned for some time after 2023—the Air Force will continue to leverage its current governance and reporting structures as well as its existing internal control reviews. The Air Force has not designed a comprehensive process for assessing internal control, including processes related to mission-critical assets. GAO found that existing policies and procedures that Air Force staff follow to perform internal control assessments do not accurately capture the requirements of OMB Circular No. A-123. For example, the Air Force does not require (1) an assessment of each internal control element; (2) test plans that specify the nature, scope, and timing of procedures to conduct; and (3) validation that the results of internal control tests are sufficiently clear and complete to explain how units tested control procedures, what results they achieved, and how they derived conclusions from those results. Also, Air Force guidance and training was not adequate for conducting internal control assessments. In addition, GAO found that the Air Force did not design its assessment of internal control to evaluate all key areas that are critical to meeting its mission objectives as part of its annual Statement of Assurance process. Furthermore, GAO found that procedures the Air Force used to review mission-critical assets did not (1) evaluate whether the control design would serve to achieve objectives or address risks; (2) test operating effectiveness after first determining if controls were adequately designed; (3) use process cycle memorandums that accurately reflected the current business process; and (4) evaluate controls it put in place to achieve operational, internal reporting, and compliance objectives. GAO also found that the results of reviews of mission-critical assets are not formally considered in the Air Force's assessment of internal control. Without performing internal control reviews in accordance with requirements, the Air Force increases the risk that its assessment of internal control and related Statement of Assurance may not appropriately represent the effectiveness of internal control, particularly over processes related to its mission-critical assets.

CRS_R45973

Background Family reunification and the admission of immigrants with needed skills are two of the major principles underlying U.S. immigration policy. As a result, current law weights the allocation of immigrant visas heavily toward individuals with close family in the United States and, to a lesser extent, toward individuals who meet particular employment needs. The diversity immigrant category was added to the Immigration and Nationality Act (INA) by the Immigration Act of 1990 ( P.L. 101-649 ) to stimulate "new seed" immigration (i.e., to foster new, more varied migration from other parts of the world). Diversity visas are allocated to natives of countries from which the combination of immediate relatives, family preference, and employment preference immigrant admissions were lower than a total of 50,000 over the preceding five years combined. Legislative Origins The Immigration Amendments of 1965 replaced the national origins quota system, which prioritized European source countries, with equally distributed per-country ceilings. In the 1980s, some Members of Congress began expressing concern that U.S. legal immigration admissions were skewed in favor of immigrants from Asia and Latin America because of the 1965 amendments. The first legislative response to this concern occurred in Section 314 of the Immigration Reform and Control Act of 1986 (IRCA), which allowed an extra 5,000 immigrant visas per year for FY1987 and FY1988 to be distributed to natives of 36 countries that had been adversely affected by the 1965 changes to the INA. Over 1 million people applied for what was then called the NP-5 program, and visas were made available according to the chronological order in which qualified applications were mailed to the State Department (DOS). Natives of Ireland received the largest proportion (31%) of the NP-5 visas, followed by natives of Canada (21%) and Great Britain (11%). In 1988, Congress extended the NP-5 program for two more years and made 15,000 additional immigrant visas available each year in FY1989 and FY1990. What is now known as the diversity immigrant category was added to the INA by P.L. 101-649 and went fully into effect in FY1995. Section 132 of P.L. 101-649 provided 40,000 visas per year for a transitional program during FY1992-FY1994 for certain natives of foreign states that were adversely affected by the 1965 changes to the INA. At least 40% of these visas were earmarked for natives of Ireland. The current diversity visa category had an annual allocation of 55,000 visas when it went into effect in FY1995. While the diversity visa category has not been directly amended since its enactment, P.L. 105-100 , the Nicaraguan Adjustment and Central American Relief Act of 1997 (NACARA), temporarily decreased the 55,000 annual ceiling to 50,000. Beginning in FY2000, the 55,000 ceiling has been reduced by 5,000 annually to offset immigrant visas made available to certain unsuccessful asylum seekers from El Salvador, Guatemala, and formerly communist countries in Europe who are being granted immigrant status under special rules established by NACARA. The 5,000 offset is temporary, but it is not clear how many years it will be in effect to handle these adjustments of status. Eligibility Criteria and Application Process To be eligible for a diversity visa, the INA requires that a foreign national must have at least a high school education or the equivalent, or two years of experience in an occupation that requires at least two years of training or experience. The applicant or the applicant's spouse must be a native of one of the countries listed as a foreign state qualified for the DV program. Minor children of the qualifying diversity immigrant, as well as the spouse, may accompany as lawful permanent residents (LPRs) and are counted toward the 50,000 annual limit. Because the demand for diversity visas is much higher than the supply, a lottery is used to randomly select who may apply for one of the 50,000 diversity visas available annually. (See Figure 1 for an illustration of the process). There is no fee to enter the diversity lottery. Registration for the FY2020 diversity lottery began on October 3, 2018, and closed on November 6, 2018. Beginning on May 7, 2019, and continuing through September 30, 2020, those who registered can use an online system to find out if they had been selected. The FY2018 lottery had 14.7 million entries, representing over 23 million people (including family members). From the millions of entries, approximately 100,000 selectees are randomly chosen. Being chosen as a selectee ("lottery winner") does not guarantee receipt of a diversity visa; rather, it identifies those who are eligible to apply for one. To receive a visa, selectees must successfully complete the application process (including security and medical screenings and in-person interviews) by the end of the fiscal year for which they registered for the lottery or they lose their eligibility. DV applicants, like all other foreign nationals applying to come to the United States, must pay applicable fees and undergo reviews and biometric background checks performed by DOS consular officers abroad and Department of Homeland Security (DHS) immigration officers upon entry to the United States. Individuals selected for a diversity visa who are residing in the United States as nonimmigrants must undergo reviews by U.S. Citizenship and Immigration Services (USCIS) prior to adjusting to LPR status. These reviews, which include an in-person interview, are intended to ensure that the applicants are not inadmissible under the grounds spelled out in Section 212(a) of the INA. Grounds for inadmissibility include health, criminal history, security and terrorist concerns, public charge, illegal entry, and previous removal. Trends in Source Regions and Countries The diversity immigrant visa program currently makes 50,000 visas available annually to natives of countries from which immigrant admissions were lower than a total of 50,000 over the preceding five years. USCIS implements a formula for allocating visas according to statutory specifications: visas are divided among six global geographic regions, and each region and country is identified as either high admission or low admission based on how many immigrant visas each received over the previous five-year period. Higher proportions of diversity visas are allocated to low-admission regions and low-admission countries. Each country is limited to 7%, or 3,500, of the total, and the INA provides that Northern Ireland be treated as a separate foreign state. The distribution of diversity visas by global region of origin has shifted over time (see Figure 2 ). From FY1995 through FY2001, foreign nationals from Europe garnered a plurality of diversity visas, ranging from 38% to 47% of the total. In the early 2000s, the share of DV recipients from Africa was on par with those from Europe. Europe's share dropped by nine percentage points from FY2005 to FY2006 as the shares from African and Asian countries continued to increase. Since FY2008, Europe has accounted for smaller shares than Africa or Asia. Latin America (which includes South America, Mexico, Central America, and the Caribbean), Oceania, and North America accounted for less than 8% each year. In total, from FY1995 through FY2017 immigrants from Africa accounted for 40% of diversity immigrants, while Europeans accounted for 31% and Asians for 25%. These trends are consistent with the statutory formula Congress outlined to allocate diversity visas. Figure 3 presents the countries from which at least 1,000 DV immigrants were admitted in the first five years that the program was in full effect (FY1995-FY1999) and the most recent five years for which data are available (FY2013-FY2017). Early in the program, most of the top countries were in Europe (particularly Eastern Europe) and Africa. In more recent years, there has been a shift toward Africa and Asia. Certain countries—such as Ethiopia, Ukraine, and Egypt—rank high across many years of the program, while others—such as Ireland, Poland, and Venezuela—are limited to particular periods of time. From FY1995-FY2017, natives of six countries received at least 40,000 diversity visas in total: Ethiopia (67,832), Nigeria (58,563), Egypt (56,862), Ukraine (52,654), Albania (47,136), and Bangladesh (40,847). Characteristics of Diversity Immigrants Regions of Birth As one would expect, diversity immigrants come from different parts of the world that differ from the leading immigrant-sending regions. Department of Homeland Security data ( Figure 4 ) reveal that Africa accounted for 43% of diversity immigrants admitted in FY2017, but 11% of all LPRs admitted that fiscal year. Europeans made up 7% of all LPRs admitted in FY2017, but 22% of diversity immigrants. In contrast, Latin America (Mexico, Central America, the Caribbean, and South America) was the sending region for 43% of all LPRs admitted in FY2017, but provided 4% of the diversity immigrants during that fiscal year. North America (excluding Mexico) and Oceania account for a small percentage of LPRs admitted by any means. The distribution of LPR admissions and DV admissions from Asia illustrates the impact of the two-step visa allocation formula, which considers both regional and national admissions levels. Asia includes many top-sending countries—such as China, India, and the Philippines—for family- and employment-based LPRs, making it a high-admission region. Yet it also includes low-admission countries—such as Nepal, Iran, and Uzbekistan—that rank high for their number of diversity visas. As a result, as Figure 4 illustrates, in FY2017 foreign nationals from Asia represented a somewhat more equivalent share of the 1.1 million LPRs (38%) in relation to their share (30%) of diversity LPRs in contrast to the other world regions. Age and Sex Diversity immigrants are, on average, younger than other LPRs. Department of Homeland Security data (see Figure 5 ) reveal that DV immigrants are more likely to be working-age adults and their children, and less likely to be over the age of 40 than LPRs overall. Also, the foreign-born population of the United States is more likely to be in the prime working-age group (i.e., ages 25 to 64) than the native-born population, and diversity immigrants have a younger age distribution than the foreign-born population as a whole. In addition, 56% of diversity immigrants in FY2017 were male compared to 46% of all LPRs. Marital Status Diversity immigrants were less likely to be married than LPRs generally (47% versus 58%) in FY2017, perhaps a function of their relative youth. Over half (52%) of diversity immigrants were single, in contrast to 36% of LPRs overall. Few of either group were likely to be widowed, divorced, or separated. Educational Attainment and Labor Market Characteristics Recent critics of the diversity immigrant visa have argued against the program on the grounds that individuals do not need high levels of education or work experience to qualify for the DV program and that the U.S. admissions system should prioritize "high-skilled" immigrants. Neither DHS nor DOS publish data on the educational attainment of DV immigrants, but other sources provide some information. According to now-dated data from the New Immigrant Survey, a widely cited, nationally representative, longitudinal study of individuals who obtained LPR status in 2003, those who entered as principals via the diversity visa category had, on average, 14.5 years of schooling when they entered the United States, which was higher than those who were admitted on family-based visas as spouses or siblings of U.S. citizens (13.0 and 11.5 years, respectively), but lower than those who were admitted as principal employment-based immigrants (15.6 years). Similarly, DV immigrants were more likely to be fluent in English than most family-based immigrants (except for immigrant spouses of native-born U.S. citizens), but less likely than employment-based immigrants to be fluent in English. Using the same data source, the Migration Policy Institute found that 50% of DV immigrants who entered in 2003 had a college degree (32% with a bachelor's and 18% with a graduate degree). It is likely that the educational attainment of recent DV immigrants is higher than it was for those represented in the New Immigrant Survey, given that more recently arrived immigrants have higher levels of education overall than their predecessors. Government data on other labor market characteristics of DV immigrants are also limited. According to the New Immigrant Survey, DV immigrants who entered in 2003 had higher initial unemployment rates than employment-based immigrants and those who immigrated as spouses of U.S. citizens, but lower unemployment rates than those who immigrated as siblings of U.S. citizens. Four to six years after U.S. entry, however, DV immigrants' unemployment rates had dropped significantly and were similar to those of all other groups except employment-based principals (who had the lowest rates at both initial entry and four to six years later). DV immigrants' hourly earnings were similarly situated between that of employment-based immigrant category (which had the highest earnings) and that of the sibling category (which had the lowest). Among male immigrants earning wages, those who entered on diversity visas had the highest percentage growth in real hourly wages between initial entry and re-sampling four to six years later. Impact of the DV Program on Immigrant Diversity Given its name and the discourse about "new seed" immigrants that preceded the creation of the diversity visa, the question arises whether the DV program has led to an increase in the diversity of immigrant flows to the United States. Leading up to and since its enactment, some observers have noted that, regardless of its name, the DV program was intended to benefit Irish and Italian constituents who had been negatively affected by the Immigration Act of 1965 that resulted in an increase in immigration from Asia and Latin America. During the transition period after the program was created (FY1992-FY1994), at least 40% of diversity visas were earmarked for Irish immigrants, and 92% of diversity visas in FY1994 went to Europeans. Since its full implementation in FY1995, however, immigrants from a wider range of countries and regions have entered via the program (see " Regions of Birth " above). The DV program's small size relative to total annual immigrant admissions (DV admissions make up about 5% of annual LPR admissions) limits its impact on the make-up of the immigrant population. Former Representative Bruce Morrison, who helped create the program, stated in a 2005 hearing that it was not Congress's intent to diversify the immigrant flow as a whole ("It could not have possibly done so at the 50,000 number"), but rather to add a new pathway for those who would not be able to enter under the family- or employment-based systems. By that standard, the program arguably fulfills its objectives, having admitted more than 1 million immigrants from under-represented countries since FY1995 (see Figure 3 ). Another way to assess the program's impact is to analyze the diversity of annual LPR flows before and after the DV program was established. Using a measure of diversity called the entropy index, CRS found that in FY1990, before the DV program was in effect, the diversity of LPR admissions was 0.52. In every year from FY1995 (when the DV program went into full effect) through FY2017 (the most recent data available), the diversity of annual LPR admissions was higher than in 1990, ranging from 0.67 to 0.72. In each of those years, the diversity of LPR admissions not including the DV admissions was lower than it was with DV admissions included (see the Appendix ), indicating that the admission of DV immigrants does increase the diversity of annual LPR admissions. A full analysis of the impacts of the DV program on admission numbers would also take into account individuals whom DV immigrants subsequently sponsor through the family-based admissions system. Because administrative data on immigrant admissions do not specify these linkages, this type of direct analysis is not currently possible. However, admissions data suggest that, at least for Africans, the DV has led to an increase in immigration via the family-based system (particularly immediate relatives). From 1992 to 2007, admissions of Africans based on family sponsorship grew faster than other categories of admissions for Africans, including diversity, which remained fairly stable over the time period. The DV seems to have diversified the African flow itself by boosting emigration from non-English speaking African countries (whereas English-speaking African countries have longer histories of U.S. immigration and are therefore more likely to be the source of sponsoring immigrant family members). Selected Legislative Action Legislation related to the Diversity Immigrant Visa has focused largely on eliminating the program. Bills to eliminate the diversity visa category have been introduced in nearly every Congress since the program was created and have passed one chamber on more than one occasion. Most recently, S. 744 in the 113 th Congress, a comprehensive immigration reform bill that the Senate passed in 2013 by a vote of 68 to 32, would have eliminated the program. Other bills introduced in the past would have raised the annual limit of diversity visas or temporarily re-allocated diversity visas for other purposes. In the 116 th Congress, several bills to eliminate the DV program have been introduced, including H.R. 479 , H.R. 2278 , S. 1103 , and S. 1632 . In contrast, H.R. 3799 would raise the annual diversity visa allocation to 80,000. Selected Policy Questions As Congress weighs whether to eliminate or revise the diversity visa category, it may want to consider various policy questions pertinent to this discussion. Is it fair to have the diversity visa category when there are family members and prospective employees who have been waiting for years for visas to become available? Given the 3.7 million approved family-based and employment-based petitions waiting for a visa to become available at the close of FY2018, some argue that the 50,000 diversity visas should be used for backlog reduction in these visa categories. Others might observe that the family-based, employment-based, and diversity visa categories are statutorily designed as independent pathways to LPR status and that the problems of the family-based and employment-based backlogs should be addressed separately. Some also argue that the DV program increases fairness in the immigration system by making visas available to individuals who would not otherwise have a chance of obtaining one and by discouraging illegal immigration through expanding access to the legal immigration system. Should the United States base admissions decisions on nationality? Some argue that the diversity visa program reverts to discriminatory national origin quotas, which Congress eliminated through the 1965 amendments to the Immigration and Nationality Act. However, there are other examples of admissions policies that effectively discriminate based on nationality (e.g., H-2A, H-2B, E, and TN nonimmigrant visas, the Visa Waiver Program, and the per country caps on family- and employment-based LPR admissions, all of which limit admissions by nationality). Some also argue that admissions decisions should be based on higher levels of education, job experience, and language skills, or family ties to U.S. residents, rather than country of origin and being selected at random via a lottery. In contrast, others argue that the program bolsters equity of opportunity—a quintessential American value—by providing a pathway for individuals—particularly those from Africa, Eastern Europe, and the former Soviet Union—who do not have family or employer connections in the United States. Some also argue that the more than one million immigrants who have moved to the United States as a result of the program have enriched the United States culturally and economically, and strengthened the nation's global connections. Some also argue that efforts to end it are racially motivated or point out that for most of U.S. history, Africans in particular had little opportunity to come to the United States other than as slaves. Is a lottery the best way to choose applicants for diversity visas? Some equate the use of a lottery system in the DV program to awarding "green cards" at random and argue that luck should not come into play in U.S. admissions decisions. Others argue that, given the millions of interested applicants every year, a lottery is a fair method of reducing the applicant pool because it gives all entrants who meet the program's qualifications an equal chance to apply for a diversity visa. They also cite the use of a lottery in other over-subscribed visa categories such as the H-1B and H-2B temporary worker classifications to illustrate that U.S. immigration policy considers it a reasonable tool. Is the diversity visa lottery more vulnerable to fraud and misuse than other immigration pathways? Some observers concerned about immigration fraud surrounding the DV program reference a 2003 State Department Office of Inspector General report and a 2007 GAO report which found fraud vulnerabilities in the DV program. They may also cite the 2017 and 2018 complaints filed by the Department of Justice (DOJ) in two cases seeking the denaturalization of individuals who had gained admission (in 1997 and 2001) to the United States through the DV program. In the first case, DOJ filed a complaint to denaturalize four Somali-born diversity visa recipients who falsely claimed to be a family. In the second case, DOJ filed a complaint to denaturalize a diversity visa recipient who obtained naturalization without having disclosed two prior orders of removal. Those defending the fraud protections of the DV program counter that DOS has since revised the diversity lottery procedures to address fraud vulnerabilities, including a requirement to submit a recent photograph, the addition of biographic and facial recognition checks to reduce duplicate entries, a policy requiring the disqualification of entrants who fail to list their spouse and children on their entries, and technical improvements to limit manipulation of entries by automated bots. They also argue that the risk of fraud is not unique to the DV program and refer to the numerous fraud investigations and arrests of immigrants who entered the United States via other visa categories and the significant resources that DOS commits to fraud prevention for all immigrant and nonimmigrant visa applications through its Fraud Prevention Units at posts overseas. In addition, on June 5, 2019, DOS published an interim final rule to require diversity visa entrants to provide certain information from a valid, unexpired passport on the electronic entry form. This rule is intended to make it more difficult for third parties to submit unauthorized entries, because third parties are less likely to have individuals' passport numbers. Are there national security reasons to eliminate the diversity visa? Some assert that the difficulties of performing background checks in many of the countries whose natives currently qualify for the DV program, as well as broader concerns about terrorism, justify the elimination of the category. Some cite the 2004 warning of the DOS Deputy Inspector General that the diversity visa lottery "contains significant vulnerabilities to national security" from state sponsors of terrorism. They argue that DV immigrants, by definition, are not required to have employer or family ties in the United States and thus may be more likely to have nefarious intent. They cite the case of a New Jersey resident responsible for killing eight people with his rental truck in lower Manhattan in 2017, who had immigrated to the United States from Uzbekistan on a diversity visa. In response to that event, the Trump Administration called on Congress to immediately terminate the diversity visa lottery program. Others respond that immigrants coming to the United States in other immigrant visa categories are not restricted if they come from these same countries, and further argue that background checks for national security risks are performed on all prospective immigrants seeking to come to the United States. They also point to the 2005 DOS Inspector General's testimony that DOS's Bureau of Consular Affairs strengthened the DV program by complying with most of the recommendations in the OIG's 2003 report. They similarly note the testimony of one of the creators of the DV Program who contended that "it is absurd to think that a lottery would be the vehicle of choice for terrorists" and that attention should instead be focused on greater security risks. They also point out that since the creation of the Visa Security Program in 2003, DHS has aided consular officers in extensively vetting individuals applying for visas. They also reference a 2007 GAO report stating: "We found no documented evidence that DV immigrants from these, or other, countries posed a terrorist or other threat. However, experts familiar with immigration fraud believe that some individuals, including terrorists and criminals, could use fraudulent means to enter or remain in the United States." Are there foreign policy reasons to continue the diversity visa program? Citing the millions of diversity visa lottery entries every year from around the world, some argue that the DV program is an efficient means of boosting American goodwill and "soft power" abroad, and that a diversity of immigrant origins helps the United States better respond to the challenges of globalization. Some also cite the value of remittances sent by diversity immigrants to their countries of origin as international development assistance without U.S. government expense. Others argue that the DV program encourages "brain drain" from developing countries, a concern which acknowledges that many DV immigrants—particularly from Africa—possess education and skills beyond the minimum requirements for program eligibility. Are the reasons that led to establishment of the diversity visa (e.g., to stimulate "new seed" immigration) still germane? Supporters of the DV program argue that it honors the United States' history as a destination for enterprising immigrants—the "self-selected strivers" —who arrive without family ties but with a desire to work hard for a better life. Some point to the present-day preponderance of immigrants from a handful of countries and argue that the diversity visa fosters new and more varied migration to counterbalance an admissions system weighted disproportionately to family-based immigration, which tends to perpetuate the dominance of certain countries. They also point to wide support for legislation that would remove or raise the 7% per-country limits on family- and employment-based immigrant admissions, which would likely result in further concentration of immigrant flows from the top sending countries. Even with the per-country limits and DV program in place, the total foreign-born population has become more concentrated in the top ten source countries compared to 1990 (see " Impact of the DV Program on Immigrant Diversity "). Others argue that, after almost 30 years, the diversity visa category has run its course. They might cite the countries—such as Pakistan, Brazil, Nigeria, and Bangladesh—that formerly qualified for the DV program and no longer do due to their increase in admissions, or the growth in immigration from Africa, Eastern Europe, and parts of Asia as an indication that the need for "new seed" immigration has been met. Others counter that these trends indicate that the program is meeting its goals and should be continued. They further argue that in many countries around the world, the diversity visa remains the only accessible avenue for immigrating to the United States. Appendix. Entropy Index Methodology and Results The entropy index (also called the Shannon index) is a measure of the diversity of a population. Diversity can be defined as the "relative heterogeneity of a population." It is at its maximum when all subpopulations are present in equal proportions (for the purposes of this report, when each country of birth receives an equal number of LPR admissions). The formula for the entropy index is where H is the entropy index, k is the country-of-origin group, and P is the proportion of the total from each country-of-origin group. The index can be standardized by dividing by its maximum, log K. Doing so results in a range of 0 (for the case where all of the population is in one subpopulation) to 1.0 (for the case where all subpopulations are present in equal proportions). For this report, the standardized entropy index was calculated by year for country of birth of total LPR admissions, LPR admissions minus DV admissions, and DV admissions. This was calculated after creating a standardized list of countries across all years so that K was held constant. As shown in Figure A-1 , between FY1995 and FY2017, the entropy index varied, but in all years the index was higher when DV LPRs were included.

The purpose of the diversity immigrant visa program (DV program, sometimes called "the green card lottery" or "the visa lottery") is, as the name suggests, to foster legal immigration from countries other than the major sending countries of current immigrants to the United States. Current law weights the allocation of immigrant visas primarily toward individuals with close family in the United States and, to a lesser extent, toward those who meet particular employment needs. The diversity immigrant category was added to the Immigration and Nationality Act (INA) by the Immigration Act of 1990 ( P.L. 101-649 ) to stimulate "new seed" immigration (i.e., to foster new, more varied migration from other parts of the world). The DV program currently makes 50,000 visas available annually to natives of countries from which immigrant admissions were less than 50,000 over the preceding five years combined. The formula for allocating these visas is specified in statute: visas are divided among six global geographic regions, and each region and country is identified as either high-admission or low-admission based on how many immigrant visas were given to foreign nationals from each region and country over the previous five-year period. Higher proportions of diversity visas are allocated to low-admission regions and countries. The INA limits each country to 7% (3,500, currently) of the total and provides that Northern Ireland be treated as a separate foreign state. Because demand for diversity visas greatly exceeds supply, a lottery system is used to select individuals who may apply for them. Those selected by lottery ("lottery winners"), like all other foreign nationals wishing to come to the United States, must undergo reviews performed by Department of State consular officers abroad and Department of Homeland Security immigration officers upon entry to the United States. These reviews are intended to ensure that the foreign nationals are not ineligible for visas or admission to the United States under the grounds for inadmissibility spelled out in the INA. To be eligible for a diversity visa, the INA requires that a foreign national have at least a high school education or the equivalent, or two years' experience in an occupation that requires at least two years of training or experience. The foreign national or the foreign national's spouse must be a native of one of the countries listed as a foreign state qualified for the diversity visa program. The distribution of diversity visas by global region of origin has shifted over time, with higher shares coming from Africa and Asia in recent years compared to earlier years when Europe accounted for a higher proportion. Of all those admitted through the program from FY1995 (the first year it was in full effect) through FY2017 (the most recent year for which data are available), individuals from Africa accounted for 40% of diversity immigrants, while Europeans accounted for 31% and Asians for 25%. Some argue that the DV program should be eliminated and its visas re-allocated for employment-based visas or backlog reduction in various visa categories. Critics of the DV program warn that it is vulnerable to fraud and misuse and is potentially an avenue for terrorists to enter the United States, citing the difficulties of performing background checks in many of the countries whose citizens are eligible for a diversity visa. Critics also argue that admitting immigrants on the basis of their nationality is discriminatory and that the reasons for establishing the DV program are no longer germane. Supporters of the program argue that it provides "new seed" immigrants for a system weighted disproportionately to family-based immigrants from a handful of countries. Supporters contend that fraud and abuse have declined following measures put in place by the State Department, and that the system relies on background checks for criminal and national security matters that are performed on all prospective immigrants seeking to come to the United States, including those applying for diversity visas. Supporters also contend that the DV program promotes equity of opportunity and serves important foreign policy goals.